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CIBC announces first quarter 2008 results
TORONTO, Feb. 28 /CNW/ - CIBC (CM: TSX; NYSE) announced a net loss of
$1,456 million for the first quarter ended January 31, 2008, compared with net
income of $770 million for the same period last year. Diluted loss per share
was $4.39, compared with $2.11 diluted earnings per share (EPS) a year ago.
Cash diluted loss per share was $4.36(1), compared with cash diluted EPS of
$2.12(1) a year ago.
CIBC's Tier 1 capital ratio at January 31, 2008 was 11.4%.Results for the first quarter of 2008 were positively affected by the
following items:
- $171 million ($115 million after-tax, or $0.34 per share) from
changes in credit spreads on the mark-to-market of our credit
derivatives on corporate loans ($128 million, $86 million after-tax)
and financial guarantors ($43 million, $29 million after-tax); and
- $56 million ($0.17 per share) of significant tax-related items.
Results for the first quarter were negatively affected by the following
items:
- $2.28 billion ($1.54 billion after-tax, or $4.51 per share) charge on
the credit protection purchased from ACA Financial Guaranty Corp.
(ACA);
- $626 million ($422 million after-tax, or $1.24 per share) charge on
the credit protection purchased from financial guarantors other than
ACA;
- $473 million ($316 million after-tax, or $0.93 per share) mark-to-
market losses, net of gains on related hedges, on collateralized debt
obligations (CDOs) and residential mortgage-backed securities (RMBS)
related to the U.S. residential mortgage market; and
- $108 million ($64 million after-tax, or $0.19 per share) combined
loss on the sale of some of CIBC's U.S. businesses to Oppenheimer
Holdings Inc. (Oppenheimer), management changes and the exit and
restructuring of certain other businesses.The net loss, diluted loss per share and cash diluted loss per share for
the first quarter of 2008 compared with net income of $884 million, $2.53
diluted EPS and $2.55(1) cash diluted EPS, respectively, for the prior
quarter, which included items of note aggregating to net earnings of $0.25 per
share.
"Our losses related to the U.S. residential mortgage market are a
significant disappointment and are not aligned with our strategic imperative
of consistent and sustainable performance," says Gerald T. McCaughey,
President and Chief Executive Officer. "Our focus is to get CIBC back on the
strategic track we set for the organization which has, for the past two years,
resulted in significant value for our shareholders."
Update on business priorities
Business strength
Despite a more challenging environment during the first quarter, CIBC's
retail businesses continued to perform well overall.
CIBC Retail Markets reported revenue of $2,371 million, up $98 million or
4% from the same quarter last year.
Net income for the first quarter was $657 million, up 15% from a year
ago. This strong result was supported by volume growth and our FirstCaribbean
International Bank acquisition, partially offset by lower brokerage revenue.
CIBC maintained or improved its market share in most key product areas.
In personal lending, market share stabilized after declines in past quarters
while CIBC repositioned the risk profile of this portfolio.
CIBC World Markets reported a loss of $2.2 billion. This loss was a
result of the previously noted valuation charges against purchased credit
protection from financial guarantors and write-downs on CDOs and RMBS related
to the U.S. residential mortgage market.
Market and economic conditions relating to the financial guarantors may
change in the future, which could result in significant future losses.
CIBC has taken several steps to improve the alignment of our World
Markets business activities with CIBC's objective of delivering consistent and
sustainable performance.
CIBC has curtailed its structured credit business activities in which the
U.S. residential mortgage exposures were originated and is gradually reducing
existing positions. On a broader scale, CIBC has adjusted its business mix by
exiting businesses that were not completely aligned with the desired risk
profile and strategy. During the quarter, CIBC closed the sale of its U.S.
domestic investment banking businesses to Oppenheimer and exited its European
leveraged finance business. CIBC also transferred its commercial banking
business to Retail Markets to enable World Markets to focus on its core
capital markets and investment banking businesses.
Productivity
In addition to continuing to invest and position its core businesses for
long term performance, CIBC remains committed to its strategic objective of
achieving a median efficiency ratio among the major Canadian banks.
CIBC's target for 2008 is to hold expenses flat relative to annualized
2006 fourth quarter expenses, excluding FirstCaribbean and the U.S.
restructuring initiated in 2007.
Expenses for the first quarter were $1,761 million, down from
$1,874 million in the prior quarter primarily due to lower expenses related to
stock appreciation rights and lower costs associated with the sale of some of
our U.S. businesses.
CIBC's focus in the area of productivity remains on achieving
improvements in revenue growth, while maintaining expense discipline.
Balance sheet strength
CIBC's third priority is to build balance sheet strength. As stated
previously, CIBC is placing additional emphasis on this priority in 2008,
given the uncertain environment.
In January, CIBC strengthened its capital position by raising
$2.9 billion of common equity through a combined private placement and public
offering.
"Our enhanced capital position provides a cushion against further
deterioration of market conditions, particularly related to the U.S.
residential mortgage market where we have exposure, while enabling continued
investment in our strong core businesses," says McCaughey. "The successes of
the private placement and the public offering are a direct reflection of the
long-term prospects for CIBC and the inherent value that our franchise can
deliver."
Balance sheet strength will remain CIBC's most important priority in
2008.
Management appointments
On January 7, CIBC announced three senior executive management
appointments.
Tom Woods, CIBC's former Chief Financial Officer (CFO), was appointed
Chief Risk Officer. Mr. Woods is a seasoned professional with a deep
understanding of CIBC's risk profile. His immediate focus is to complete a
comprehensive review of CIBC's risk management processes.
David Williamson, formerly Chief Executive Officer (CEO) of Atlas Cold
Storage and CFO of Clarica Life Insurance, joined CIBC as CFO on January 10.
Mr. Williamson has a proven track record and brings extensive financial
institution experience to this role.
Richard Nesbitt, CEO of the TSX Group since 2004, joins CIBC as CEO of
CIBC World Markets, effective February 29. Mr. Nesbitt will lead CIBC World
Markets' renewed focus on its profitable and successful core businesses.
Making a difference in communities
CIBC remains committed to supporting causes that matter to CIBC clients,
employees and communities.
On December 5, 2007, CIBC World Markets and CIBC Wood Gundy employees
world-wide raised more than $10.1 million in support of CIBC World Markets
Children's Foundation. Miracle Day benefits children's charities in CIBC World
Markets and CIBC Wood Gundy communities around the world. In addition, CIBC's
2007 United Way campaign raised over $7.8 million in Canada, including a
$2.9 million corporate donation. More than 10,000 employees and retirees
contributed their time and money to the campaign.
-----------------------------------
(1) For additional information, see the "Non-GAAP measures" section.
The information on the following pages forms a part of this press
release.
(The board of directors of CIBC reviewed this press release prior to it
being issued. CIBC's controls and procedures support the ability of the
President and Chief Executive Officer and the Chief Risk Officer (CRO) of CIBC
to certify CIBC's first quarter financial report and controls and procedures.
CIBC's CEO and CRO will voluntarily provide to the Securities and Exchange
Commission a certification relating to CIBC's first quarter financial
information, including the attached unaudited interim consolidated financial
statements, and will provide the same certification to the Canadian Securities
Administrators.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Management's discussion and analysis (MD&A) should be read in conjunction
with the unaudited interim consolidated financial statements included in this
report and with the MD&A contained in our 2007 Annual Accountability Report.
The unaudited interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles (GAAP) and
are expressed in Canadian dollars. This MD&A is current as of February 28,
2008. Additional information relating to CIBC is available on SEDAR at
www.sedar.com and on the U.S. Securities and Exchange Commission's (SEC)
website at www.sec.gov. No information on CIBC's website (www.cibc.com) should
be considered incorporated herein by reference. Certain comparative amounts
have been reclassified to conform with the presentation adopted in the current
period. A glossary of terms used throughout this quarterly report can be found
on pages 149 and 150 of our 2007 Annual Accountability Report.External reporting changes
The following is a summary of the external reporting changes adopted in
the first quarter of 2008:
- We adopted the Internal Convergence of Capital Measurement and
Capital Standards: a Revised Framework, commonly named as Basel II.
See "Management of risk" section for additional details.
- We moved our commercial banking line of business from CIBC World
Markets to CIBC Retail Markets. Prior period information was
restated.
- We moved our securitization-related revenue from the lines of
businesses (cards, mortgages and personal lending) to other within
CIBC Retail Markets. Prior period information was restated.
- We moved the investment consulting service revenue from retail
brokerage to asset management, both within CIBC Retail Markets. Prior
period information was restated.
- We allocated the general allowance for credit losses between the
strategic business lines (CIBC Retail Markets and CIBC World
Markets). Prior to 2008, the general allowance (excluding
FirstCaribbean International Bank) was included within Corporate and
Other. Prior period information was not restated.
- We reclassified the allowance for credit losses related to the
undrawn credit facilities to other liabilities. Prior to 2008, it was
included in allowance for credit losses. Prior period information was
not restated.A NOTE ABOUT FORWARD-LOOKING STATEMENTS
From time to time, we make written or oral forward-looking statements
within the meaning of certain securities laws, including in this report, in
other filings with Canadian securities regulators or the U.S. Securities and
Exchange Commission and in other communications. These statements include, but
are not limited to, statements made in the "Update on business priorities",
"Overview - Significant events", "Overview - Outlook" and "Financial
performance review - Income taxes" sections, of this report and other
statements about our operations, business lines, financial condition, risk
management, priorities, targets, ongoing objectives, strategies and outlook
for 2008 and subsequent periods. Forward-looking statements are typically
identified by the words "believe", "expect", "anticipate", "intend",
"estimate" and other similar expressions or future or conditional verbs such
as "will", "should", "would" and "could". By their nature, these statements
require us to make assumptions, including the economic assumptions set out in
the "Outlook" section of this report, and are subject to inherent risks and
uncertainties that may be general or specific. A variety of factors, many of
which are beyond our control, affect our operations, performance and results,
and could cause actual results to differ materially from the expectations
expressed in any of our forward-looking statements. These factors include:
legislative or regulatory developments in the jurisdictions where we operate;
amendments to, and interpretations of, risk-based capital guidelines and
reporting instructions; the resolution of legal proceedings and related
matters; the effect of changes to accounting standards, rules and
interpretations; changes in our estimates of reserves and allowances; changes
in tax laws; that our estimate of sustainable effective tax rate will not be
achieved; political conditions and developments; the possible effect on our
business of international conflicts and the war on terror; natural disasters,
public health emergencies, disruptions to public infrastructure and other
catastrophic events; reliance on third parties to provide components of our
business infrastructure; the accuracy and completeness of information provided
to us by clients and counterparties; the failure of third parties to comply
with their obligations to us and our affiliates; intensifying competition from
established competitors and new entrants in the financial services industry;
technological change; global capital market activity; interest rate and
currency value fluctuations; general economic conditions worldwide, as well as
in Canada, the U.S. and other countries where we have operations; changes in
market rates and prices which may adversely affect the value of financial
products; our success in developing and introducing new products and services,
expanding existing distribution channels, developing new distribution channels
and realizing increased revenue from these channels; changes in client
spending and saving habits; and our ability to anticipate and manage the risks
associated with these factors. This list is not exhaustive of the factors that
may affect any of our forward-looking statements. These and other factors
should be considered carefully and readers should not place undue reliance on
our forward-looking statements. We do not undertake to update any
forward-looking statement that is contained in this report or in other
communications except as required by law.FIRST QUARTER FINANCIAL HIGHLIGHTS
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As at or for the three months ended
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2008 2007 2007
Unaudited Jan. 31 Oct. 31 Jan. 31
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Common share information
Per share
- basic (loss) earnings $ (4.39) $ 2.55 $ 2.13
- cash basic (loss) earnings(1) (4.36) 2.57 2.14
- diluted (loss) earnings (4.39) 2.53 2.11
- cash diluted (loss) earnings(1) (4.36) 2.55 2.12
- dividends 0.87 0.87 0.70
- book value 32.76 33.31 31.85
Share price
- high 99.81 103.30 102.00
- low 64.70 87.00 88.96
- closing 73.25 102.00 100.88
Shares outstanding (thousands)
- average basic 338,732 334,849 336,486
- average diluted 340,811 337,927 339,942
- end of period 380,650 334,989 337,139
Market capitalization ($ millions) $ 27,883 $ 34,169 $ 34,011
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Value measures
Price to earnings multiple
(12 month trailing) 26.9 11.1 12.7
Dividend yield (based on closing
share price) 4.7% 3.4% 2.8%
Dividend payout ratio n/m 34.1% 32.9%
Market value to book value ratio 2.24 3.06 3.17
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Financial results ($ millions)
Total revenue $ (521) $ 2,946 $ 3,091
Provision for credit losses 172 132 143
Non-interest expenses 1,761 1,874 1,943
Net (loss) income (1,456) 884 770
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Financial measures
Efficiency ratio n/m 63.6% 62.9%
Cash efficiency ratio, taxable
equivalent basis (TEB)(1) n/m 60.9% 61.5%
Return on equity (52.9)% 30.3% 27.1%
Net interest margin 1.33% 1.45% 1.33%
Net interest margin on average
interest-earning assets 1.57% 1.67% 1.52%
Return on average assets (1.68)% 1.03% 0.97%
Return on average
interest-earning assets (1.98)% 1.19% 1.10%
Total shareholder return (27.3)% 11.2% 16.0%
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On- and off-balance sheet
information ($ millions)
Cash, deposits with banks
and securities $ 99,411 $ 100,247 $ 108,482
Loans and acceptances 171,090 170,678 159,530
Total assets 347,734 342,178 322,608
Deposits 239,976 231,672 223,625
Common shareholders' equity 12,472 11,158 10,736
Average assets 344,528 340,236 316,122
Average interest-earning assets 293,166 294,591 276,799
Average common shareholders' equity 11,181 11,191 10,474
Assets under administration 1,169,570 1,187,567 1,122,184
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Balance sheet quality measures
Common equity to risk-weighted
assets(2) 10.6% 8.8% 8.7%
Risk-weighted assets
($ billions)(2) $ 117.4 $ 127.4 $ 124.1
Tier 1 capital ratio(2) 11.4% 9.7% 9.6%
Total capital ratio(2) 15.2% 13.9% 14.1%
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Other information
Retail/wholesale ratio(3) 71%/29% 73%/27% 74%/26%
Regular workforce headcount 40,237 40,457 40,559
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(1) For additional information, see the "Non-GAAP measures" section.
(2) Q1/08 is based upon Basel II framework whereas the prior quarters
were based upon Basel I methodology.
(3) The ratio represents the amount of capital attributed to the business
lines as at the end of the period.
n/m Not meaningful due to the net loss.
OVERVIEW
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Net loss for the quarter was $1,456 million, compared with net income of
$770 million for the same quarter last year and $884 million for the prior
quarter.
Our results for the current period were positively affected by the
following items:
- $171 million ($115 million after-tax) impact of changes in credit
spreads on the mark-to-market of our credit derivatives on corporate
loans ($128 million, $86 million after-tax) and financial guarantors
($43 million, $29 million after-tax); and
- $56 million impact of significant tax-related items.
Our results for the current period were negatively affected by the
following items:
- $2.28 billion ($1.54 billion after-tax) charge on the credit
protection purchased from ACA Financial Guaranty Corp. (ACA);
- $626 million ($422 million after-tax) charge on the credit protection
purchased from financial guarantors other than ACA;
- $473 million ($316 million after-tax) mark-to-market losses, net of
gains on related hedges, on collateralized debt obligations (CDOs)
and residential mortgage-backed securities (RMBS) related to the U.S.
residential mortgage market (USRMM); and
- $108 million ($64 million after-tax) combined loss related to the
sale of some of our U.S. businesses to Oppenheimer Holdings Inc.
(Oppenheimer), management changes and the exit and restructuring of
certain other businesses.Compared with Q1, 2007
The $2.9 billion credit-related valuation charges and the $473 million
mark-to-market losses related to the USRMM noted above were the main factors
in the significant drop of revenue from the same quarter last year. Spread
compression in retail lending products, the loss on the sale of some of our
U.S. businesses, and lower merchant banking revenue also contributed to the
decline. Revenue benefited from higher gains on credit derivatives, volume
growth in retail products, and the impact of the FirstCaribbean acquisition.
Provision for credit losses was up, driven by lower recoveries in the
corporate lending portfolios. Non-interest expenses were down largely due to
lower performance-related compensation. The loss for the quarter resulted in a
tax benefit.
Compared with Q4, 2007
Revenue was down significantly mainly due to the $2.9 billion
credit-related valuation charges noted above. A Visa gain of $456 million in
the prior quarter, and lower merchant banking revenue and the loss on the sale
of some of our U.S. businesses this quarter also contributed to the decline.
Revenue benefited from higher gains on credit derivatives. Provision for
credit losses was up, largely due to lower recoveries and higher losses in the
corporate lending portfolio. Non-interest expenses were down as a result of
higher costs associated with the sale of some of our U.S. businesses in the
prior quarter. The loss for the quarter resulted in a tax benefit.-------------------------------------------------------------------------
Our results for the prior periods were affected by the following items:
Q4, 2007
--------
- $463 million ($302 million after-tax) mark-to-market losses on CDOs
and RMBS related to the USRMM;
- $456 million ($381 million after-tax and minority interest) gain from
the completion of Visa's worldwide restructuring (Visa gain);
- $47 million ($26 million after-tax) of expenses associated with the
sale of some of our U.S. businesses to Oppenheimer;
- $27 million ($22 million after-tax) net reversal of litigation
accruals; and
- $17 million ($11 million after-tax) positive impact of credit
derivatives spread.
Q1, 2007
--------
- $6 million ($4 million after-tax) negative impact of credit
derivatives spread.
-------------------------------------------------------------------------Significant events
Sale of some of our U.S. businesses
Effective January 1, 2008, we sold our U.S. based investment banking,
leveraged finance, equities and related debt capital markets businesses and
our Israeli investment banking and equities businesses (the "transferred
businesses") to Oppenheimer. During the quarter, we recorded a loss of
$80 million on the sale. The sale of certain other U.S. capital markets
related businesses located in the U.K. and Asia to Oppenheimer is expected to
close in the second quarter of 2008.
CIBC restricted share awards (RSAs) held by employees transferred to
Oppenheimer will continue to vest in accordance with their original terms. To
support this compensation arrangement, Oppenheimer will reimburse CIBC for the
cost of these RSAs to the extent they vest, at which time we will record the
reimbursements in other non-interest income.
The disposition is not expected to have a significant impact on our
ongoing results of operations.
Unhedged USRMM exposure
We have exposure to the USRMM through investments in CDOs and RMBS and
other transactions with entities with exposure to this market. During the
quarter, we had realized and unrealized losses, net of gains on related
hedges, of US$475 million ($473 million) on these exposures. As at January 31,
2008, our gross unhedged notional exposure related to USRMM was approximately
US$1.6 billion ($1.6 billion). We have taken mark-to-market losses on these
positions such that the net unhedged exposure is approximately US$286 million
($287 million). Mitigating this exposure are subprime index hedges with a
notional amount of US$300 million ($301 million) and a fair value of
US$150 million ($151 million). During the quarter, we recognized a gain of
US$24 million ($24 million) from the hedges.
Hedged USRMM exposure and other exposure to financial guarantors
We have exposure related to the USRMM that is hedged with financial
guarantors and others. The following table presents the notional amounts and
fair values of the purchased protection by counterparty. The fair value net of
valuation adjustments is included in derivative instruments in other assets on
the consolidated balance sheet.US$ millions, as at January 31, 2008
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Credit ratings (as of February 26, 2008) USRMM related
------------------------------------------ ------------------
Fair
value of
Standard Moody's Fitch derivative
and Poor's Investor Ratings Notional con-
Services amount tracts(1)
-------------------
A B
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Financial guarantor
counterparties
No. I A-(2) A3 A(2) $ 2,628 $ 1,508
No. II AAA Aaa(2) AAA(2) 628 556
No. III A(3) A3(2) AA(2) 566 362
No. IV AAA(2) Aaa(2) AA(2) 549 217
No. V AAA Aaa AAA(2) 85 -
No. VI(4) CCC(3) - - 3,453 2,353
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7,909 4,996
Other counterparty
No. VII(5) AA Aa2 AA(2) 591 182
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Total hedged USRMM exposure $ 8,500 $ 5,178
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(1) Before valuation adjustments.
(2) On credit watch with negative implications.
(3) On credit watch.
(4) ACA. See narrative below for additional details.
(5) A large American diversified multi-national insurance and financial
services company with which CIBC has market standard collateral
arrangements.Financial guarantors
During the quarter, we recorded a charge of US$2.30 billion
($2.28 billion) on the hedging contracts provided by ACA (including
US$30 million ($30 million) against contracts unrelated to USRMM unwound
during the quarter) as a result of its downgrade to non-investment grade. As
at January 31, 2008, the fair value of derivative contracts with ACA net of
the valuation adjustment amounted to US$70 million ($70 million). Further
charges could result depending on the performance of both the underlying
assets and ACA.
In addition, we have exposure to 10 financial guarantors where the
underlying assets are unrelated to USRMM. The fair value of this exposure was
US$885 million ($888 million) as at January 31, 2008. The largest exposure to
any one of these financial guarantors had a fair value of US$219 million
($220 million).
We recorded a charge of US$624 million ($626 million) against our
exposure to financial guarantors to increase our valuation adjustments to
US$648 million ($650 million) as at January 31, 2008. The methodology employed
to establish these valuation adjustments (excluding that for ACA) was changed
in the first quarter to take into account market observed credit spreads.
Market and economic conditions relating to these counterparties may change in
the future, which could result in significant future losses.
Mitigating our exposure to these financial guarantors (excluding ACA) are
credit hedges with a notional amount of US$525 million ($527 million) and a
fair value of US$63 million ($63 million) as at January 31, 2008. During the
quarter, we recognized a gain of US$42 million ($43 million) on these hedges.
Liquidity facilities to asset-backed commercial paper (ABCP) conduits
As at January 31, 2008, our holdings of ABCP issued by our sponsored
conduits were $1.0 billion (October 31, 2007: $3.1 billion). We also had par
value holdings of $358 million (October 31, 2007: $358 million) in non-bank
sponsored ABCP which are subject to the "Montreal Accord". During the quarter,
we recognized losses in the consolidated statement of operations of $8 million
on certain of these non-bank sponsored ABCP; the remainder had adverse changes
in estimated fair value of $75 million which were recognized in other
comprehensive income.
As at January 31, 2008, the total backstop liquidity facilities committed
by CIBC to ABCP conduits was $14.8 billion (October 31, 2007: $17.3 billion).
Of these committed facilities, approximately 94% (October 31, 2007: 92%) of
the amount was for the benefit of our sponsored Canadian ABCP conduits.
Risk factors related to fair valuation adjustments
We believe that we have made appropriate fair value adjustments and have
taken appropriate write-downs to date. The establishment of fair value
adjustments and the determination of the amount of write-downs involve
estimates that are based on accounting processes and judgments by management.
We evaluate the adequacy of the fair value adjustments and the amount of
write-downs on an ongoing basis. The levels of fair value adjustments and the
amount of the write-downs could be changed as events warrant.
Issue of share capital
During the quarter, we issued 45.3 million common shares for net proceeds
of $2.9 billion, through a combination of private placements and a public
offering.
Private placements
We issued 23.9 million common shares for net proceeds of $1.5 billion to
a group of institutional investors, comprising Manulife Financial Corporation,
Caisse de dépôt et placement du Québec, Cheung Kong (Holdings) Ltd. and OMERS
Administration Corporation.
Shares purchased under the private placements may not be resold until the
expiry of a four month hold period from the issue date, except in accordance
with limited exemptions and compliance with other requirements of applicable
securities laws.
Public offering
We issued 21.4 million common shares for net proceeds of $1.4 billion.
Exit of certain businesses
Given the uncertain market conditions and to focus on our core businesses
in CIBC World Markets, we are exiting our European leveraged finance business
and have curtailed activity in our structured credit business in which our
USRMM exposures were originated. The risks in these businesses are currently
managed by a focused team distinct from the continuing business of CIBC World
Markets, with a mandate to manage down the residual exposures.
Visa Inc.
On February 25, 2008, Visa Inc. announced its intent to proceed with an
initial public offering (IPO) of its Class A shares in the range of US$37 to
US$42 per share, which suggests that the fair value of our Visa shares is $80
million to $130 million lower than the book value. As a result, to the extent
that the IPO and the mandatory redemption of a portion of our shares (expected
to be around 50% of our holdings) occurs in the second quarter of 2008, we
will likely record a loss on sale in respect of those shares. In addition,
during the second quarter, we will assess the extent to which we will be
required to record an other than-temporary impairment on our remaining shares.
The amount of the losses we will record will be impacted by the outcome of the
IPO as well as the final adjustment process, which may positively or
negatively affect the number of shares we own.
Outlook
Canadian economic growth is expected to be slower during the first half
of 2008, held back by weak exports as the U.S. appears to be close to a
recession. We expect both economies should return to moderate growth in the
second half of 2008, helped by significant central bank interest rate cuts and
fiscal stimulus. Healthy global resource markets and a stable housing market
are expected to allow the Canadian economy to outperform the U.S. economy.
CIBC Retail Markets should benefit from a continuation of low
unemployment rates, falling interest rates, and healthy housing markets,
supporting lending and deposit growth. A slower pace of real estate price
increases may moderate mortgage growth rates. Improvements in the risk profile
of the unsecured retail lending portfolio should continue to realize benefits.
For CIBC World Markets, mergers and acquisition and equity activity will
likely be slower given a softer stock market and credit concerns affecting
global leveraged deals. We expect loan demand to increase due to reduced
investor appetite for commercial paper. U.S. economic softness and a strong
Canadian dollar could lead to a less favourable period for corporate credit
risk in certain parts of the Canadian economy.
FINANCIAL PERFORMANCE REVIEW
-------------------------------------------------------------------------For the three months ended
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2008 2007 2007
$ millions Jan. 31 Oct. 31 Jan. 31
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Net interest income $ 1,154 $ 1,240 $ 1,059
Non-interest income (1,675) 1,706 2,032
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Total revenue (521) 2,946 3,091
Provision for credit losses 172 132 143
Non-interest expenses 1,761 1,874 1,943
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(Loss) income before taxes and
non-controlling interests (2,454) 940 1,005
Income tax (benefit) expense (1,002) 45 231
Non-controlling interests 4 11 4
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Net (loss) income $ (1,456) $ 884 $ 770
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-------------------------------------------------------------------------Net interest income
Net interest income was up $95 million or 9% from the same quarter last
year, mainly due to volume growth in retail products, the impact of the
FirstCaribbean acquisition, and lower mark-to-market losses on de-designated
fair value hedges. In addition, favourable spreads in deposits also
contributed to the increase. These factors were offset in part by spread
compression in retail lending products.
Net interest income was down $86 million or 7% from the prior quarter,
primarily due to lower dividend income on trading securities and fee income on
mortgages, partially offset by volume growth in retail lending products.
Favourable spreads in mortgages and deposits were mostly offset by spread
compression in personal lending and cards.
Non-interest income
Non-interest income was down $3,707 million from the same quarter last
year, primarily due to the charge on credit protection purchased from
financial guarantors and mark-to-market losses related to the USRMM.
Available-for-sale (AFS) securities had lower gains and higher write-downs
during the quarter. In addition, the loss on the sale of some of our U.S.
businesses, and lower revenue from the hedging of stock appreciation rights
(SARs), U.S. real estate finance and retail brokerage contributed to the
decline. These factors were partially offset by gains on credit derivatives
resulting from the continuing widening of credit spreads.
Non-interest income was down $3,381 million from the prior quarter,
primarily due to the charge on credit protection purchased from financial
guarantors, and the Visa gain in the prior quarter. AFS securities had lower
gains and higher write-downs during the quarter. In addition, the loss on the
sale of some of our U.S. businesses, and lower revenue from the hedging of
SARs contributed to the decline. These factors were partially offset by higher
gains on credit derivatives resulting from the continuing widening of credit
spreads.
Provision for credit losses
Provision for credit losses was up $29 million or 20% from the same
quarter last year, mainly due to lower recoveries in the corporate lending
portfolio and higher losses in the cards portfolio resulting from volume
growth.
Provision for credit losses was up $40 million or 30% from the prior
quarter, primarily due to lower recoveries and higher losses in the corporate
lending portfolio.
Non-interest expenses
Non-interest expenses were down $182 million or 9% from the same quarter
last year, largely due to lower performance-related compensation, lower
expenses related to SARs, and lower litigation provisions, offset in part by
the impact of the FirstCaribbean acquisition.
Non-interest expenses were down $113 million or 6% from the prior
quarter, primarily due to lower expenses related to SARs, and higher costs
associated with the sale of some of our U.S. businesses in the prior quarter.
In addition, computer and advertising expenses and business and capital taxes
were lower during the quarter. These factors were partially offset by the net
reversal of litigation accruals in the prior quarter.
Income taxes
Income tax benefit was $1,002 million, compared to an expense of
$231 million in the same quarter last year and an expense of $45 million in
the prior quarter. This benefit resulted from the loss during the quarter.
Included in this benefit is a $63 million positive impact of a tax loss
carryback to prior years, which had higher statutory tax rates.
The effective tax recovery rate was 40.8% for the quarter, compared to
effective tax rates of 23.0% for the same quarter last year and 4.8% for the
prior quarter.
The adjusted effective tax recovery and taxable equivalent (TEB) recovery
rates for the quarter ended January 31, 2008 were 38.5%(1) and 37.0%(1),
respectively.
While rates will vary from quarter to quarter, our current estimate is
that the adjusted sustainable effective tax rate will be in the 20-23% range
and the adjusted sustainable TEB tax rate will be in the 24-27% range. These
rates are determined based on the estimated earnings in various jurisdictions
over the near term and the expected enacted tax rates in these jurisdictions.
The impact of one-time tax items is excluded.
Foreign exchange
Our U.S. dollar denominated results are impacted by fluctuations in the
U.S. dollar/Canadian dollar exchange rate. The Canadian dollar appreciated 14%
on average relative to the U.S. dollar from the same quarter last year,
resulting in a $70 million decrease in the translated value of our U.S. dollar
functional earnings.
-----------------------------------
(1) For additional information, see the "Non-GAAP measures" section.Review of quarterly financial information
2008 2007
-------------------------------------------------------------------------
$ millions, except per
share amounts, for the
three months ended Jan. 31 Oct. 31 Jul. 31 Apr. 30 Jan. 31
-------------------------------------------------------------------------
Revenue
CIBC Retail Markets $ 2,371 $ 2,794 $ 2,386 $ 2,309 $ 2,273
CIBC World Markets (2,957) 5 455 606 662
Corporate and Other 65 147 138 135 156
-------------------------------------------------------------------------
Total revenue (521) 2,946 2,979 3,050 3,091
Provision for
credit losses 172 132 162 166 143
Non-interest expenses 1,761 1,874 1,819 1,976 1,943
-------------------------------------------------------------------------
(Loss) income before
taxes and non-
controlling interests (2,454) 940 998 908 1,005
Income tax (benefit)
expense (1,002) 45 157 91 231
Non-controlling
interests 4 11 6 10 4
-------------------------------------------------------------------------
Net (loss) income $ (1,456) $ 884 $ 835 $ 807 $ 770
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Loss) earnings per
share
- basic $ (4.39) $ 2.55 $ 2.33 $ 2.29 $ 2.13
- diluted(1) $ (4.39) $ 2.53 $ 2.31 $ 2.27 $ 2.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2006
-----------------------------------------------------
$ millions, except per
share amounts, for the
three months ended Oct. 31 Jul. 31 Apr. 30
-----------------------------------------------------
Revenue
CIBC Retail Markets $ 2,171 $ 2,164 $ 2,094
CIBC World Markets 572 551 488
Corporate and Other 147 111 195
-----------------------------------------------------
Total revenue 2,890 2,826 2,777
Provision for
credit losses 92 152 138
Non-interest expenses 1,892 1,883 1,836
-----------------------------------------------------
(Loss) income before
taxes and non-
controlling interests 906 791 803
Income tax (benefit)
expense 87 125 190
Non-controlling
interests - 4 28
-----------------------------------------------------
Net (loss) income $ 819 $ 662 $ 585
-----------------------------------------------------
-----------------------------------------------------
(Loss) earnings per
share - basic $ 2.34 $ 1.88 $ 1.65
- diluted(1) $ 2.32 $ 1.86 $ 1.63
-----------------------------------------------------
-----------------------------------------------------
(1) In case of a loss, the effect of stock options potentially
exercisable on diluted earnings (loss) per share will be anti-
dilutive; therefore, basic and diluted earnings (loss) per share will
be the same.Our quarterly results are modestly affected by seasonal factors. The
first quarter is normally characterized by increased credit card purchases
over the holiday period. The second quarter has fewer days as compared with
the other quarters, generally leading to lower earnings. The summer months
(July - third quarter and August - fourth quarter) typically experience lower
levels of capital markets activity, which affects our brokerage, investment
management and wholesale activities.
The acquisition of FirstCaribbean has resulted in an increase in revenue
in CIBC Retail Markets since 2007. In addition, revenue was particularly high
in the fourth quarter of 2007 due to the Visa gain. CIBC World Markets revenue
has been adversely affected since the third quarter of 2007 due to the
mark-to-market losses on CDOs and RMBS, and more significantly in the current
quarter due to the charges on credit protection purchased from financial
guarantors, including ACA. Foreign exchange revenue on the repatriation of
capital and retained earnings from our foreign operations led to an increase
in revenue in Corporate and Other in the second quarter of 2006, while the
deconsolidation of a variable interest entity (VIE) led to lower revenue in
the third quarter of 2006.
Retail lending provisions increased slightly in 2007 largely due to
higher losses in the cards portfolio, resulting from volume growth, and the
impact of the FirstCaribbean acquisition. Corporate lending recoveries and
reversals have decreased from the high levels in the past. Reversals of the
general allowance were included in the second quarters of 2007 and 2006 and
the fourth quarter of 2006.
Non-interest expenses were higher in 2007 resulting from the
FirstCaribbean acquisition. Performance-related compensation has been lower
since the third quarter of 2007. The net reversal of litigation accruals also
led to lower expenses in the third and fourth quarters of 2007.
The first quarter of 2008 had an income tax benefit resulting from the
loss during the quarter. Income tax recoveries related to the favourable
resolution of various income tax audits and reduced tax contingencies were
included in the last three quarters of 2007 and 2006. Tax-exempt income has
generally been increasing over the period, with larger tax-exempt dividends
received in the fourth quarters of 2007 and 2006. The last quarter of 2007
benefited from a lower tax rate on the Visa gain and the last two quarters of
2007 benefited from a lower tax rate on the net reversal of litigation
accruals. Income tax expense on the repatriation of capital and retained
earnings from our foreign operations was also included in the fourth quarter
of 2007 and second quarter of 2006.
Non-GAAP measures
We use a number of financial measures to assess the performance of our
business lines. Some measures are calculated in accordance with GAAP, while
other measures do not have a standardized meaning under GAAP, and,
accordingly, these measures may not be comparable to similar measures used by
other companies. Investors may find these non-GAAP financial measures useful
in analyzing financial performance. For a more detailed discussion on our
non-GAAP measures, see page 45 of the 2007 Annual Accountability Report.
The following tables provide a reconciliation of non-GAAP to GAAP
measures related to CIBC on a consolidated basis. The reconciliation of the
non-GAAP measures of our business lines are provided in their respective
sections.-------------------------------------------------------------------------
For the three months ended
--------------------------------
$ millions, except per 2008 2007 2007
share amounts Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Net interest income $ 1,154 $ 1,240 $ 1,059
Non-interest income (1,675) 1,706 2,032
-------------------------------------------------------------------------
Total revenue per
financial statements A (521) 2,946 3,091
TEB adjustment B 61 116 62
-------------------------------------------------------------------------
Total revenue (TEB)(1) C $ (460) $ 3,062 $ 3,153
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-interest expenses per
financial statements D $ 1,761 $ 1,874 $ 1,943
Less: amortization of other
intangible assets 10 11 5
-------------------------------------------------------------------------
Cash non-interest expenses(1) E $ 1,751 $ 1,863 $ 1,938
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Loss) income before taxes and
non-controlling interests per
financial statements F $ (2,454) $ 940 $ 1,005
TEB adjustment B 61 116 62
-------------------------------------------------------------------------
(Loss) income before taxes and
non-controlling interests
(TEB)(1) G $ (2,393) $ 1,056 $ 1,067
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Reported income taxes per
financial statements H $ (1,002) $ 45 $ 231
TEB adjustment B 61 116 62
Other tax adjustments I 56 75 -
-------------------------------------------------------------------------
Adjusted income taxes(1) J $ (885) $ 236 $ 293
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net (loss) income applicable
to common shares K $ (1,486) $ 854 $ 716
Add: after tax effect of
amortization of other
intangible assets 8 8 4
-------------------------------------------------------------------------
Cash net (loss) income
applicable to common shares(1) L $ (1,478) $ 862 $ 720
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic weighted average common
shares (thousands) M 338,732 334,849 336,486
Diluted weighted average
common shares (thousands) N 340,811 337,927 339,942
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash efficiency ratio (TEB)(1) E/C n/m 60.9% 61.5%
Reported effective income
tax rate (TEB)(1)(2) (H+B)/G 39.3% 15.2% 27.5%
Adjusted effective income
tax rate(1)(2) (H+I)/F 38.5% 12.8% 23.0%
Adjusted effective income
tax rate (TEB)(1)(2) J/G 37.0% 22.3% 27.5%
Cash basic (loss) earnings
per share(1) L/M $ (4.36) $ 2.57 $ 2.14
Cash diluted (loss) earnings
per share(1)(3) L/N $ (4.36) $ 2.55 $ 2.12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Non-GAAP measure.
(2) For the quarter ended January 31, 2008, represents tax recovery rates
applicable to the loss before tax and non-controlling interests.
(3) In case of a loss, the effect of stock options potentially
exercisable on diluted earnings (loss) per share will be anti-
dilutive; therefore, basic and diluted earnings (loss) per share will
be the same.
n/m Not meaningful due to the net loss.
CIBC RETAIL MARKETS
-------------------------------------------------------------------------
CIBC Retail Markets comprises CIBC's retail and wealth management
businesses. We provide a full range of financial products and services to
individual, small business and commercial banking clients, as well as
investment management services globally to retail and institutional clients.
Results(1)
-------------------------------------------------------------------------
For the three months ended
------------------------------------
2008 2007 2007
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Revenue
Personal and small
business banking $ 544 $ 546 $ 517
Imperial Service 244 242 237
Retail brokerage 276 282 302
Cards 423 809 410
Mortgages and personal lending 319 321 381
Asset management 120 123 123
Commercial banking 126 142 121
FirstCaribbean 126 174 50
Other 193 155 132
-------------------------------------------------------------------------
Total revenue (a) 2,371 2,794 2,273
Provision for credit losses 155 150 148
Non-interest expenses (b) 1,353 1,402 1,353
-------------------------------------------------------------------------
Income before taxes and
non-controlling interests 863 1,242 772
Income tax expense 202 271 198
Non-controlling interests 4 11 4
-------------------------------------------------------------------------
Net income (c) $ 657 $ 960 $ 570
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio (b/a) 57.1% 50.2% 59.6%
Amortization of other
intangible assets (d) $ 8 $ 8 $ 3
Cash efficiency ratio(2) ((b-d)/a) 56.7% 49.9% 59.4%
ROE(2) 54.0% 76.1% 53.8%
Charge for economic capital(2) (e) $ (156) $ (159) $ (137)
Economic profit(2) (c+e) $ 501 $ 801 $ 433
Regular workforce headcount 27,984 27,659 27,758
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.Financial overview
Net income was up $87 million or 15% from the same quarter last year.
Volume growth, higher treasury revenue allocations and the FirstCaribbean
acquisition, offset in part by spread compression in lending products and
lower brokerage revenue contributed to the increase in net income.
Net income was down $303 million or 32% from the prior quarter, largely
due to the $456 million Visa gain included in the prior quarter.
Revenue
FirstCaribbean revenue is included from the date of acquisition on
December 22, 2006. Prior to December 22, 2006, FirstCaribbean was
equity-accounted and the revenue was included in "Other".
Revenue was up $98 million or 4% from the same quarter last year.
Personal and small business banking revenue was up $27 million, mainly
due to volume growth and favourable deposit spreads.
Retail brokerage revenue was down $26 million, largely due to lower
trading and new issue activity, offset in part by higher fee-based revenue
from increased asset values.
Cards revenue was up $13 million, driven by volume growth, partially
offset by spread compression.
Mortgages and personal lending revenue was down $62 million, primarily
due to spread compression, partially offset by volume growth and higher fee
income in mortgages.
Other revenue was up $61 million, mainly due to higher treasury revenue
allocations.
Revenue was down $423 million or 15% from the prior quarter.
Cards revenue was down $386 million, primarily due to the Visa gain of
$404 million in the prior quarter. Excluding the Visa gain, revenue was up
mainly due to volume growth, offset in part by spread compression.
Mortgages and personal lending revenue was down $2 million. Mortgages was
up $5 million, mainly due to favourable spreads and volume growth, offset in
part by lower fee income. Personal lending was down $7 million, mainly due to
spread compression, partially offset by lower internal sales commissions paid
to personal and small business banking.
Commercial banking revenue was down $16 million, largely due to interest
and fee income recoveries in the prior quarter and lower fee-based revenue.
FirstCaribbean revenue was down $48 million, primarily due to the Visa
gain in the prior quarter.
Other revenue was up $38 million, primarily due to higher treasury
revenue allocations.
Provision for credit losses
Provision for credit losses was up $7 million or 5% from the same quarter
last year, largely due to higher losses in the cards portfolio, resulting from
volume growth, and lower recoveries and reversals in commercial banking,
offset in part by lower losses in the personal lending portfolio.
Provision for credit losses was up $5 million or 3% from the prior
quarter, largely due to higher losses in the small business portfolio.
Non-interest expenses
Non-interest expenses were comparable to the same quarter last year, as
increases in expenses resulting from the FirstCaribbean acquisition were
largely offset by lower performance-related compensation, business and capital
taxes, and corporate support costs.
Non-interest expenses were down $49 million or 3% from the prior quarter,
resulting mainly from lower operational losses, advertising expenses, project
expenses, and business and capital taxes.
Income taxes
Income taxes were up $4 million or 2% from the same quarter last year,
due to higher income, partially offset by an increase in the relative
proportion of earnings subject to lower rates of tax.
Income taxes were down $69 million or 25% from the prior quarter, due to
a decrease in income.
Regular workforce headcount
The regular workforce headcount was up 226 from the same quarter last
year and up 325 from the prior quarter, primarily due to an increase in
customer-facing staff.
CIBC WORLD MARKETS
-------------------------------------------------------------------------
CIBC World Markets is the wholesale and corporate banking arm of CIBC,
providing a range of integrated credit and capital markets, investment
banking, and merchant banking products and services to clients in key
financial markets in North America and around the world. We provide capital
solutions and advisory expertise across a wide range of industries, as well as
research for our corporate, government and institutional clients.Results(1)
-------------------------------------------------------------------------
For the three months ended
------------------------------------
2008 2007 2007
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Revenue (TEB)(2)
Capital markets $ (3,169) $ (249) $ 449
Investment banking and
credit products 283 240 204
Merchant banking 9 141 77
Other (19) (11) (6)
-------------------------------------------------------------------------
Total revenue (TEB)(2) (a) (2,896) 121 724
TEB adjustment 61 116 62
-------------------------------------------------------------------------
Total revenue (b) (2,957) 5 662
Provision for (reversal of)
credit losses 17 (18) (5)
Non-interest expenses (c) 351 357 486
-------------------------------------------------------------------------
(Loss) income before taxes and
non-controlling interests (3,325) (334) 181
Income tax (benefit) expense (1,166) (222) 11
-------------------------------------------------------------------------
Net (loss) income (d) $ (2,159) $ (112) $ 170
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Efficiency ratio (c/b) n/m n/m 73.4%
Efficiency ratio (TEB)(2) (c/a) n/m n/m 67.1%
ROE(2) (391.7)% (26.6)% 41.6%
Charge for economic capital(2) (e) $ (72) $ (56) $ (52)
Economic (loss) profit(2) (d+e) $ (2,231) $ (168) $ 118
Regular workforce headcount 1,287 1,862 1,880
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.
n/m Not meaningful due to the net loss.Financial overview
Net loss was $2,159 million, compared to net income of $170 million in
the same quarter last year. CIBC World Markets' results were significantly
affected by the $2.0 billion after-tax charge on credit protection purchased
from financial guarantors, including $1.5 billion after-tax related to ACA.
During the quarter, we also had losses, net of gains on related hedges, of
$314 million after-tax against our unhedged exposure related to the USRMM.
Net loss was up $2,047 million from the prior quarter, primarily due to
the reasons noted above.
Revenue
Revenue was down $3,619 million from the same quarter last year.
Capital markets revenue was down $3,618 million, primarily due to the
charge on credit protection purchased from financial guarantors and
mark-to-market losses related to the USRMM noted above. Revenue was also lower
due to higher funding costs resulting from the widening of credit spreads, and
lower equity and commodity structured products revenue. These were offset in
part by gains on credit hedges against our exposure to financial guarantors.
Investment banking and credit products revenue was up $79 million,
primarily due to gains associated with corporate loan hedging programs,
resulting from the continuing widening of credit spreads, and higher Canadian
investment banking revenue. These increases were partially offset by lower
revenue from U.S. real estate finance and the sale of our U.S. investment and
corporate banking business.
Merchant banking revenue was down $68 million, mainly due to lower gains
from direct investments.
Other revenue was down $13 million, primarily due to the loss on the sale
of some of our U.S. businesses, partially offset by higher treasury revenue
allocations.
Revenue was down $2,962 million from the prior quarter.
Capital markets revenue was down $2,920 million, primarily due to the
charge on credit protection purchased from financial guarantors noted above
and lower revenue in equity and commodity structured products. These were
offset in part by gains on credit hedges against our exposure to financial
guarantors.
Investment banking and credit products revenue was up $43 million,
primarily due to higher gains associated with corporate loan hedging programs,
resulting from the continuing widening of credit spreads, partially offset by
the sale of our U.S. investment and corporate banking business.
Merchant banking revenue was down $132 million, primarily due to lower
gains from direct investments and third-party managed funds.
Other revenue was down $8 million, primarily due to the loss on the sale
of some of our U.S. businesses, partially offset by higher treasury revenue
allocations.
Provision for (reversal of) credit losses
Provision for credit losses was $17 million, compared to a reversal of
$5 million in the same quarter last year, mainly due to recoveries in Europe
in the prior year quarter. The current quarter had higher losses in Canada and
lower losses net of recoveries in the U.S.
Provision for credit losses was $17 million, compared to a reversal of
$18 million in the prior quarter, mainly due to lower recoveries in the U.S.
and higher losses in Canada.
Non-interest expenses
Non-interest expenses were down $135 million or 28% from the same quarter
last year, primarily due to lower performance-related compensation and
litigation provisions.
Non-interest expenses were down $6 million or 2% from the prior quarter,
primarily due to higher costs associated with the sale of some of our U.S.
businesses, offset in part by the net reversal of litigation accruals, both in
the prior quarter.
Income taxes
Income tax benefit was $1,166 million, compared to an income tax expense
of $11 million in the same quarter last year. This was largely due to the loss
in the quarter, resulting primarily from the charge on credit protection
purchased from financial guarantors and mark-to-market losses related to the
USRMM noted above.
Income tax benefit was up $944 million from the prior quarter, mainly due
to the higher loss in the quarter, resulting from the charge on the credit
protection purchased from financial guarantors noted above.
Regular workforce headcount
The regular workforce headcount was down 593 from the same quarter last
year and 575 from the prior quarter, primarily due to the sale of some of our
U.S. businesses.
CORPORATE AND OTHER
-------------------------------------------------------------------------
Corporate and Other comprises the five functional groups -
Administration, Technology and Operations; Corporate Development; Finance;
Legal and Regulatory Compliance; and Treasury and Risk Management (TRM) - that
support CIBC's business lines, as well as CIBC Mellon joint ventures, and
other income statement and balance sheet items, not directly attributable to
the business lines. The revenue and expenses of the functional groups are
generally allocated to the business lines.Results(1)
-------------------------------------------------------------------------
For the three months ended
------------------------------------
2008 2007 2007
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Total revenue $ 65 $ 147 $ 156
Non-interest expenses 57 115 104
-------------------------------------------------------------------------
Income before taxes 8 32 52
Income tax (benefit) expense (38) (4) 22
-------------------------------------------------------------------------
Net income $ 46 $ 36 $ 30
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Regular workforce headcount 10,966 10,936 10,921
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.Financial overview
Net income was up $16 million or 53% from the same quarter last year,
primarily due to higher income tax recoveries, partially offset by lower
unallocated revenue from treasury.
Net income was up $10 million or 28% from the prior quarter, mainly due
to lower taxes and unallocated corporate support costs, offset by lower
unallocated revenue from treasury.
Revenue
Revenue was down $91 million or 58% from the same quarter last year, and
down $82 million or 56% from the prior quarter, primarily due to lower
unallocated revenue from treasury and lower revenue from the hedging of SARs.
Non-interest expenses
Non-interest expenses were down $47 million or 45% from the same quarter
last year, primarily due to lower expenses related to SARs.
Non-interest expenses were down $58 million or 50% from the prior
quarter, primarily due to lower expenses related to SARs and lower unallocated
support costs.
Income tax
Income tax benefit was $38 million, compared to an expense of $22 million
in the same quarter last year. This change is largely due to the $63 million
impact from tax effecting recoveries at prior years' higher statutory rates.
Income tax benefit was up $34 million from the prior quarter, mainly due
to the reason noted above. The prior quarter included income tax recoveries
and a tax expense of $22 million on repatriated capital from a foreign
operation.
FINANCIAL CONDITION
-------------------------------------------------------------------------
Review of consolidated balance sheet-------------------------------------------------------------------------
2008 2007
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Assets
Cash and deposits with banks $ 18,193 $ 13,747
Securities 81,218 86,500
Securities borrowed or purchased
under resale agreements 35,625 34,020
Loans 162,563 162,654
Derivative instruments 23,395 24,075
Other assets 26,740 21,182
-------------------------------------------------------------------------
Total assets $ 347,734 $ 342,178
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity
Deposits $ 239,976 $ 231,672
Derivative instruments 26,109 26,688
Obligations related to securities lent or sold
short or under repurchase agreements 39,432 42,081
Other liabilities 21,255 21,977
Subordinated indebtedness 5,402 5,526
Preferred share liabilities 600 600
Non-controlling interests 157 145
Shareholders' equity 14,803 13,489
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 347,734 $ 342,178
-------------------------------------------------------------------------
-------------------------------------------------------------------------Assets
Total assets as at January 31, 2008 were up $5.6 billion or 2% from
October 31, 2007.
Cash and deposits with banks increased mainly due to the issuance of
additional share capital.
Securities decreased due to lower AFS and trading securities, offset in
part by higher securities designated at fair value (FVO). AFS securities
decreased due to the sale of U.S. treasury and Government of Canada bonds and
a reduction in CIBC-sponsored ABCP securities. Trading securities decreased
marginally due to normal trading activities, offset largely by the purchase of
assets at par from third-party structured securitization vehicles. FVO
securities increased due to higher mortgage-backed securities inventory to
support our ongoing CIBC-originated residential mortgage securitization
program and to be available for collateral management purposes.
The increase in securities borrowed or purchased under resale agreements
was primarily due to normal client-driven business activity.
Loans have decreased marginally as the impact of residential mortgage
securitizations was mostly offset by volume growth in both consumer and
business and government loans.
Derivative instruments decreased largely due to valuation adjustments
related to the credit protection purchased from financial guarantors and lower
market valuation on foreign exchange and equity derivatives. These were mostly
offset by higher market valuation on credit and interest rate derivatives.
Other assets increased mainly due to an increase in derivatives
collateral and income tax receivable.
Liabilities
Total liabilities as at January 31, 2008 were up $4.3 billion or 1% from
October 31, 2007.
The increase in deposits was due to normal treasury activities and retail
volume growth.
Derivative instruments decreased mainly due to lower market valuation on
foreign exchange and equity derivatives, largely offset by higher market
valuation on credit and interest rate derivatives.
The decrease in obligations related to securities lent or sold short or
under repurchase agreements is largely as a result of normal client-driven
activities.
Subordinated indebtedness decreased primarily due to a redemption,
partially offset by the change in the fair value of the hedged debentures.
Shareholders' equity
Shareholders' equity as at January 31, 2008 was up $1.3 billion or 10%
from October 31, 2007, primarily due to the issuance of additional share
capital, partially offset by lower retained earnings resulting from the loss
in the quarter.
Capital resources
We actively manage our capital to maintain a strong and efficient capital
base, to maximize risk-adjusted returns to shareholders, and to meet
regulatory requirements. For additional details, see pages 54 to 56 of the
2007 Annual Accountability Report.
Regulatory capital
Our minimum regulatory capital requirements are determined in accordance
with guidelines issued by the Office of the Superintendent of Financial
Institutions (OSFI). The OSFI guidelines evolve from the framework of
risk-based capital standards developed by the Bank for International
Settlements (BIS). Commencing November 1, 2007, our regulatory capital
requirements are based on the Basel II framework, as described in detail in
the "Management of risk" section.
BIS standards require that banks maintain minimum Tier 1 and Total
capital ratios of 4% and 8%, respectively. OSFI has established that Canadian
deposit-taking financial institutions maintain Tier 1 and Total capital ratios
of at least 7% and 10%, respectively.
Capital adequacy requirements are applied on a consolidated basis. The
consolidation basis applied to CIBC's financial statements is described in
Note 1 to the 2007 consolidated financial statements. All subsidiaries, except
certain investments and holdings which are not subject to risk assessment
under Basel II and are instead deducted from regulatory capital, are included
for regulatory capital calculation purposes. A deduction approach applies to
investment in insurance subsidiaries, substantial investments and
securitization-related activities.
Our Canadian insurance subsidiary, CIBC Life Insurance Company Limited,
is subject to OSFI's Minimum Continuing Capital Surplus Requirements for life
insurance companies.
The following table presents the components of our regulatory capital.
The information as at January 31, 2008 is based on Basel II requirements and
information for October 31, 2007 is based upon Basel I requirements, and hence
the information is not comparable.-------------------------------------------------------------------------
Basel II Basel I
basis basis
2008 2007
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 13,426 $ 12,379
Tier 2 capital 4,419 6,304
Total regulatory capital 17,845 17,758
Risk-weighted assets 117,408 127,424
Tier 1 capital ratio 11.4% 9.7%
Total capital ratio 15.2% 13.9%
Assets-to-capital multiple 19.0x 19.0x
-------------------------------------------------------------------------
-------------------------------------------------------------------------Tier 1 ratio was up by 1.7% from the year-end, largely due to the issue
of common shares, and a reduction in risk-weighted assets that resulted from
the change to Basel II methodology commencing November 1, 2007. This was
offset in part by the reduction in retained earnings due to the loss in the
quarter, and certain other deductions, which under Basel II are now subtracted
directly from Tier 1 capital.
Total capital ratio was up by 1.3% due to the reasons noted above,
partially offset by a reduction in the Tier 2 capital, as only a portion of
the general allowance is eligible for inclusion in Tier 2 capital under the
Basel II methodology. The redemption of subordinated indebtedness also reduced
the Tier 2 capital.
Significant capital management activities
The following table summarizes our significant capital management
activities:-------------------------------------------------------------------------
For the three
months ended
$ millions Jan. 31, 2008
-------------------------------------------------------------------------
Issue of common shares 2,916(1)
Redemption of subordinated indebtedness (250)
Dividends
Preferred shares - classified as equity (30)
Preferred shares - classified as liabilities (8)
Common shares (291)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) After issuance costs, net of tax, of $32 million.Subsequent to the quarter-end, on February 26, 2008, in accordance with
their terms, we redeemed all $89 million of our 5.89% Debentures (subordinated
indebtedness) due February 26, 2013, for their outstanding principal amount,
plus unpaid interest accrued to the redemption date.
For additional details, see Notes 6 and 7 to the interim consolidated
financial statements.
Off-balance sheet arrangements
We enter into several types of off-balance sheet arrangements in the
normal course of our business. These include securitizations, derivatives,
credit-related arrangements, and guarantees. Details on our off-balance sheet
arrangements are provided on pages 57 to 59 of the 2007 Annual Accountability
Report.
The following table summarizes our exposures to entities involved in the
securitization of third-party assets (both CIBC sponsored/structured and
third-party structured):-------------------------------------------------------------------------
2008
$ millions, as at Jan. 31
-------------------------------------------------------------------------
Undrawn Written
liquidity credit
Investment and credit derivatives
and loans(1) facilities (notional)(2)
-------------------------------------------------------------------------
CIBC sponsored multi-seller
conduits $ 985 $ 12,234(3) $ -
CIBC structured CDO vehicles 823 162 1,018
Third-party structured vehicles 7,132 1,704 26,065
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007
$ millions, as at Oct. 31
-------------------------------------------------------------------------
Undrawn Written
liquidity credit
Investment and credit derivatives
and loans(1) facilities (notional)(2)
-------------------------------------------------------------------------
CIBC sponsored multi-seller
conduits $ 3,029 $ 12,092(3) $ -
CIBC structured CDO vehicles 647 154 1,147
Third-party structured vehicles 3,083 2,236 31,467
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Amounts are net of mark-to-market losses. Excludes securities issued
by entities established by Canada Mortgage and Housing Corporation
(CMHC), Federal National Mortgage Association (Fannie Mae), Federal
Home Loan Mortgage Corporation (Freddie Mac), Government National
Mortgage Association (Ginnie Mae), and Student Loan Marketing
Association (Sallie Mae). $7.3 billion (Oct. 31, 2007: $2.0 billion)
of the exposure was hedged by credit derivatives with third parties.
(2) Comprises credit derivatives written options and total return swaps
under which we assume exposures. The fair value recorded on the
consolidated balance sheet was $(6.2) billion (Oct. 31, 2007:
$(3.8) billion). Notional amounts of $26.1 billion (Oct. 31, 2007:
$31.7 billion) were hedged with credit derivatives protection from
third parties, the fair value of these hedges net of the valuation
adjustments was $2.5 billion (Oct. 31, 2007: $3.4 billion).
Accumulated fair value losses amount to $812 million (Oct. 31, 2007:
$484 million) on unhedged written credit derivatives. Under certain
credit derivative arrangements, we can be called upon to purchase the
reference assets at par with the simultaneous termination of the
credit derivatives; the notional amount of these trades totalled
approximately $2.0 billion (Oct. 31, 2007: $6.5 billion) and the fair
value was approximately $(654) million (Oct. 31, 2007:
$(470) million).
(3) Net of $985 million (Oct. 31, 2007: $3,029 million) of investment in
CIBC sponsored multi-seller conduits.During the quarter, we purchased certain reference assets at a par amount
of $4.8 billion from two third-party structured vehicles in consideration for
the termination of the related total return swaps (see footnote 2 above). The
reference assets purchased were categorized as trading securities on our
consolidated balance sheet. We may also be called upon to purchase additional
reference assets at a par amount of $2.0 billion covered by the remaining
total return swaps with the third-party structured vehicles.
For details on securitizations of our own assets and guarantees provided
by us, see Notes 5 and 11 to the interim consolidated financial statements.
MANAGEMENT OF RISK
-------------------------------------------------------------------------
Our approach to management of risk is described on pages 60 to 73 of the
2007 Annual Accountability Report.
In addition, in the MD&A, we have provided certain of the required
disclosures under the Canadian Institute of Chartered Accountants (CICA)
handbook section 3862, "Financial Instruments - Disclosures" related to the
nature and extent of risks arising from financial instruments, as permitted by
that standard. These disclosures are included in the sections "Risk overview",
"Credit risk", Market risk", "Liquidity risk", "Operational risk", "Reputation
and legal risk", and "Regulatory risk". These disclosures have been shaded and
form an integral part of the interim consolidated financial statements.
Risk overview
We manage risk and related balance sheet resources within tolerance
levels established by our management committees and approved by the Board of
Directors and its committees. Several groups within TRM, independent of the
originating businesses, contribute to our management of risk, including:- Treasury - provides enterprise-wide funding and asset/liability,
liquidity, cash and collateral management; manages the capital
structure within the constraints of regulatory requirements; and
manages capital in our subsidiaries, affiliates and legal entities;
- Credit and Investment Risk Management groups - provide independent,
enterprise-wide oversight of the adjudication, management and
monitoring of global credit risk; apply market-based techniques and
models to the measurement, monitoring and control of risks in the
credit portfolios and merchant banking investments;
- Market Risk Management (MRM) - provides independent, enterprise-wide
oversight of the management and related measurement, monitoring and
control of trading and non-trading market risk and trading credit
risk;
- Operational Risk Management - provides independent identification,
measurement, monitoring and control of operational risk
enterprise-wide; and
- Balance Sheet Measurement, Monitoring and Control - oversees the
balance sheet resource allocation process; and provides independent,
enterprise-wide oversight of the measurement, monitoring and control
of our balance sheet resources, economic capital, and model risk
including independent validation of the risk-rating systems and
parameters.Basel II Capital Accord
On November 1, 2007, we adopted a new capital management framework,
commonly called Basel II, which is designed to enhance the risk sensitivity of
regulatory capital. Under the new Basel II Framework, regulatory capital for
the first time includes a charge for operational risk. In addition, the rules
permit wider discretion by bank regulators to increase or decrease capital
requirements in line with the circumstances of individual banks. The rules
require greater transparency of risk management information intrinsic to
underlying risks and capital adequacy.
We adopted the Advanced Internal Ratings Based (AIRB) approach for credit
risk for all material portfolios. We received final approval with associated
conditions for the use of the AIRB approach to the calculation of credit risk
capital from OSFI on December 31, 2007. Immaterial portfolios (refer to
"Credit risk" section for details) are initially on the standardized approach,
and in the event that any one of the standardized portfolios becomes material,
management will implement plans to transition it to an AIRB approach as
required by OSFI.
On August 1, 2007, we received Conditional Acceptance from OSFI to
implement the Advanced Measurement Approach (AMA) for operational risk
effective November 1, 2007. OSFI has set the target date for Formal Acceptance
as December 31, 2008 or earlier.
Market risk for the trading books continues to be measured under the
pre-existing OSFI approval for use of the Internal Models Approach.
Credit risk
Credit risk primarily arises from our direct lending activities, and from
our trading, investment and hedging activities. Credit risk is defined as the
risk of financial loss due to a borrower or counterparty failing to meet its
obligations in accordance with contractual terms.
Process and control
The credit approval process is centrally controlled, with all significant
credit requests submitted to a credit risk management unit that is independent
of the originating businesses. Approval authorities are a function of the risk
and amount of credit requested. In certain cases, credit requests must be
referred to the Risk Management Committee (RMC) for approval.
After initial approval, individual credit exposures continue to be
monitored, with a formal risk assessment including review of assigned ratings
documented at least annually. Higher risk-rated accounts are subject to closer
monitoring and are reviewed at least quarterly. Collections and specialized
loan workout groups handle the day-to-day management of the highest risk loans
to maximize recoveries.
Credit risk limits
Credit limits are established for business and government loans for the
purposes of portfolio diversification and managing concentration. These
include limits for individual borrowers, groups of related borrowers, industry
sectors, country and geographic regions, and products or portfolios. Direct
loan sales, credit derivative hedges or structured transactions are used to
reduce concentrations.
Credit derivatives
We use credit derivatives to reduce industry sector concentrations and
single-name exposures, or as part of portfolio diversification techniques.
Guarantees
We obtain third party guarantees and insurance to reduce the risk in our
lending portfolios. The most material of these guarantees relate to our
residential mortgage portfolio that is guaranteed by Canada Housing and
Mortgage Corporation (a Government of Canada owned corporation) or other
investment-grade counterparties.
Collateral
Our credit risk management policies include requirements related to
collateral valuation and management. Valuations are updated periodically
depending on the nature of the collateral. The main types of collateral are
cash, securities, inventory and real estate. We have policies in place to
monitor the existence of undesirable concentration in the collateral
supporting our credit exposure.
Exposure to credit risk
The following table presents the exposure to credit risk which is
measured as exposure at default (EAD) for on- and off-balance sheet financial
instruments. Details on the calculation of EAD are provided on the next page.$ millions, as at January 31, 2008
-------------------------------------------------------------------------
AIRB Standardized
approach approach Total
-------------------------------------------------------------------------
Business and government portfolios
Corporate
Drawn $ 34,276 $ 5,561 $ 39,837
Undrawn commitments 18,764 332 19,096
Repo-style transactions 26,201 46 26,247
Other off-balance sheet 6,215 197 6,412
OTC derivatives 12,119 67 12,186
-------------------------------------------------------------------------
97,575 6,203 103,778
-------------------------------------------------------------------------
Sovereign
Drawn 20,968 953 21,921
Undrawn commitments 2,762 - 2,762
Repo-style transactions 1,082 - 1,082
Other off-balance sheet 32 2 34
OTC derivatives 1,661 - 1,661
-------------------------------------------------------------------------
26,505 955 27,460
-------------------------------------------------------------------------
Banks
Drawn 14,428 854 15,282
Undrawn commitments 816 - 816
Repo-style transactions 57,051 354 57,405
Other off-balance sheet 41,120 14 41,134
OTC derivatives 6,509 14 6,523
-------------------------------------------------------------------------
119,924 1,236 121,160
-------------------------------------------------------------------------
Total business and
government portfolios 244,004 8,394 252,398
-------------------------------------------------------------------------
Retail portfolios
Real estate secured personal
lending
Drawn 100,707 2,013 102,720
Undrawn commitments 23,795 - 23,795
-------------------------------------------------------------------------
124,502 2,013 126,515
-------------------------------------------------------------------------
Qualifying revolving retail
Drawn 15,259 - 15,259
Undrawn commitments 22,693 - 22,693
-------------------------------------------------------------------------
37,952 - 37,952
-------------------------------------------------------------------------
Other retail
Drawn 9,261 972 10,233
Undrawn commitments 2,086 53 2,139
Other off-balance sheet 108 - 108
-------------------------------------------------------------------------
11,455 1,025 12,480
-------------------------------------------------------------------------
Total retail portfolios 173,909 3,038 176,947
-------------------------------------------------------------------------
Securitization exposures(1) 17,482 839 18,321
-------------------------------------------------------------------------
Gross credit exposure $ 435,395 $ 12,271 $ 447,666
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Under the internal ratings based approach.The portfolios are categorized based upon how we manage the business and
the associated risks. Amounts provided are after valuation adjustments related
to financial guarantors, and before allowance for credit losses and risk
mitigation, including $79.0 billion of collateral held for our repurchase
agreement activities. Non-trading equity exposures are not included in the
table above as they have been deemed immaterial under the OSFI guidelines, and
hence, are subject to 100% risk-weighting.
Exposures subject to AIRB approach
Business and government portfolios (excluding scored small business) -
risk rating method
The portfolio comprises exposures to corporate, sovereign and bank
obligors. These obligors are individually assessed and assigned a rating that
reflects our estimate of the probability of default. A mapping between our
internal ratings and the ratings used by external ratings agencies is shown in
the table below. As part of our risk-rating methodology, the risk assessment
includes a review of external ratings of the obligor. The obligor rating
assessment takes into consideration our financial assessment of the obligor,
the industry, and the economic environment of the region in which the obligor
operates. In certain circumstances, where a guarantee from a third party
exists, both the obligor and the guarantor will be assessed.CIBC Standard & Moody's Investor
Grade rating Poor's equivalent Services equivalent
-------------------------------------------------------------------------
Investment grade 00 - 47 AAA to BBB- Aaa to Baa3
-------------------------------------------------------------------------
Non-investment grade 51 - 67 BB+ to B- Ba1 to B3
-------------------------------------------------------------------------
Watchlist 70 - 80 CCC+ to CC Caa1 to Ca
-------------------------------------------------------------------------
Default 90 D C
-------------------------------------------------------------------------We use quantitative modeling techniques to assist in the development of
internal risk-rating systems. The risk-rating systems have been developed
through analysis of internal and external credit risk data. They are used for
portfolio management, risk limit setting, product pricing, and in the
determination of economic capital.
We assess risk exposure using the following three dimensions. Parameter
estimates for each of these dimensions are long-term averages with adjustments
for the impact of any potential change in the credit cycle.- Probability of default (PD) - the probability that the obligor will
default within the next 12 months.
- Exposure at default (EAD) - the estimate of the amount which will be
drawn at the time of default.
- Loss given default (LGD) - the expected severity of loss as the
result of the default, expressed as a percentage of the EAD.The effectiveness of the risk rating systems and the parameters
associated with the risk ratings are monitored within TRM and are subject to
an annual review. The models used in the estimation of the risk parameters are
also subject to independent validation by the TRM validation group, which is
independent of both the origination business and the model development
process.
We have counterparty credit exposure that arises from our interest rate,
foreign exchange, equity, commodity and credit derivatives trading, hedging
and portfolio management activities, as explained in Note 14 to the 2007
consolidated financial statements. The PD of our counterparties is measured in
the same manner as our direct lending activity. We establish a valuation
adjustment for expected future credit losses from each of our derivative
counterparties. The expected future credit loss is a function of our estimates
of the PD, the expected loss/exposure in the event of default and other
factors such as risk mitigants.
Credit quality of the risk-rated portfolios
The following table provides the credit quality of the risk-rated
portfolios. Amounts provided are before allowance for credit losses, and after
credit risk mitigation, valuation adjustments related to financial guarantors,
and collateral on repurchase agreement activities. Insured residential
mortgage and student loan portfolios of $53.1 billion are reclassified to
either sovereign or corporate exposures in the table below.$ millions, as at January 31, 2008
-------------------------------------------------------------------------
EAD
--------------------------------------
Grade Corporate Sovereign Banks Total
-------------------------------------------------------------------------
Investment grade $ 39,425 $ 77,802 $ 58,882 $ 176,109
Non-investment
grade 25,367 206 9,040 34,613
Watchlist 1,256 1 - 1,257
Default 294 1 - 295
-------------------------------------------------------------------------
$ 66,342 $ 78,010 $ 67,922 $ 212,274
-------------------------------------------------------------------------
-------------------------------------------------------------------------Business and government portfolios (excluding scored small business) -
slotting approach
A simplified risk-rating process (slotting approach) is used for
uninsured Canadian commercial mortgages, which comprise non-residential
mortgages and multi-family residential mortgages. These exposures are
individually rated on our rating scale using a risk-rating methodology that
considers the property's key attributes, which include its loan to value and
debt service ratios, the quality of the property, and the financial strength
of the owner/sponsor. All exposures are secured by a lien over the property
and in some cases additionally by mortgage insurance. Insured multi-family
residential mortgages are treated as sovereign exposures in the table above.
Exposure by risk-bands
The following table provides the exposure by risk-weight bands.
Facilities in the "satisfactory" category have key attributes that meet our
criteria, while facilities in the "good" and "strong" categories exceed it
with progressively stronger risk metrics. Exposures in the "weak" category
generally were originated at a stronger risk level but have migrated below our
current criteria.$ millions, as at January 31, 2008 EAD
-------------------------------------------------------------------------
Strong $ 5,594
Good 130
Satisfactory 40
Weak 7
Default 3
-------------------------------------------------------------------------
$ 5,774
-------------------------------------------------------------------------
-------------------------------------------------------------------------Retail portfolios
Retail portfolios are characterized by a large number of relatively small
exposures. They comprise: real estate secured personal lending (comprising
residential mortgages, and personal loans and lines secured by residential
property); qualifying revolving retail exposures (credit cards and unsecured
lines of credit); other retail exposures (loans secured by non-residential
assets, unsecured loans including student loans, and scored small business
loans). These are managed as pools of homogenous risk exposures using external
credit bureau scores and/or other behavioral assessment to group exposures
according to similar credit risk profiles. These pools are assessed through
statistical techniques, such as credit scoring and computer-based models.
Characteristics used to group individual exposures vary by asset category; as
a result, the number of pools, their size, and the statistical techniques
applied to their management differ accordingly.
The following table maps the PD bands to various risk levels:Description PD bands
-------------------------------------------------------------------------
Exceptionally low 0.01% - 0.20%
Very low 0.21% - 0.50%
Low 0.51% - 2.00%
Medium 2.01% - 10.00%
High 10.01% - 99.99%
Default 100.00%
-------------------------------------------------------------------------Credit quality of the retail portfolios
The following table presents the credit quality of the retail portfolios.
Amounts provided are before allowance for credit losses and after credit risk
mitigation. Insured residential mortgage and student loan portfolios of
$53.1 billion are reclassified to either sovereign or corporate exposures.
Retail portfolios include $3,947 million of small business scored exposures.$ millions, as at January 31, 2008
-------------------------------------------------------------------------
EAD
---------------------------------------
Real estate
secured Qualifying
personal revolving Other
PD lending retail retail Total
-------------------------------------------------------------------------
Exceptionally low $ 29,737 $ 16,288 $ 2,565 $ 48,590
Very low 17,129 5,125 2,636 24,890
Low 24,546 10,662 4,344 39,552
Medium 153 4,124 1,386 5,663
High 88 1,625 127 1,840
Default 70 128 122 320
-------------------------------------------------------------------------
$ 71,723 $ 37,952 $ 11,180 $ 120,855
-------------------------------------------------------------------------
-------------------------------------------------------------------------Exposures subject to the standardized approach
Exposures within FirstCaribbean, obligations of certain exposures of
individuals for non-business purposes, and certain exposures in the CIBC
Mellon joint ventures have been deemed immaterial, and are subject to the
standardized approach. A detailed breakdown of our standardized exposures
before allowance for credit losses by risk-weight is provided below. Eligible
financial collateral also impacts the risk weighting category for the
exposure.$ millions, as at January 31, 2008
-------------------------------------------------------------------------
Risk-weight category
--------------------------------------------------
0% 20% 50% 75% 100% Total
-------------------------------------------------------------------------
Corporate $ - $ 994 $ - $ - $ 5,209 $ 6,203
Sovereign 430 82 222 - 221 955
Bank - 1,230 - - 6 1,236
Real estate
secured
personal
lending - - - 2,007 6 2,013
Other retail - - - 53 972 1,025
-------------------------------------------------------------------------
$ 430 $ 2,306 $ 222 $ 2,060 $ 6,414 $ 11,432
-------------------------------------------------------------------------
-------------------------------------------------------------------------Securitization exposures
The following table provides details on our securitization exposures by
credit ratings under the internal ratings based (IRB) and standardized
approach.$ millions, as at January 31, 2008
-------------------------------------------------------------------------
EAD
--------------------------
Ratings IRB Standardized Total
-------------------------------------------------------------------------
AAA to BBB- $ 17,190 $ 839 $ 18,029
BB+ to BB- 9 - 9
Below BB- 37 - 37
Unrated 246 - 246
-------------------------------------------------------------------------
$ 17,482 $ 839 $ 18,321
-------------------------------------------------------------------------
-------------------------------------------------------------------------Concentration of exposures
Concentration of credit risk exists when a number of obligors are engaged
in similar activities, or operate in the same geographical areas or industry
sectors, and have similar economic characteristics so that their ability to
meet contractual obligations is similarly affected by changes in economic,
political or other conditions.
Geographic distribution
The following table provides a geographic distribution of our business
and government exposures under the AIRB approach. The classification of
geography is based upon the country of ultimate risk. Amounts are before
allowance for credit losses and risk mitigation, and after valuation
adjustments related to financial guarantors and $79.0 billion of collateral
held for our repurchase agreement activities.$ millions, as at January 31, 2008
-------------------------------------------------------------------------
Canada U.S. Europe Other Total
-------------------------------------------------------------------------
Drawn $ 51,909 $ 9,439 $ 6,272 $ 2,052 $ 69,672
Undrawn
commit-
ments 19,465 2,107 267 503 22,342
Repo-style
transactions 1,987 1,613 325 1,399 5,324
Other
off-balance
sheet 29,996 9,526 7,036 809 47,367
OTC
deriv-
atives 6,579 7,798 5,392 520 20,289
-------------------------------------------------------------------------
$ 109,936 $ 30,483 $ 19,292 $ 5,283 $ 164,994
-------------------------------------------------------------------------
-------------------------------------------------------------------------For retail portfolios, substantially all of the exposures under the AIRB
approach are based in Canada.
Business and government exposures by industry groups
The following table provides an industry-wide breakdown of our business
and government exposures under the AIRB approach. Amounts are before allowance
for credit losses and risk mitigation, and after valuation adjustments related
to financial guarantors and $79.0 billion of collateral held for our
repurchase agreement activities.$ millions, as at January 31, 2008
-------------------------------------------------------------------------
Repo- Other
Undrawn style off- OTC
commit- trans- balance deriva-
Drawn ment actions sheet tives Total
-------------------------------------------------------------------------
Commercial
mortgages $ 5,639 $ 135 $ - $ - $ - $ 5,774
Financial
institutions 19,820 3,483 5,263 42,836 15,919(1) 87,321
Retail 2,115 1,566 - 245 393 4,319
Business services 3,607 1,583 - 799 374 6,363
Manufacturing,
capital goods 1,115 967 - 320 211 2,613
Manufacturing,
consumer goods 1,113 763 - 41 61 1,978
Real estate and
construction 5,800 1,635 - 743 68 8,246
Agriculture 2,632 1,231 - 48 14 3,925
Oil and gas 3,490 3,084 - 340 912 7,826
Mining 1,746 458 - 109 35 2,348
Forest products 542 279 3 83 20 927
Hardware and
software 513 517 - 95 49 1,174
Telecommunications
and cable 459 505 - 72 291 1,327
Publishing,
printing and
broadcasting 832 537 - 53 238 1,660
Transportation 762 607 - 789 79 2,237
Utilities 515 1,562 - 655 405 3,137
Education, health
and social
services 1,241 767 3 107 40 2,158
Governments 17,731 2,663 55 32 1,180 21,661
-------------------------------------------------------------------------
$ 69,672 $ 22,342 $ 5,324 $ 47,367 $ 20,289 $164,994
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes $5.3 billion of EAD with financial guarantors hedging our
derivative contracts. The fair value of these derivative contracts
net of the valuation adjustments was $3.0 billion.
Impaired loans and allowance and provision for credit losses
-------------------------------------------------------------------------
2008 2007
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Gross impaired loans
Consumer $ 536 $ 493
Business and government(1) 404 370
-------------------------------------------------------------------------
Total gross impaired loans $ 940 $ 863
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allowance for credit losses
Consumer $ 365 $ 359
Business and government(1) 215 194
-------------------------------------------------------------------------
Specific allowance 580 553
General allowance 799 890
-------------------------------------------------------------------------
Total allowance for credit losses $ 1,379 $ 1,443
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes scored small business portfolios which are managed on a pool
basis under Basel II.Gross impaired loans were up $77 million or 9% from October 31, 2007.
Consumer gross impaired loans were up $43 million or 9%, whereas business and
government gross impaired loans were up $34 million or 9%. Total gross
impaired loans increased $16 million in Canada, $28 million in the U.S. and
$33 million in other countries. The overall increase in gross impaired loans
was largely attributed to residential mortgages, and the publishing, printing,
and broadcasting sector.
Allowance for credit losses was down $64 million or 4% from October 31,
2007. Specific allowance was up $27 million or 5% from the year-end, primarily
due to increases in retail, business services, and the publishing, printing
and broadcasting sectors. The general allowance totalled $799 million, down
$91 million or 10% from the year-end, due to the reclassification of general
allowance related to the undrawn credit facilities to other liabilities.
For details on the provision for credit losses, see the "Financial
performance review" section.
Market risk
Market risk arises from positions in securities and derivatives held in
our trading portfolios, and from our retail banking business, investment
portfolios and other non-trading activities. Market risk is defined as the
potential for financial loss from adverse changes in underlying market
factors, including interest and foreign exchange rates, credit spreads, and
equity and commodity prices.
Process and control
Market risk exposures are monitored daily against approved risk limits,
and control processes are in place to monitor that only authorized activities
are undertaken. We generate daily risk and limit-monitoring reports, based on
the previous day's positions. Summary market risk and limit compliance reports
are produced and reviewed weekly with the Senior Executive Team, and quarterly
with the RMC.
We have risk tolerance levels, expressed in terms of both statistically
based Value-at-Risk (VaR) measures and potential worst-case stress losses. We
use a three-tiered approach to set market risk and stress limits on the
amounts of risk that we can assume in our trading and non-trading activities,
as follows:- Tier 1 limits are our overall market risk and worst-case scenario
limits.
- Tier 2 limits are designed to control the risk profile in each
business.
- Tier 3 limits are at the desk level and designed to monitor risk
concentration and the impact of book-specific stress events.Trading activities
We use a number of risk measures such as VaR, and stress testing and
scenario analysis for measuring trading risk.
Value-at-Risk
Our VaR methodology is a statistical technique that measures the
potential worst-case overnight loss within a 99% confidence level. VaR uses
numerous risk factors as inputs and is computed through the use of historical
volatility of each risk factor and the associated historical correlations
among them, evaluated over a one-year period.
Stress testing and scenario analysis
Our stress testing measures the effect on portfolio values of extreme
market movements up to a period of one quarter. Scenarios are developed to
model extreme economic events, worst-case historical experiences or potential
future plausible events.
Our core stress tests and scenario analyses are run daily, and further ad
hoc analysis is carried out as required. Scenarios are reviewed and amended as
necessary to ensure they remain relevant. Limits are placed on the maximum
acceptable loss to the aggregate portfolio under any worst-case scenario and
on the impact of stress testing at the detailed portfolio level and by asset
class.
Backtesting
The backtesting process measures that actual profit and loss outcomes are
consistent with the statistical assumptions of the VaR model. This process
also includes the calculation of a hypothetical or static profit and loss.
This represents the theoretical change in value of the prior day's closing
portfolio due to each day's price movements, on the assumption that the
contents of the portfolio remained unchanged.Value-at-risk by risk type (trading portfolios)
As at or for the three months ended
-------------------------------------------
Jan. 31, 2008
-------------------------------------------
$ millions High Low As at Average
-------------------------------------------------------------------------
Interest rate risk $ 10.9 $ 5.2 $ 10.9 $ 7.4
Credit spread risk 16.0 7.2 9.7 12.8
Equity risk 7.6 3.7 6.4 5.0
Foreign exchange risk 1.3 0.3 0.7 0.7
Commodity risk 1.2 0.5 0.8 0.8
Debt specific risk 13.7 7.9 8.6 10.5
Diversification effect(1) n/m n/m (16.6) (18.5)
---------------------
Total risk $ 21.4 $ 15.6 $ 20.5 $ 18.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at or for the three months ended
-------------------------------------------
Oct. 31, 2007 Jan. 31, 2007
-------------------------------------------
$ millions As at Average As at Average
-------------------------------------------------------------------------
Interest rate risk $ 7.2 $ 7.1 $ 8.6 $ 7.0
Credit spread risk 9.6 6.4 3.2 3.5
Equity risk 6.0 5.5 5.8 6.4
Foreign exchange risk 0.6 0.5 0.6 0.4
Commodity risk 1.3 1.3 1.5 1.6
Debt specific risk 10.3 9.2 n/a n/a
Diversification effect(1) (20.3) (15.4) (10.2) (9.9)
-------------------------------------------------------------------------
Total risk $ 14.7 $ 14.6 $ 9.5 $ 9.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Aggregate VaR is less than the sum of the VaR of the different
market risk types due to risk offsets resulting from the effect of
portfolio diversification.
n/m Not meaningful. It is not meaningful to compute a diversification
effect because the high and low may occur on different days for
different risk types.
n/a Not available, as we started reporting this measure only in the
fourth quarter of 2007.Total average risk was up 28% from the last quarter, primarily due to
significant increases in credit spread risk as a result of the volatile market
conditions. Total average risk was up more than 100% from the same quarter
last year, primarily due to inclusion of debt specific risk measure in VaR in
the prior quarter, as well as the higher levels of credit spread risk.
Trading revenue
Trading revenue (TEB)(1) was positive for 50% of the days in the quarter.
Trading losses did not exceed VaR for any day during the quarter. Average
daily trading revenue (TEB)(1) was $0.5 million during the quarter. The
trading revenue (TEB)(1) and VaR backtesting graph below compares the current
quarter and the three previous quarters' actual daily trading revenue (TEB)(1)
with the previous day's VaR measures. The trading revenue (TEB)(1) excludes
$0.6 million related to the consolidation of variable interest entities, and
$(3,298) million related to reductions in fair value of structured credit
assets and counterparty credit-related valuation adjustments, which cannot be
meaningfully allocated to specific days.Backtesting of trading revenue (TEB)(1) vs. VaR
(image appears here)
(1) For additional information, see the "Non-GAAP measures" section on
pages 45 to 46 of our 2007 Annual Accountability Report.Non-trading activities
Market risks also arise from our retail banking business, equity
investments and other non-trading activities.
Interest rate risk
Non-trading interest rate risk consists primarily of risk inherent in ALM
activities and the activities of domestic and foreign subsidiaries. Interest
rate risk results from differences in the maturities or repricing dates of
assets and liabilities, both on- and off-balance sheet, as well as from
embedded optionality in retail products. A variety of cash instruments and
derivatives, principally interest rate swaps, futures and options, are used to
manage and control these risks.
The following table shows the potential impact of an immediate 100 basis
points increase or decrease in interest rates over the next 12 months, as
adjusted for estimated prepayments:-------------------------------------------------------------------------
2008 2007
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
C$ US$ Other C$ US$ Other
-------------------------------------------------------------------------
100 basis points increase
in interest rates
Net income $ 23 $ (1) $ - $ 24 $ 12 $ (3)
Change in present value
of equity risk 101 31 36 98 21 36
100 basis points decrease
in interest rates
Net income $ (56) $ 1 $ - $ (96) $ (12) $ 3
Change in present value
of equity risk (143) (31) (37) (155) (21) (36)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------
2007
$ millions, as at Jan. 31
-------------------------------------------------
C$ US$ Other
-------------------------------------------------
100 basis points increase
in interest rates
Net income $ 24 $ (7) $ (5)
Change in present value
of equity risk 153 9 20
100 basis points decrease
in interest rates
Net income $ (83) $ 7 $ 5
Change in present value
of equity risk (209) (9) (20)
-------------------------------------------------
-------------------------------------------------Foreign exchange risk
Non-trading foreign exchange risk, also referred to as structural foreign
exchange risk, arises primarily from our investments in foreign operations.
This risk, predominantly in U.S. dollars, is managed using derivative hedges,
and by funding the investments in foreign currencies.
A 1% appreciation of the Canadian dollar would reduce our shareholders'
equity as at January 31, 2008 by approximately $30 million (October 31, 2007:
by approximately $28 million).
Our non-functional currency denominated earnings are converted into the
functional currencies through spot or forward foreign exchange transactions to
reduce exchange rate fluctuations on our consolidated statement of operations.
Foreign functional currency earnings are translated at average monthly
exchange rates as they arise.
We hedge certain anticipated foreign currency expenses using derivatives
which are accounted for as cash flow hedges. As at January 31, 2008, the net
change in fair value of these hedging derivatives included in accumulated
other comprehensive income amounted to a loss of $99 million (October 31,
2007: loss of $112 million). This amount will be released to income to offset
the hedged currency fluctuations as the expenses are incurred.
Equity risk
Non-trading equity risk arises primarily in our merchant banking
activities and comprises public and private equities, investments in limited
partnerships, and equity-accounted investments.
The following table provides the carrying and fair values of our non-
trading equities, including merchant banking portfolios:Carrying
$ millions, as at value Fair value
-------------------------------------------------------------------------
Jan. 31, 2008 AFS securities $ 1,540 $ 1,997
Other assets(1) 262 309
-------------------------------------------------------------------------
$ 1,802 $ 2,306
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2007 AFS securities $ 1,415 $ 1,921
Other assets(1) 254 299
-------------------------------------------------------------------------
$ 1,669 $ 2,220
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes equity-accounted investments.Liquidity risk
Liquidity risk arises from our general funding activities and in the
course of managing our assets and liabilities. It is the risk of having
insufficient cash resources to meet current financial obligations without
raising funds at unfavourable rates or selling assets on a forced basis.
Our liquidity risk management strategies seek to maintain sufficient
liquid financial resources to continually fund our balance sheet under both
normal and stressed market environments.
Process and control
Actual and anticipated inflows and outflows of funds generated from on-
and off-balance sheet exposures are managed on a daily basis within specific
short-term asset/liability mismatch limits by geographic location.
Potential cash flows under various stress scenarios are modeled using
balance sheet positions. On a consolidated basis, prescribed liquidity levels
under a selected benchmark stress scenario are maintained for a minimum time
horizon.
Risk measurement
Our liquidity measurement system provides daily liquidity risk exposure
reports for independent monitoring and review by MRM. Senior management and
the RMC oversee liquidity risk exposure reporting. Stress event impacts are
measured through scenario analyses, designed to measure potential impact of
abnormal market conditions on the liquidity risk profile. Treatment of cash
flows under varying conditions is reviewed periodically to determine whether
changes to customer behaviour assumptions are warranted.
Term funding sources and strategies
We source term funding in the wholesale markets from a variety of clients
and geographic locations, borrowing across a range of maturities using a mix
of funding instruments. Core personal deposits remain a primary source of
retail funding. As at January 31, 2008, Canadian dollar deposits from
individuals totalled $85.4 billion (October 31, 2007: $83.8 billion).
Strategies for managing liquidity risk include maintaining diversified
sources of wholesale term funding, asset securitization initiatives, capital
and subordinated debt issuance, and maintenance of segregated pools of high
quality liquid assets that can be sold or pledged as security to provide a
ready source of cash.
The following table summarizes our liquid assets:-------------------------------------------------------------------------
2008 2007
$ billions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Cash $ 1.0 $ 1.0
Deposits with banks 17.2 12.7
Securities(1) 60.4 65.1
Securities borrowed or purchased
under resale agreements 35.6 34.0
-------------------------------------------------------------------------
$ 114.2 $ 112.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes AFS and FVO securities with residual term to contractual
maturity within one year, and trading securities.In the course of our regular business activities, certain assets are
pledged as part of collateral management, including those necessary for
day-to- day clearing and settlement of payments and securities. Pledged assets
as at January 31, 2008 totalled $25.2 billion (October 31, 2007: $27.7
billion).
The recent turmoil in global capital markets has resulted in a reduction
of liquidity as well as increased costs in term funding markets for all
financial institutions. One factor affecting our access to unsecured funding
markets is our credit ratings. In December 2007, while the major rating
agencies all maintained our rating, Standard & Poor's and Moody's both revised
their ratings outlooks from stable to negative, while Fitch and DBRS placed
our ratings under review with negative implications. Despite these
developments, our liquidity position remains sound.
Maturity of financial liabilities
The following table provides the maturity profile of financial
liabilities based upon contractual repayment obligations. Certain contractual
maturity dates are subject to a defined set of management adjustments for
liquidity management, which have been incorporated under structural
assumptions. The table below excludes contractual cash flows related to
derivative liabilities.$ millions, as at Less than 3 - 12 1 - 3 3 - 5
January 31, 2008 3 months months years years
-------------------------------------------------------------------------
Liabilities
Deposits $ 150,745 $ 54,265 $ 21,018 $ 8,986
Acceptances 8,016 511 - -
Obligations related to
securities sold short 74 437 1,630 1,478
Obligations related to
securities lent or sold
under repurchase agreements 29,172 183 - -
Other liabilities 595 2 2,407 -
Subordinated indebtedness 89 - - -
Preferred share liabilities 600 - - -
Structural assumptions (114,047) (35,225) - -
-------------------------------------------------------------------------
$ 75,244 $ 20,173 $ 25,055 $ 10,464
-------------------------------------------------------------------------
-------------------------------------------------------------------------
No
$ millions, as at Over specified
January 31, 2008 5 years maturity Total
--------------------------------------------------------------
Liabilities
Deposits $ 4,962 $ - $ 239,976
Acceptances - - 8,527
Obligations related to
securities sold short 2,778 3,680 10,077
Obligations related to
securities lent or sold
under repurchase agreements - - 29,355
Other liabilities - 9,881 12,885
Subordinated indebtedness 5,313 - 5,402
Preferred share liabilities - - 600
Structural assumptions 154,064 (4,792) -
--------------------------------------------------------------
$ 167,117 $ 8,769 $ 306,822
--------------------------------------------------------------
--------------------------------------------------------------
Maturity of credit and liquidity commitments
The following table provides the contractual maturity of notional amounts
of credit, guarantee and liquidity commitments. Contractual amounts represent
the amounts at risk should contracts be fully drawn upon and clients default.
Since a significant portion of guarantees and commitments are expected to
expire without being drawn upon, the total of the contractual amounts is not
representative of future liquidity requirements.
Contract amounts expiration per period
-----------------------------------------
$ millions, as at Less than 1-3 3-5 Over
January 31, 2008 1 year years years 5 years Total
-------------------------------------------------------------------------
Unutilized credit
commitments(1) 27,939 1,767 8,020 1,443 39,169
Backstop liquidity
facilities 14,810 - - - 14,810
Standby and performance
letters of credit 5,229 354 405 435 6,423
Documentary and
commercial letters
of credit 254 - - 2 256
-------------------------------------------------------------------------
$ 48,232 $ 2,121 $ 8,425 $ 1,880 $ 60,658
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Excludes personal lines of credit and credit card lines, which are
revocable at our discretion at any time.Contractual obligations
Details on our contractual obligations are provided on page 71 of the
2007 Annual Accountability Report. There were no significant changes to
contractual obligations that were not in the ordinary course of our business.
Operational risk
Operational risk is the loss resulting from inadequate or failed internal
processes, systems, or from human error or external events.
Process and control
Each line of business has responsibility for the day-to-day management of
operational risk. Infrastructure and governance groups maintain risk and
control self-assessment processes. We maintain a corporate insurance program
to provide additional protection from loss and a global business continuity
management program to mitigate business continuity risks in the event of a
disaster.
Risk measurement
Effective November 1, 2007, under Basel II, we use the AMA to calculate
operational risk regulatory capital. Our operational risk measurement
methodology for economic capital purposes attributes operational risk capital
to expected and unexpected losses arising from the following loss event types:- Legal liability (with respect to third parties, clients and
employees);
- Client restitution;
- Regulatory compliance and taxation violations;
- Loss or damage to assets;
- Transaction processing errors; and
- Theft, fraud and unauthorized activities.Operational risk capital is calculated using a loss distribution approach
with the input parameters based on either actual internal loss experience
where a statistically significant amount of internal historical data is
available, or applying a loss scenario approach based on the available
internal/external loss data and management expertise.
In addition to the capital attributed as described above, adjustments are
made for internal control issues and risks that are not included in the
original operational risk profile.
Under AMA, we are allowed to recognize the risk mitigating impact of
insurance in the measures of operational risk used for regulatory minimum
capital requirements. Although our current insurance policy is tailored to
provide earnings protection from potential high-severity losses, we currently
do not take any capital relief as a result of our insurance program.
Reputation and legal risk
CIBC's reputation and financial soundness are of fundamental importance
to CIBC, its customers, shareholders and employees.
Reputation risk is the potential for negative publicity regarding CIBC's
business conduct or practices which, whether true or not, could significantly
harm our reputation as a leading financial institution, or could materially
and adversely affect our business, operations or financial condition.
Legal risk is the potential for civil litigation or criminal or
regulatory proceedings being commenced against CIBC that, once decided, could
materially and adversely affect our business, operations or financial
condition.
The RMC provides oversight of the management of reputation and legal
risk. The identification, consideration and management of potential reputation
and legal risk is a key responsibility of CIBC and all of its employees.
Our "Global Reputation and Legal Risks Policy" sets standards for
safeguarding our reputation and minimizing exposure to our reputation and
legal risk. The policy is supplemented by business specific procedures for
identifying and escalating transactions that could pose material reputation
risk and/or legal risk. The Reputation and Legal Risk Committee reviews all
transactions brought before it to assess whether CIBC is exposing itself to
any undue reputation and legal risk.
Regulatory risk
Regulatory risk is the risk of non-compliance with regulatory
requirements. Non-compliance with these requirements may lead to regulatory
sanctions and harm to our reputation.
Our regulatory compliance philosophy is to manage regulatory risk
through, among other things, the integration of controls within the business
and infrastructure groups. The foundation of this approach is a legislative
compliance management (LCM) framework. The LCM framework maps regulatory
requirements to internal policies, procedures and controls that govern
regulatory compliance.
Our compliance department is responsible for the development and
maintenance of a regulatory compliance program, including oversight of the LCM
framework. The department is independent of business management, has the
authority to communicate directly to the Audit Committee, and reports to that
committee on a quarterly basis.
Primary responsibility for compliance with all applicable regulatory
requirements rests with senior management of the business and infrastructure
groups, and extends to all employees. The compliance department's activities
support those groups, with particular emphasis on those regulatory
requirements that govern the relationship between CIBC and its clients and
those requirements that help protect the integrity of the capital markets.
Specific activities that assist the business and infrastructure groups include
communication of regulatory requirements, advice, training, testing and
monitoring, and reporting and escalation of control deficiencies and
regulatory risks.
ACCOUNTING AND CONTROL MATTERS
-------------------------------------------------------------------------
Critical accounting policies and estimates
A summary of significant accounting policies is presented in Note 1 to
the 2007 consolidated financial statements.
Certain accounting policies of CIBC are critical to understanding the
results of operations and financial condition of CIBC. These critical
accounting policies require management to make certain judgments and
estimates, some of which may relate to matters that are uncertain. For a
description of the judgments and estimates involved in the application of
critical accounting policies and assumptions made for pension and other
benefit plans, see pages 74 to 77 of the 2007 Annual Accountability Report.
During the quarter, we changed our methodology employed for establishing
valuation adjustments against our counterparty credit exposures related to
financial guarantors (excluding that for ACA) to take into account market
observed credit spreads. See "Overview" section for additional details.
Changes in accounting policy
Leveraged leases
Effective November 1, 2007, we adopted the amended CICA Emerging Issues
Committee Abstract (EIC 46), "Leveraged Leases", which was based upon the
Financial Accounting Standards Board (FASB) Staff Position (FSP) FAS 13-2,
"Accounting for a Change or Projected Change in the Timing of Cash Flows
Relating to Income Taxes Generated by a Leveraged Lease Transaction".
The EIC requires that a change in the estimated timing of the cash flows
relating to income taxes results in a recalculation of the timing of income
recognition from the leveraged lease. The adoption resulted in a $66 million
charge to opening retained earnings as at November 1, 2007. An amount
approximating this non-cash charge will be recognized into income over the
remaining lease terms using the effective interest rate method.
Capital disclosures
Effective November 1, 2007, we adopted the CICA handbook section 1535,
"Capital Disclosures," which requires an entity to disclose its objectives,
policies and processes for managing capital as well as disclosure of summary
quantitative information about what an entity manages as capital.
Financial instruments
Effective November 1, 2007, we adopted the CICA handbook sections 3862
"Financial Instruments - Disclosures" and 3863 "Financial Instruments -
Presentation".
These sections replace CICA handbook section 3861 "Financial Instruments
- Disclosure and Presentation", and enhance disclosure requirements on the
nature and extent of risks arising from financial instruments and how the
entity manages those risks.
Controls and procedures
Disclosure controls and procedures
CIBC's management, with the participation of the Chief Executive Officer,
Chief Financial Officer and Chief Risk Officer, has evaluated the
effectiveness, as at January 31, 2008, of CIBC's disclosure controls and
procedures (as defined in the rules of the SEC and the Canadian Securities
Administrators) and has concluded that such disclosure controls and procedures
are effective.
Changes in internal control over financial reporting
There have been no changes in CIBC's internal control over financial
reporting during the quarter ended January 31, 2008 that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting.CIBC INTERIM CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
2008 2007
Unaudited, $ millions, as at Jan. 31 Oct. 31
------------------------------------------------------------ ------------
ASSETS
Cash and non-interest-bearing
deposits with banks $ 1,673 $ 1,457
------------------------------------------------------------ ------------
Interest-bearing deposits with banks 16,520 12,290
------------------------------------------------------------ ------------
Securities
Trading 58,365 58,779
Available-for-sale (AFS) 8,589 17,430
Designated at fair value (FVO) 14,264 10,291
------------------------------------------------------------ ------------
81,218 86,500
------------------------------------------------------------ ------------
Securities borrowed or purchased under
resale agreements 35,625 34,020
------------------------------------------------------------ ------------
Loans
Residential mortgages 90,572 91,664
Personal 29,539 29,213
Credit card 9,395 9,121
Business and government 34,436 34,099
Allowance for credit losses (Note 4) (1,379) (1,443)
------------------------------------------------------------ ------------
162,563 162,654
------------------------------------------------------------ ------------
Other
Derivative instruments 23,395 24,075
Customers' liability under acceptances 8,527 8,024
Land, buildings and equipment 2,001 1,978
Goodwill 1,911 1,847
Other intangible assets 414 406
Other assets 13,887 8,927
------------------------------------------------------------ ------------
50,135 45,257
------------------------------------------------------------ ------------
$ 347,734 $ 342,178
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Personal $ 93,883 $ 91,772
Business and government 131,000 125,878
Bank 15,093 14,022
------------------------------------------------------------ ------------
239,976 231,672
------------------------------------------------------------ ------------
Other
Derivative instruments 26,109 26,688
Acceptances 8,527 8,249
Obligations related to securities sold short 10,077 13,137
Obligations related to securities lent or sold
under repurchase agreements 29,355 28,944
Other liabilities 12,728 13,728
------------------------------------------------------------ ------------
86,796 90,746
------------------------------------------------------------ ------------
Subordinated indebtedness 5,402 5,526
------------------------------------------------------------ ------------
Preferred share liabilities 600 600
------------------------------------------------------------ ------------
Non-controlling interests 157 145
------------------------------------------------------------ ------------
Shareholders' equity
Preferred shares 2,331 2,331
Common shares 6,049 3,133
Treasury shares 12 4
Contributed surplus 86 96
Retained earnings 7,174 9,017
Accumulated other comprehensive income (AOCI) (849) (1,092)
------------------------------------------------------------ ------------
14,803 13,489
------------------------------------------------------------ ------------
$ 347,734 $ 342,178
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
The accompanying notes and shaded sections in "MD&A - Management of risk"
on pages 17 to 27 are an integral part of these consolidated financial
statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended
-------------------------------------
2008 2007 2007
Unaudited, $ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Interest income
Loans $ 2,582 $ 2,583 $ 2,304
Securities borrowed or purchased
under resale agreements 529 564 472
Securities 664 869 762
Deposits with banks 230 222 173
-------------------------------------------------------------------------
4,005 4,238 3,711
-------------------------------------------------------------------------
Interest expense
Deposits 2,208 2,216 1,903
Other liabilities 563 697 665
Subordinated indebtedness 72 77 76
Preferred share liabilities 8 8 8
-------------------------------------------------------------------------
2,851 2,998 2,652
-------------------------------------------------------------------------
Net interest income 1,154 1,240 1,059
-------------------------------------------------------------------------
Non-interest income
Underwriting and advisory fees 176 190 185
Deposit and payment fees 195 200 193
Credit fees 60 59 69
Card fees 77 72 70
Investment management and
custodial fees 136 139 130
Mutual fund fees 212 218 212
Insurance fees, net of claims 58 59 58
Commissions on securities
transactions 170 196 229
Trading revenue (Note 8) (3,127) (378) 375
AFS securities (losses) gains, net (49) 133 132
FVO revenue (29) 9 43
Income from securitized assets 144 103 129
Foreign exchange other than trading 132 100 84
Other 170 606 123
-------------------------------------------------------------------------
(1,675) 1,706 2,032
-------------------------------------------------------------------------
Total revenue (521) 2,946 3,091
-------------------------------------------------------------------------
Provision for credit losses (Note 4) 172 132 143
-------------------------------------------------------------------------
Non-interest expenses
Employee compensation and benefits 994 1,006 1,160
Occupancy costs 145 148 150
Computer and office equipment 262 283 263
Communications 74 81 71
Advertising and business development 53 71 50
Professional fees 51 51 39
Business and capital taxes 25 37 35
Other 157 197 175
-------------------------------------------------------------------------
1,761 1,874 1,943
-------------------------------------------------------------------------
(Loss) income before income taxes
and non-controlling interests (2,454) 940 1,005
Income tax (benefit) expense (1,002) 45 231
-------------------------------------------------------------------------
(1,452) 895 774
Non-controlling interests 4 11 4
-------------------------------------------------------------------------
Net (loss) income $ (1,456) $ 884 $ 770
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Loss) earnings per share
(in dollars) (Note 10) - Basic $ (4.39) $ 2.55 $ 2.13
- Diluted $ (4.39) $ 2.53 $ 2.11
Dividends per common
share (in dollars) $ 0.87 $ 0.87 $ 0.70
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes and shaded sections in "MD&A - Management of risk"
on pages 17 to 27 are an integral part of these consolidated financial
statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended
-------------------------------------
2008 2007 2007
Unaudited, $ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Preferred shares
Balance at beginning of period $ 2,331 $ 2,331 $ 2,381
Issue of preferred shares - - 450
Redemption of preferred shares - - (400)
-------------------------------------------------------------------------
Balance at end of period $ 2,331 $ 2,331 $ 2,431
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares
Balance at beginning of period $ 3,133 $ 3,121 $ 3,064
Issue of common shares (Note 7) 2,948 12 50
Issuance costs, net of related
income taxes (32) - -
-------------------------------------------------------------------------
Balance at end of period $ 6,049 $ 3,133 $ 3,114
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Treasury shares
Balance at beginning of period $ 4 $ (11) $ (19)
Purchases (2,959) (1,456) (1,356)
Sales 2,967 1,471 1,374
-------------------------------------------------------------------------
Balance at end of period $ 12 $ 4 $ (1)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contributed surplus
Balance at beginning of period $ 96 $ 85 $ 70
Stock option expense 3 (1) 2
Stock options exercised (1) (1) (4)
Net (discount) premium on
treasury shares and other (12) 13 6
-------------------------------------------------------------------------
Balance at end of period $ 86 $ 96 $ 74
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings
Balance at beginning of period,
as previously reported $ 9,017 $ 8,450 $ 7,268
Adjustment for change in
accounting policies (66)(1) - (50)(2)
-------------------------------------------------------------------------
Balance at beginning of period,
as restated 8,951 8,450 7,218
Net (loss) income (1,456) 884 770
Dividends
Preferred (30) (30) (38)
Common (291) (292) (235)
Premium on redemption of preferred
shares (classified as equity) - - (16)
Other - 5 (6)
-------------------------------------------------------------------------
Balance at end of period $ 7,174 $ 9,017 $ 7,693
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AOCI, net of tax
Balance at beginning of period $ (1,092) $ (587) $ (442)
Adjustment for change in
accounting policies(2) - - 123
Other comprehensive income
(loss) (OCI) 243 (505) 175
-------------------------------------------------------------------------
Balance at end of period $ (849) $ (1,092) $ (144)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings and AOCI $ 6,325 $ 7,925 $ 7,549
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shareholders' equity at end
of period $ 14,803 $ 13,489 $ 13,167
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Represents the impact of adopting the amended Canadian Institute of
Chartered Accountants Emerging Issues Committee Abstract 46,
"Leveraged Leases". See Note 1 for additional details.
(2) Represents the transitional adjustment on adoption of the CICA
handbook sections 1530, 3251, 3855, and 3865.
The accompanying notes and shaded sections in "MD&A - Management of risk"
on pages 17 to 27 are an integral part of these consolidated financial
statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME
For the three months ended
-------------------------------------
2008 2007 2007
Unaudited, $ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Net (loss) income $ (1,456) $ 884 $ 770
-------------------------------------------------------------------------
OCI, net of tax
Foreign currency translation
adjustments
Net gains (losses) on investment
in self-sustaining foreign
operations 973 (1,921) 805
Net (losses) gains on hedges of
foreign currency translation
adjustments (746) 1,493 (603)
-------------------------------------------------------------------------
227 (428) 202
-------------------------------------------------------------------------
Net change in AFS securities
Net unrealized (losses) gains
on AFS securities (21) 54 (43)
Transfer of net losses (gains)
to net income 106 (35) (28)
-------------------------------------------------------------------------
85 19 (71)
-------------------------------------------------------------------------
Net change in cash flow hedges
Net (losses) gains on derivatives
designated as cash flow hedges (36) (120) 73
Net (gains) losses on derivatives
designated as cash flow hedges
transferred to net income (33) 24 (29)
-------------------------------------------------------------------------
(69) (96) 44
-------------------------------------------------------------------------
Total OCI(1) 243 (505) 175
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprehensive (loss) income $ (1,213) $ 379 $ 945
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes non-controlling interest of nil (October 31, 2007: nil;
January 31, 2007: $1 million).
-------------------------------------------------------------------------
INCOME TAX (EXPENSE) BENEFIT ALLOCATED TO EACH COMPONENT OF OCI
For the three months ended
-------------------------------------
2008 2007 2007
Unaudited, $ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Foreign currency translation
adjustments
Changes on investment in self-
sustaining foreign operations $ (3) $ 4 $ (10)
Changes on hedges of foreign
currency translation adjustments 374 (736) 313
Net change in AFS securities
Net unrealized losses (gains)
on AFS securities 15 (34) 29
Transfer of net (losses) gains
to net income (89) 15 16
Net change in cash flow hedges
Changes on derivatives designated
as cash flow hedges 20 65 (39)
Changes on derivatives designated
as cash flow hedges transferred
to net income 18 (12) 15
-------------------------------------------------------------------------
$ 335 $ (698) $ 324
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes and shaded sections in "MD&A - Management of risk"
on pages 17 to 27 are an integral part of these consolidated financial
statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended
-------------------------------------
2008 2007 2007
Unaudited, $ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Cash flows provided by (used in)
operating activities
Net (loss) income $ (1,456) $ 884 $ 770
Adjustments to reconcile net (loss)
income to cash flows provided by
(used in) operating activities:
Provision for credit losses 172 132 143
Amortization of buildings,
furniture, equipment and
leasehold improvements 52 50 53
Amortization of other
intangible assets 10 11 5
Stock-based compensation (19) 7 18
Future income taxes (53) 141 63
AFS securities losses (gains), net 49 (133) (132)
Losses (gains) on disposal of land,
buildings and equipment - 1 -
Other non-cash items, net 66 (158) 50
Changes in operating assets
and liabilities
Accrued interest receivable 104 (51) (106)
Accrued interest payable (24) 16 (474)
Amounts receivable on
derivative contracts 663 (3,787) (404)
Amounts payable on derivative
contracts (954) 7,262 (958)
Net change in trading securities 414 4,673 (4,238)
Net change in FVO securities (3,973) (2,663) (629)
Net change in other FVO
financial instruments (581) (2,192) 187
Current income taxes (1,794) (145) (377)
Other, net (3,779) 150 (1,742)
-------------------------------------------------------------------------
(11,103) 4,198 (7,771)
-------------------------------------------------------------------------
Cash flows provided by (used in)
financing activities
Deposits, net of withdrawals 8,844 4,371 5,554
Obligations related to securities
sold short (3,076) (868) (69)
Net obligations related to
securities lent or sold under
repurchase agreements 411 (5,100) (1,178)
Redemption of subordinated
indebtedness (250) (537) -
Issue of preferred shares - - 450
Redemption of preferred shares - - (416)
Issue of common shares, net 2,916 12 50
Net proceeds from treasury shares
(purchased) sold 8 15 18
Dividends (321) (322) (273)
Other, net (445) 130 353
-------------------------------------------------------------------------
8,087 (2,299) 4,489
-------------------------------------------------------------------------
Cash flows provided by (used in)
investing activities
Interest-bearing deposits with banks (4,230) 3,316 (2,494)
Loans, net of repayments (2,047) (4,483) 1,295
Proceeds from securitizations 2,250 1,493 2,537
Purchase of AFS securities (1,924) (5,149) (1,787)
Proceeds from sale of AFS securities 5,870 1,258 1,462
Proceeds from maturity of AFS
securities 4,941 790 2,396
Net securities borrowed or purchased
under resale agreements (1,605) 1,064 1,464
Net cash used in acquisition(1) - - (778)
Purchase of land, buildings
and equipment (43) (14) (233)
Proceeds from disposal of land,
buildings and equipment - 1 -
-------------------------------------------------------------------------
3,212 (1,724) 3,862
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash and non-interest-bearing
deposits with banks 20 (55) 41
-------------------------------------------------------------------------
Net increase (decrease) in cash and
non-interest-bearing deposits with
banks during period 216 120 621
Cash and non-interest-bearing
deposits with banks at beginning
of period 1,457 1,337 1,317
-------------------------------------------------------------------------
Cash and non-interest-bearing
deposits with banks at end
of period $ 1,673 $ 1,457 $ 1,938
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash interest paid $ 2,875 $ 2,982 $ 3,126
Cash income taxes paid $ 846 $ 49 $ 545
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Related to the acquisition of FirstCaribbean International Bank.
The accompanying notes and shaded sections in "MD&A - Management of risk"
on pages 17 to 27 are an integral part of these consolidated financial
statements.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The unaudited interim consolidated financial statements of Canadian
Imperial Bank of Commerce and its subsidiaries (CIBC) have been prepared
in accordance with Canadian generally accepted accounting principles
(GAAP). These financial statements follow the same accounting policies
and their methods of application as CIBC's consolidated financial
statements for the year ended October 31, 2007, except as noted below.
CIBC's interim consolidated financial statements do not include all
disclosures required by Canadian GAAP for annual financial statements
and, accordingly, should be read in conjunction with the consolidated
financial statements for the year ended October 31, 2007, as set out on
pages 84 to 137 of the 2007 Annual Accountability Report.
1. Change in accounting policy
Leveraged leases
Effective November 1, 2007, we adopted the amended Canadian Institute of
Chartered Accountants (CICA) Emerging Issues Committee Abstract (EIC 46),
"Leveraged Leases", which was based upon the Financial Accounting
Standards Board Staff Position (FSP) FAS 13-2, "Accounting for a Change
or Projected Change in the Timing of Cash Flows Relating to Income Taxes
Generated by a Leveraged Lease Transaction". The EIC requires that a
change in the estimated timing of the cash flows relating to income taxes
results in a recalculation of the timing of income recognition from the
leveraged lease.
The adoption of this guidance resulted in a $66 million charge to opening
retained earnings as at November 1, 2007. An amount approximating this
non-cash charge will be recognized into income over the remaining lease
terms using the effective interest rate method.
Capital disclosures
Effective November 1, 2007, we adopted the CICA handbook section 1535,
"Capital Disclosures", which requires an entity to disclose its
objectives, policies, and processes for managing capital. These were
provided in Note 17 of the 2007 consolidated financial statements, and
are unchanged from the prior year. In addition, the section requires
disclosure of summary quantitative information about what an entity
manages as capital. See Note 7 for additional details.
Financial instruments
Effective November 1, 2007, we adopted the CICA handbook sections 3862
"Financial Instruments - Disclosures" and 3863 "Financial Instruments -
Presentation".
These sections replace CICA handbook section 3861 "Financial Instruments
- Disclosure and Presentation", and enhance disclosure requirements on
the nature and extent of risks arising from financial instruments and how
the entity manages those risks. See Note 13 for additional details.
2. Sale of some of our U.S. businesses
Effective January 1, 2008, we sold our U.S. based investment banking,
leveraged finance, equities and related debt capital markets businesses
and our Israeli investment banking and equities businesses (the
"transferred businesses") to Oppenheimer Holdings Inc. (Oppenheimer). The
sale of certain other U.S. capital markets related businesses located in
the U.K. and Asia to Oppenheimer is expected to close in the second
quarter of 2008. In consideration, Oppenheimer provided us warrants for
one million shares exercisable at the end of five years, and will pay us
a minimum deferred purchase price of US$25 million at the end of five
years based on the earnings of the transferred businesses. We provided
indemnities in respect of certain costs that Oppenheimer may incur in
integrating the transferred businesses.
We wrote-off the goodwill associated with the transferred businesses,
impaired certain leasehold improvement and computer and software fixed
assets, and recorded liabilities with respect to certain contracts that
are no longer required as part of our continuing operations. In addition,
we accelerated the recognition of the cost of certain restricted share
awards (RSAs) granted to employees that were transferred to Oppenheimer.
As a result, we recorded a net pre-tax loss of $70 million in January
2008 in other non-interest income. We also recorded an impairment charge
of $10 million in other non-interest expenses related to the decision to
relocate most of our remaining U.S. personnel.
CIBC RSAs held by employees transferred to Oppenheimer will continue to
vest in accordance with their original terms. To support this
compensation arrangement, Oppenheimer will reimburse CIBC for the cost of
these RSAs to the extent they vest, at which time we will record the
reimbursements in other non-interest income.
Pursuant to the sale agreement, CIBC invested in a US$100 million
subordinated debenture issued by Oppenheimer and is providing certain
credit facilities to Oppenheimer and its investment banking clients to
facilitate Oppenheimer's business, with each loan subject to approval by
CIBC's credit committee.
Excluding the losses noted above, the transferred businesses contributed
the following to our results for the two months ended December 31, 2007:
-------------------------------------------------------------------------
2007
$ millions, for the two months ended Dec. 31
-------------------------------------------------------------------------
Net interest income $ 1
Non-interest income 58
-------------------------------------------------------------------------
Total revenue 59
Non-interest expenses 48
-------------------------------------------------------------------------
Income before taxes and non-controlling interests 11
Income taxes 6
-------------------------------------------------------------------------
Net income $ 5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
3. Past due loans but not impaired
Past due loans are loans where repayment of principal or payment of
interest is contractually in arrears. The following table provides an
ageing analysis of the past due loans. Consumer overdraft balances past
due less than 30 days have been excluded from the table below as the
information is currently indeterminable
-------------------------------------------------------------------------
$ millions, as at Less than 31 to Over
January 31, 2008 30 days 90 days 90 days Total
-------------------------------------------------------------------------
Residential mortgages $ 1,333 $ 597 $ 150 $ 2,080
Personal 530 140 45 715
Credit card 422 117 71 610
Business and government 353 212 24 589
-------------------------------------------------------------------------
$ 2,072 $ 1,066 $ 290 $ 3,428
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4. Allowance for credit losses
-------------------------------------------------------------------------
$ millions, for the three
months ended Jan. 31, 2008
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 553 $ 890 $ 1,443
Provision for (reversal of)
credit losses 171 1 172
Write-offs (187) - (187)
Recoveries 31 - 31
Transfer from general to specific(1) 2 (2) -
Other(2) 10 - 10
-------------------------------------------------------------------------
Balance at end of period $ 580 $ 889 $ 1,469
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprises:
Loans $ 580 $ 799 $ 1,379
Undrawn credit facilities(3) - 90 90
Letters of credit(4) - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ millions, for the three
months ended Oct. 31, 2007
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 608 $ 892 $ 1,500
Provision for (reversal of)
credit losses 134 (2) 132
Write-offs (215) - (215)
Recoveries 43 - 43
Transfer from general to specific(1) - - -
Other(2) (17) - (17)
-------------------------------------------------------------------------
Balance at end of period $ 553 $ 890 $ 1,443
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprises:
Loans $ 553 $ 890 $ 1,443
Undrawn credit facilities(3) - - -
Letters of credit(4) - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ millions, for the three
months ended Jan. 31, 2007
-------------------------------------------------------------------------
Specific General Total
allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of period $ 544 $ 900 $ 1,444
Provision for (reversal of)
credit losses 143 - 143
Write-offs (224) - (224)
Recoveries 53 - 53
Transfer from general to specific(1) 3 (3) -
Other(2) 117 23 140
-------------------------------------------------------------------------
Balance at end of period $ 636 $ 920 $ 1,556
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprises:
Loans $ 634 $ 920 $ 1,554
Undrawn credit facilities(3) - - -
Letters of credit(4) 2 - 2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Related to student loan portfolio.
(2) First quarter of 2007 includes $117 million in specific allowance and
$23 million in general allowance related to the acquisition of
FirstCaribbean International Bank.
(3) Beginning in the first quarter of 2008, allowance on undrawn credit
facilities is included in other liabilities. Prior to 2008, it was
included in allowance for credit losses.
(4) Included in other liabilities.
5. Securitizations and variable interest entities
Securitizations (residential mortgages)
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2008 2007 2007
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Securitized $ 6,308 $ 4,719 $ 3,850
Sold 2,272 1,510 2,549
Net cash proceeds 2,250 1,493 2,537
Retained interests 48 25 33
Gain on sale, net of transaction costs 14 4 10
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained interest assumptions (%)
Weighted-average remaining
life (in years) 3.7 3.8 3.3
Prepayment/payment rate 11.0 - 36.0 11.0 - 39.0 11.0 - 39.0
Discount rate 3.8 - 4.6 4.6 - 4.9 4.1- 4.3
Expected credit losses 0.0 - 0.1 0.0 - 0.1 0.0 - 0.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Variable interest entities (VIEs)
As discussed in Note 6 to our 2007 consolidated financial statements, we
have interests in certain VIEs that are not considered significant
because our interests are hedged with other counterparties.
Under certain total return swap credit derivative arrangements with these
VIEs held in our trading book, we can be called upon to purchase the
underlying reference assets at par with the simultaneous termination of
the credit derivatives. Pursuant to these arrangements, during the
quarter, we purchased certain reference assets at a par amount of
$4.8 billion from two third-party structured vehicles in consideration
for the termination of the related total return swaps. The reference
assets purchased were categorized as trading securities on our
consolidated balance sheet and continue to be hedged. We may also be
called upon to purchase additional reference assets at a par amount of
$2.0 billion covered by the remaining total return swaps with the
third-party structured vehicles.
We continue to support our sponsored conduits from time to time through
the purchase of commercial paper issued by these conduits. As at
January 31, 2008, our direct investment in commercial paper issued by our
sponsored conduits was $1.0 billion. We were not considered to be the
primary beneficiary of any of these conduits.
6. Subordinated indebtedness
On January 21, 2008, in accordance with their terms, we redeemed all
$250 million of our 4.75% Debentures (subordinated indebtedness) due
January 21, 2013, for their outstanding principal amount, plus unpaid
interest accrued to the redemption date.
Subsequent to the quarter-end, on February 26, 2008, we redeemed all
$89 million of our 5.89% Debentures (subordinated indebtedness) due
February 26, 2013, for their outstanding principal amount, plus unpaid
interest accrued to the redemption date.
7. Share capital
Regulatory capital and ratios
Commencing November 1, 2007, our regulatory capital requirements are
based on the Basel II framework. Refer to "Management of risk" section of
the MD&A for additional details on Basel II.
Bank for International Settlements standards require that banks maintain
minimum Tier 1 and Total capital ratios of 4% and 8%, respectively. The
Office of the Superintendent of Financial Institutions has established
that Canadian deposit-taking financial institutions maintain Tier 1 and
Total capital ratios of at least 7% and 10%, respectively. During the
quarter, we have complied with these regulatory capital requirements.
As at January 31, 2008, Tier 1 capital comprised common shares excluding
short trading positions in our own shares, retained earnings, preferred
shares, non-controlling interests, contributed surplus, and foreign
currency translation adjustments. Goodwill and gains on sale upon
securitization were deducted from Tier 1 capital. Tier 2 capital
comprised subordinated debt and eligible general allowance. Commencing
November 1, 2007, the investment in insurance subsidiaries and pre-2007
substantial investments were deducted from Tier 2 capital. Both Tier 1
and Tier 2 capital were subject to certain other deductions on a 50/50
basis.
Our capital ratios and assets-to-capital multiple are presented in the
following table. The information as at January 31, 2008 is based on Basel
II requirements and information for October 31, 2007 is based upon Basel
I requirements, and hence the information is not comparable.
-------------------------------------------------------------------------
Basel II Basel I
basis basis
-------------------------------------------------------------------------
2008 2007
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 13,426 $ 12,379
Total regulatory capital 17,845 17,758
Risk-weighted assets 117,408 127,424
Tier 1 capital ratio 11.4 % 9.7 %
Total capital ratio 15.2 % 13.9 %
Assets-to-capital multiple 19.0x 19.0x
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares
During the quarter, we issued 45.3 million common shares for net cash
proceeds of $2.9 billion, after issuance costs, net of tax, of
$32 million. We also issued 0.2 million common shares for $11 million,
pursuant to stock option plans.
8. Hedged U.S. residential mortgage market (USRMM) exposure and
financial guarantors
We have derivative contracts with ACA Financial Guaranty Corp. (ACA) to
hedge our exposure on various reference assets, including collateralized
debt obligations and other positions related to the USRMM. During the
quarter, we recorded a charge of US$2.30 billion ($2.28 billion) on the
hedging contracts provided by ACA (including US$30 million ($30 million)
against contracts unrelated to USRMM unwound during the quarter) as a
result of its downgrade to non-investment grade.
The amount of the charge is based on the estimated fair value of the ACA
derivative contracts, which in turn is based on market value of the
underlying reference assets. The total amount of the notional exposure
from the derivative liabilities subject to the hedges with ACA was
US$3.5 billion ($3.5 billion) all of which related to the USRMM. Further
charges could result depending on the performance of both the underlying
assets and ACA.
The notional amount of the remaining derivative contracts with
counterparties hedging our USRMM exposures was US$5.0 billion
($5.1 billion), with a fair value of US$2.8 billion ($2.8 billion), of
which all but US$591 million ($593 million) notional and US$182 million
($183 million) fair value was with financial guarantors.
In addition, we have derivative contracts with financial guarantors where
the underlying assets are unrelated to USRMM. As at January 31, 2008, the
fair value of these derivative contracts amounted to US$885 million
($888 million).
During the quarter, we recorded a charge of US$624 million ($626 million)
against our exposure to financial guarantors to increase our valuation
adjustments to US$648 million ($650 million) as at January 31, 2008. The
methodology employed to establish these valuation adjustments (excluding
that for ACA) was changed in the first quarter to take into account
market observed credit spreads. Market and economic conditions relating
to these counterparties may change in the future, which could result in
significant future losses.
Mitigating our exposure to these financial guarantors are credit hedges
with a notional amount of US$525 million ($527 million) and a fair value
of US$63 million ($63 million) as at January 31, 2008. During the
quarter, we recognized a gain of US$42 million ($43 million) on these
hedges.
We believe that we have made appropriate fair value adjustments to date.
The establishment of fair value adjustments involve estimates that are
based on accounting processes and judgments by management. We evaluate
the adequacy of the fair value adjustments on an ongoing basis. The
levels of fair value adjustments could be changed as events warrant.
9. Employee future benefit expenses
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
2008 2007 2007
$ millions Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Defined benefit plans
Pension benefit plans $ 38 $ 45 $ 48
Other benefit plans 8 10 8
-------------------------------------------------------------------------
$ 46 $ 55 $ 56
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Defined contribution plans
CIBC's pension plans $ 4 $ 8 $ 4
Government pension plans(1) 21 13 22
-------------------------------------------------------------------------
$ 25 $ 21 $ 26
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal
Insurance Contributions Act.
10. (Loss) earnings per share (EPS)
-------------------------------------------------------------------------
For the three months ended
-------------------------------------
$ millions, except per 2008 2007 2007
share amounts Jan. 31 Oct. 31 Jan. 31
-------------------------------------------------------------------------
Basic EPS
Net (loss) income $ (1,456) $ 884 $ 770
Preferred share dividends
and premiums (30) (30) (54)
-------------------------------------------------------------------------
Net (loss) income applicable to
common shares $ (1,486) $ 854 $ 716
-------------------------------------------------------------------------
Weighted-average common shares
outstanding (thousands) 338,732 334,849 336,486
-------------------------------------------------------------------------
Basic EPS $ (4.39) $ 2.55 $ 2.13
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted EPS
Net (loss) income applicable to
common shares $ (1,486) $ 854 $ 716
-------------------------------------------------------------------------
Weighted-average common shares
outstanding (thousands) 338,732 334,849 336,486
Add: stock options potentially
exercisable(1) (thousands) 2,079 3,078 3,456
-------------------------------------------------------------------------
Weighted-average diluted common
shares outstanding(2) (thousands) 340,811 337,927 339,942
-------------------------------------------------------------------------
Diluted EPS(3) $ (4.39) $ 2.53 $ 2.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Excludes average options outstanding of 850,531 with a weighted-
average exercise price of $87.69; average options outstanding of
4,553 with a weighted-average exercise price of $102.22; and average
options outstanding of 3,249 with a weighted-average exercise price
of $98.30 for the three months ended January 31, 2008, October 31,
2007, and January 31, 2007, respectively, as the options' exercise
prices were greater than the average market price of CIBC's common
shares.
(2) Convertible preferred shares/preferred share liabilities have not
been included in the calculation since we have the right to redeem
them for cash prior to the conversion date.
(3) In case of a loss, the effect of stock options potentially
exercisable on diluted EPS will be anti-dilutive; therefore basic and
diluted EPS will be the same.
11. Guarantees
-------------------------------------------------------------------------
2008 2007
$ millions, as at Jan. 31 Oct. 31
-------------------------------------------------------------------------
Maximum Maximum
potential potential
future Carrying future Carrying
payment(1) amount payment(1) amount
-------------------------------------------------------------------------
Securities lending with
indemnification(2) $ 41,645 $ - $ 43,287 $ -
Standby and performance
letters of credit 6,422 13 6,353 13
Credit derivatives
written options 67,031 6,171 67,283 3,971
Other derivative
written options(3) (4) 4,409 (4) 5,612
Other indemnification
agreements (4) - (4) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The total collateral available relating to these guarantees was
$51.2 billion (October 31, 2007: $53.7 billion).
(2) Comprises the full contract amount of custodial client securities
lent by CIBC Mellon Global Securities Services Company, which is a
50/50 joint venture between CIBC and The Bank of New York Mellon.
(3) Includes $769 million (October 31, 2007: $631 million) related to
total return swaps (TRS). For TRS with notional amount of
approximately $2.0 billion (October 31, 2007: $6.5 billion) and a
fair value liability of approximately $654 million (October 31, 2007:
fair value liability of $470 million), we can be called upon to
purchase the reference assets at par with the simultaneous
termination of the swap contracts.
(4) See narrative on page 127 of the 2007 consolidated financial
statements for further information.
12. Segmented information
CIBC has two strategic business lines: CIBC Retail Markets and CIBC World
Markets. These business lines are supported by five functional groups -
Administration, Technology and Operations; Corporate Development;
Finance; Legal and Regulatory Compliance; and Treasury and Risk
Management. The activities of these functional groups are included within
Corporate and Other, with their revenue, expenses and balance sheet
resources generally being allocated to the business lines.
During the quarter: (a) We moved commercial banking from CIBC World
Markets to CIBC Retail Markets. Prior period information was restated;
(b) We allocated the general allowance for credit losses between the
strategic business lines (CIBC Retail Markets and CIBC World Markets).
Prior to 2008, the general allowance (excluding FirstCaribbean
International Bank) was included within Corporate and Other. Prior period
information was not restated; and (c) We reclassified the allowance for
credit losses related to the undrawn credit facilities to other
liabilities. Prior to 2008, it was included in allowance for credit
losses. Prior period information was not restated.
-------------------------------------------------------------------------
CIBC CIBC
$ millions, for the Retail World Corporate CIBC
three months ended Markets Markets and Other Total
-------------------------------------------------------------------------
Jan. 31, 2008
Net interest income
(expense) $ 1,259 $ (164) $ 59 $ 1,154
Non-interest income 1,111 (2,793) 7 (1,675)
Intersegment revenue(1) 1 - (1) -
-------------------------------------------------------------------------
Total revenue 2,371 (2,957) 65 (521)
Provision for credit losses 155 17 - 172
Amortization(2) 28 5 29 62
Other non-interest expenses 1,325 346 28 1,699
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 863 (3,325) 8 (2,454)
Income tax expense (benefit) 202 (1,166) (38) (1,002)
Non-controlling interests 4 - - 4
-------------------------------------------------------------------------
Net income (loss) $ 657 $ (2,159) $ 46 $ (1,456)
-------------------------------------------------------------------------
Average assets(3) $ 235,279 $ 108,082 $ 1,167 $ 344,528
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2007
Net interest income
(expense) $ 1,246 $ (84) $ 78 $ 1,240
Non-interest income 1,546 89 71 1,706
Intersegment revenue(1) 2 - (2) -
-------------------------------------------------------------------------
Total revenue 2,794 5 147 2,946
Provision for (reversal of)
credit losses 150 (18) - 132
Amortization(2) 29 4 28 61
Other non-interest expenses 1,373 353 87 1,813
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 1,242 (334) 32 940
Income tax expense (benefit) 271 (222) (4) 45
Non-controlling interests 11 - - 11
-------------------------------------------------------------------------
Net income (loss) $ 960 $ (112) $ 36 $ 884
-------------------------------------------------------------------------
Average assets(3) $ 234,632 $ 105,051 $ 553 $ 340,236
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jan. 31, 2007
Net interest income
(expense) $ 1,145 $ (168) $ 82 $ 1,059
Non-interest income 1,126 830 76 2,032
Intersegment revenue(1) 2 - (2) -
-------------------------------------------------------------------------
Total revenue 2,273 662 156 3,091
Provision for (reversal of)
credit losses 148 (5) - 143
Amortization(2) 20 5 33 58
Other non-interest expenses 1,333 481 71 1,885
-------------------------------------------------------------------------
Income before income taxes
and non-controlling
interests 772 181 52 1,005
Income tax expense 198 11 22 231
Non-controlling interests 4 - - 4
-------------------------------------------------------------------------
Net income $ 570 $ 170 $ 30 $ 770
-------------------------------------------------------------------------
Average assets(3) $ 214,962 $ 100,616 $ 544 $ 316,122
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Intersegment revenue represents internal sales commissions and
revenue allocations under the Manufacturer/Customer Segment/
Distributor Management Model.
(2) Includes amortization of buildings, furniture, equipment, leasehold
improvements and finite-lived other intangible assets.
(3) Assets are disclosed on an average basis as this measure is most
relevant to a financial institution and is the measure reviewed by
management.
13. Financial instruments - disclosures
Effective November 1, 2007, we adopted the CICA handbook section 3862,
"Financial Instruments - Disclosures". We have included some of the
disclosures required by the CICA handbook section 3862 in the shaded
sections of the "MD&A - Management of risk", as permitted by the
standard. The following table provides a cross referencing of those
disclosures from the MD&A.
-------------------------------------------------------------------------
Description Section
-------------------------------------------------------------------------
For each type of risk arising from financial Risk overview
instruments, an entity shall disclose: the exposure to ----------------
risk and how they arise; objectives, policies and Credit risk
processes used for managing the risks; methods used to ----------------
measure the risk; and description of collateral Market risk
----------------
Liquidity risk
----------------
Operational risk
----------------
Reputation and
legal risk
----------------
Regulatory risk
-------------------------------------------------------------------------
Credit risk - gross exposure to credit risk, credit Credit risk
quality, and concentration of exposures
-------------------------------------------------------------------------
Market risk - trading portfolios - value-at-risk; Market risk
non-trading portfolios - interest rate risk, foreign
exchange risk, and equity risk
-------------------------------------------------------------------------
Liquidity risk - liquid assets, maturity of financial Liquidity risk
liabilities, and credit and liquidity commitments
-------------------------------------------------------------------------
We have provided quantitative disclosures related to credit risk
consistent with Basel II guidelines, which requires entities to disclose
their exposures based on how they manage their business and risks. The
following table sets out the categories of the drawn exposure to credit
risk under Advanced Internal Ratings Based (AIRB) and standardized
approaches displayed in both accounting categories and Basel II
portfolios.
$ millions, as at January 31, 2008
-------------------------------------------------------------------------
Accounting categories Basel II portfolios
------------------------- ----------------------------------------------
Real estate
secured
personal
Corporate Sovereign Bank lending
------------------------- ----------------------------------------------
Non-interest bearing
deposits with banks $ - $ - $ 725 $ -
Interest-bearing deposits
with banks 6 344 7,021 -
Securities
Trading 131 56 21 -
AFS 2,137 3,169 4 -
FVO 4 14,051 - -
Loans
Residential mortgages 603 1,198 - 87,614
Personal loans 296 4 24 15,098
Credit card loans - - - -
Business and government
loans 27,908 772 803 -
Customers' liability under
acceptances 7,789 304 434 -
Other assets 963 2,023 6,250 8
-------------------------------------------------------------------------
Total credit exposure $ 39,837 $ 21,921 $ 15,282 $ 102,720
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-----------------------------------------------------------------
Accounting categories Basel II portfolios
------------------------- --------------------------------------
Qualifying
revolving Other
retail retail Securitization
------------------------- --------------------------------------
Non-interest bearing
deposits with banks $ - $ - $ -
Interest-bearing deposits
with banks - - -
Securities
Trading - - 2,180
AFS - - 1,595
FVO - - 242
Loans
Residential mortgages - - -
Personal loans 5,970 8,049 -
Credit card loans 9,289 106 -
Business and government
loans - 2,078 187
Customers' liability under
acceptances - - -
Other assets - - 98
-----------------------------------------------------------------
Total credit exposure $ 15,259 $ 10,233 $ 4,302
-----------------------------------------------------------------
-----------------------------------------------------------------
14. Subsequent event
On February 25, 2008, Visa Inc. announced its intent to proceed with an
initial public offering (IPO) of its Class A shares in the range of US$37
to US$42 per share, which suggests that the fair value of our Visa shares
is $80 million to $130 million lower than the book value. As a result, to
the extent that the IPO and the mandatory redemption of a portion of our
shares (expected to be around 50% of our holdings) occurs in the second
quarter of 2008, we will likely record a loss on sale in respect of those
shares. In addition, during the second quarter, we will assess the extent
to which we will be required to record an other than-temporary impairment
on our remaining shares. The amount of the losses we will record will be
impacted by the outcome of the IPO as well as the final adjustment
process, which may positively or negatively affect the number of shares
we own.%SEDAR: 00002543EF
For further information:
For further information: Investor and analyst inquiries should be directed to John Ferren, Vice-President, Investor Relations, at (416) 980-2088; Media inquiries should be directed to Rob McLeod, Senior Director, Communications and Public Affairs, at (416) 980-3714, or to Mary Lou Frazer, Senior Director, Investor & Financial Communications, at (416) 980-4111
