May 29, 2008 / 1:15 PM / 10 years ago

Writedowns push CIBC to C$1.1 bln loss; stock falls

TORONTO (Reuters) - Canadian Imperial Bank of Commerce (CM.TO) posted its second major quarterly loss in a row on Thursday on larger-than-expected charges of C$2.5 billion ($2.5 billion) for worsening structured-credit positions.

A Canadian Imperial Bank of Commerce (CIBC) branch is seen in Toronto November 9, 2007.REUTERS/Mark Blinch

CIBC, the No. 4 Canadian bank by market value, lost C$1.1 billion, or C$3 share, in the second quarter ended April 30, as its U.S. credit securities and hedge positions kept being hammered in the credit crunch.

That compared with a year-earlier profit of C$807 million, or C$2.27 a share.

CIBC shares fell 2 percent to C$69.46 on the Toronto Stock Exchange while other big Canadian bank stocks climbed.

The bank signaled the pain may not be over, saying changing market and economic conditions for bond insurers could lead to more losses.

“In a perverse way, the higher charges are positive as they reflect more rapid writedowns of problem assets,” BMO Capital Markets analyst Ian de Verteuil wrote in a research note.

Executives stressed they had taken numerous steps to improve risk-management and to get out of risky positions.

“Our objective is to be a double-A rated bank and to be seen by investors and other stakeholders as a low-risk Canadian bank with high quality earnings,” Chief Risk Officer Tom Woods said in a conference call.

Some analysts had expected up to C$2 billion in writedowns, on top of charges of C$3.4 billion for U.S. mortgage-related securities and credit protection in the first quarter, when the bank lost C$1.46 billion.

But CIBC booked a pre-tax loss of C$2.48 billion on structured credit, which amounted to C$4.37 a share. It also took smaller charges for credit exposures to derivatives, severance expenses in its CIBC World Markets unit, and an adjustment loss on the Visa initial public offering.

A Canadian Imperial Bank of Commerce (CIBC) branch is seen in Toronto November 9, 2007.REUTERS/Mark Blinch

Credit-related writedowns were larger than expected and Blackmont Capital analyst Brad Smith wrote that there is still room to write off C$1.4 billion in exposure to bond insurers.

Craig Fehr, an analyst at Edward Jones, said the writedowns, while bigger than he had expected, were “largely an exorcism of some issues we were well aware of.”

It was the initial quarter on the job for CIBC World Markets boss Richard Nesbitt, who joined the investment banking unit early this year from TSX Group.

Nesbitt said the unit cut 100 administrative and management jobs this week, after earlier shutting down its European leveraged finance and structured credit businesses. The investment bank now has about 1,100 people.

“We are investing in businesses that offer good returns and strong future growth, and at the same time we are exiting or reducing businesses that no longer offer a strong return, acceptable risk profile, or strategic fit,” he said. “This is a major transition, and it’s going to take several more months to complete.”

As for retail banking, Edward Jones’s Fehr said he was disappointed in CIBC’s performance, as that segment is typically a bright spot.

Retail revenue fell 3 percent to C$2.24 billion and net income slipped 2 percent, excluding certain items.

The bank had strong volume growth in credit cards, mortgages and personal deposits, but struggled with business lending, Sonia Baxendale, head of CIBC Retail Markets, said. Volatile markets also hurt retail brokerage and mutual fund revenues industry-wide, she added.

    Unlike its rivals, CIBC did not report a big jump in loan-loss provisions. Overall provisions rose to C$176 million from C$166 million a year earlier.

    ($1=$0.99 Canadian)

    Editing by Jeffrey Jones

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