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CIBC Announces Second Quarter 2008 Results
TORONTO, May 29 /CNW/ - CIBC (CM: TSX; NYSE) announced a net loss of
$1,111 million for the second quarter ended April 30, 2008, compared to net
income of $807 million for the same period last year. Diluted loss per share
was $3.00, compared to diluted earnings per share (EPS) of $2.27 a year ago.
Cash diluted loss per share was $2.98(1), compared to cash diluted EPS of
$2.29(1) a year ago.
CIBC's Tier 1 capital ratio at April 30, 2008 was 10.5%.Results for the second quarter of 2008 were positively affected by the
following item:
- $14 million ($9 million after tax, or $0.02 per share) positive
impact of changes in credit spreads on the mark-to-market of credit
derivatives in CIBC's corporate loan hedging program.
Results for the second quarter of 2008 were negatively affected by the
following items:
- $2.48 billion loss on structured credit run-off activities
($1.67 billion after tax, or $4.37 per share);
- $65 million ($21 million after tax, or $0.05 per share) foreign
exchange loss on the repatriation of retained earnings from CIBC's
U.S. operations;
- $50 million ($34 million after tax, or $0.09 per share) of valuation
charges against credit exposures to derivatives from counterparties
other than financial guarantors;
- $26 million ($18 million after tax, or $0.05 per share) of higher
than normal severance expense in CIBC World Markets;
- $22 million ($19 million after tax and minority interest, or
$0.05 per share) loss on Visa initial public offering adjustment
(VISA IPO adjustment).The net loss, diluted loss per share and cash diluted loss per share for
the second quarter of 2008 compared with a net loss of $1,456 million, diluted
loss per share of $4.39 and cash diluted loss per share of $4.36(1),
respectively, for the prior quarter, which included items of note that
aggregated to a negative impact on results of $6.36 per share.
The deterioration in credit and liquidity conditions, particularly for
securities with exposure to the U.S. residential mortgage market (USRMM), has
required CIBC to record asset write-downs and counterparty credit reserves
within its structured credit business. In addition, market conditions have had
a negative impact on performance in other areas, particularly within CIBC's
wholesale and retail brokerage operations.
"While the current environment is challenging, CIBC's franchise remains
solid," says Gerald T. McCaughey, President and Chief Executive Officer. "Our
capital position is strong and our core businesses are well positioned for
growth. In support of our strategy of consistent and sustainable performance,
we are taking further steps to adapt our business profile and risk management
processes to evolving financial market risks."
Update on business priorities
CIBC's strategy is supported by three priorities - business strength,
productivity and balance sheet strength. Despite the challenging market
conditions during the quarter, CIBC made progress against its priorities in
several areas.
Business strength
CIBC Retail Markets reported revenue of $2,239 million, down 3% from
$2,309 million for the same quarter last year. Net income for the second
quarter was $509 million, which included the VISA IPO adjustment, versus
$617 million a year ago, which included an $80 million tax recovery. Excluding
these items, CIBC Retail Markets net income was down 2%.
CIBC's retail business in Canada continues to perform well overall, with
solid profitability driven by volume growth, expense discipline and good
credit experience.
CIBC's credit card business is the market leader in Canada by purchase
volumes and outstandings and continues to deliver solid growth. Balances were
up 12.8% over the second quarter of last year. CIBC has achieved double digit
growth in its cards business over several quarters, while reducing its loan
loss rate.
In CIBC's mortgages and personal lending business, net interest margins
have declined over the past year, primarily due to higher funding costs, which
more than offset growth of 12.5% in mortgage balances.
Retail brokerage revenue was lower than a year ago, as less favourable
market conditions negatively impacted trading volumes.
CIBC's retail strategy in Canada is to become the primary financial
institution for more of its clients. During the quarter, CIBC continued to
focus on its key priorities of providing clients with strong advisory
solutions, enhancing their client experience and offering highly competitive
products:- CIBC continued to invest in its branch network so that clients will
have greater flexibility, access and choice to meet their banking
needs. CIBC announced the locations of 13 new full service branches
as part of a strategic plan to build, relocate and expand over 70 new
branches across the country by 2011.
- CIBC announced the expansion of its Sunday hours program to an
additional 6 branches (from 6 currently) in the Greater Toronto Area
and Vancouver Lower Mainland this summer.
- Enhancements to CIBC's ABM network included the introduction of a
Chinese language option to all of CIBC's more than 3,700 ABMs across
Canada.
- CIBC's client website, www.cibc.com again received the highest score
in an independent competitive site assessment of the public websites
of Canada's seven largest banks and credit unions by
Forrester Research Inc.(2)
- CIBC continues to lead the market with innovative products to further
its relationship with its clients. CIBC announced the launch of the
CIBC Aerogold Visa Infinite card, a new addition to its leading
Aerogold family of credit cards, as well as a market trial of chip
card technology on CIBC Visa and debit cards that provides clients
with enhanced security and fraud protection.CIBC World Markets reported a loss of $1.64 billion. This result includes
the $1.67 billion loss on structured credit run-off activities.
Market and economic conditions relating to the financial guarantors may
change in the future, which could result in significant future losses.
Market conditions during the second quarter were significantly more
challenging than a year ago. The combination of the lower industry volumes and
the restructuring activities that are ongoing within CIBC's wholesale business
had a negative impact on performance in the second quarter.
CIBC continues to take steps to reposition CIBC World Markets for
consistent and sustainable performance.
CIBC has exited business activities that do not have a risk-adjusted
return profile that aligns with CIBC's strategy of consistent and sustainable
performance. Earlier this year, CIBC closed the sale of its U.S. domestic
investment banking business and exited its European leveraged finance
business.
CIBC has curtailed its activities in the structured credit area where its
U.S. residential mortgage exposures were originated. A dedicated team is
managing CIBC's existing exposures with a mandate to reducing risk and current
positions. During the quarter, CIBC sold several of its USRMM exposures that
were hedged by ACA Financial Guaranty Corp. and also reduced non-USRMM written
credit derivative notional exposures in its trading book.
As a result of the ongoing refocusing of CIBC World Markets on its most
profitable and competitive activities, in May CIBC announced plans to
eliminate 100 positions across the firm. This is expected to result in a total
reduction to staffing levels across CIBC World Markets by more than 15% over
the course of fiscal 2008. This does not include the approximately 600
employees transferred to Oppenheimer Holdings Inc. as part of the sale of U.S.
investment banking, equities and leveraged finance activities earlier in this
fiscal year.
These and other actions CIBC is taking to restructure CIBC World Markets
have the common purpose of sustaining CIBC's position as a leading
Canadian-based investment bank. During the quarter, the strength of CIBC's
franchise was evident in several notable achievements:- No.1 in Equity Underwriting - CIBC World Markets secured its position
as No.1 in volume of new issues underwritten at the end of the first
calendar quarter, based on the strength of its co-lead manager role
on the $19.6 billion IPO of Visa Inc., joint book runner roles on a
$357 million Aeroplan Income Fund secondary offering from
ACE Aviation Holdings Inc. and a $250 million financing of
convertible debentures for Harvest Energy Trust, as well as placement
agent on a US$350 million private placement of convertible debentures
for AbitibiBowater Inc.
- Canadian dealmaker of the year for 2007 - The Globe and Mail's
inaugural Canadian Dealmakers awards recognized CIBC World Markets as
Canadian Dealmaker of the year in 2007 for its key role as exclusive
financial advisor to Fortis Inc. on its $3.7 billion acquisition of
Terasen Inc.
- No.1 in 2007 Canadian analyst rankings - The equities research team
at CIBC World Markets took top spot in the 2007 Financial
Post/StarMine ranking of brokerages and analysts, receiving
19 Top Analyst awards.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 expenses related to CIBC's
FirstCaribbean International Bank subsidiary, its U.S. restructuring and
structured credit run-off activities.
Expenses for the second quarter were $1,788 million, down 9.5% from
$1,976 million a year ago (due primarily to lower compensation related
expenses).
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. In 2008, CIBC
is placing additional emphasis on this priority, given the uncertain market
conditions.
Earlier this year, CIBC strengthened its capital position by raising
$2.9 billion of common equity.
"Our capital raise has enabled us to maintain a strong capital position
despite the impact of deteriorating market conditions on our performance,"
says McCaughey. "Our Tier 1 ratio of 10.5% at the end of April is above our
target of 8.5% and also places CIBC in a leading position among North American
banks."
Update on risk management enhancements
In addition to furthering its business priorities, CIBC is enhancing its
risk management capabilities.
The first priority in CIBC's risk assessment has been to ensure risks are
effectively managed within the front-line businesses. This process has led to
the series of business exits described above.
CIBC is also improving its risk management capabilities, both within CIBC
World Markets and its Risk Management function, taking into account evolving
financial market risks. This process has involved a complete review of risk
management processes and a number of actions being taken:- CIBC has developed a more robust risk appetite statement and
supporting metrics.
- CIBC has established additional forums for senior management debate
of risk issues and review of new products, both within
CIBC World Markets and its Risk Management function.
- CIBC has hired two new senior executives to report directly to its
Chief Risk Officer.
- CIBC has adapted reporting and agendas for the Risk Management
Committee of the Board to provide additional focus on emerging risk
issues.
- CIBC has launched bank-wide business risk reviews, including scenario
analyses and stress testing for risks that could emerge in the
future.Each of these actions has a common purpose of ensuring that all of CIBC's
risk management policies, procedures and practices are aligned with best
practices in the industry and enable CIBC to react quickly to changes in the
external environment.
Making a difference in communities
As a leader in community investment, CIBC is committed to supporting
causes that matter to its clients, its employees and its communities. During
the quarter, CIBC continued to demonstrate leadership in this area.
CIBC renewed its commitment to the CIBC Youthvision Scholarship
Program™, a unique partnership with Big Brothers Big Sisters Canada and the
YMCA, for an additional three years. Since the program's inception in 1999,
CIBC has committed more than $10 million to help young people achieve their
dreams.
CIBC contributed $1 million to the Canadian Women's Foundation, Canada's
only national public foundation dedicated to improving the lives of women and
girls. Post quarter end, CIBC announced a first in Canada program with the
Richard Ivey School of Business that directly addresses the growing talent gap
in corporate Canada. ReConnect: Career Renewal for Returning Professional
Women™ will help professional women re-enter their careers after taking
time out of the workforce to pursue other activities. CIBC is committing
$1 million to the program over five years as the founding sponsor.
CIBC donated $100,000 to the National Aboriginal Achievement Foundation's
education program. Since 2001, CIBC has committed a total of $800,000 to
scholarships and bursaries to help meet the financial needs of First Nations,
Inuit and Métis students.
These are a few examples of CIBC's ongoing commitment to make a
difference in communities through corporate donations, sponsorships and the
volunteer spirit of employees.--------------------------------------------------
(1) For additional information, see the "Non-GAAP measures" section.
(2) Source: 2008 Canadian Bank Public Web Site Rankings,
Forrester Research Inc., May 2008.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 Financial Officer of
CIBC to certify CIBC's second quarter financial report and controls and
procedures. CIBC's CEO and CFO will voluntarily provide to the Securities
and Exchange Commission a certification relating to CIBC's second 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
-------------------------------------------------------------------------
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 May 29, 2008.
Additional information relating to CIBC is available on SEDAR at www.sedar.com
and on the U.S. Securities and Exchange Commission's 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", "Run-off businesses",
"Other selected activities" 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 "Overview - 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.Second Quarter Financial Highlights
-------------------------------------------------------------------------
As at or for the As at or for the
three months ended six months ended
------------------------------ -------------------
2008 2008 2007 2008 2007
Unaudited Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Common share information
Per share
- basic (loss)
earnings $ (3.00) $ (4.39) $ 2.29 $ (7.31) $ 4.42
- cash basic (loss)
earnings(1) (2.98) (4.36) 2.32 (7.26) 4.46
- diluted (loss)
earnings (3.00) (4.39) 2.27 (7.31) 4.37
- cash diluted (loss)
earnings(1) (2.98) (4.36) 2.29 (7.26) 4.41
- dividends 0.87 0.87 0.77 1.74 1.47
- book value 29.01 32.76 32.67 29.01 32.67
Share price
- high 74.17 99.81 104.00 99.81 104.00
- low 56.94 64.70 97.70 56.94 88.96
- closing 74.17 73.25 97.70 74.17 97.70
Shares outstanding
(thousands)
- average basic 380,754 338,732 337,320 359,512 336,896
- average diluted 382,377 340,811 340,613 361,366 340,272
- end of period 380,770 380,650 337,487 380,770 337,487
Market capitalization
($ millions) $ 28,242 $ 27,883 $ 32,972 $ 28,242 $ 32,972
----------------------------------------------------- -------------------
Value measures
Price to earnings multiple
(12 month trailing) n/m 26.9 11.4 n/m 11.4
Dividend yield (based on
closing share price) 4.8% 4.7% 3.2% 4.7% 3.0%
Dividend payout ratio n/m n/m 33.7% n/m 33.3%
Market value to book
value ratio 2.56 2.24 2.99 2.56 2.99
----------------------------------------------------- -------------------
Financial results
($ millions)
Total revenue $ 126 $ (521) $ 3,050 $ (395) $ 6,141
Provision for credit
losses 176 172 166 348 309
Non-interest expenses 1,788 1,761 1,976 3,549 3,919
Net (loss) income (1,111) (1,456) 807 (2,567) 1,577
----------------------------------------------------- -------------------
Financial measures
Efficiency ratio n/m n/m 64.8% n/m 63.8%
Cash efficiency ratio,
taxable equivalent
basis (TEB)(1) n/m n/m 63.2% n/m 62.3%
Return on equity (37.6)% (52.9)% 28.9% (45.0)% 28.0%
Net interest margin 1.57% 1.33% 1.36% 1.45% 1.34%
Net interest margin on
average interest-
earning assets 1.85% 1.57% 1.55% 1.71% 1.54%
Return on average assets (1.29)% (1.68)% 1.02% (1.49)% 0.99%
Return on average
interest-earning assets (1.52)% (1.98)% 1.16% (1.75)% 1.13%
Total shareholder return 2.59% (27.3)% (2.4)% (25.42)% 13.2%
----------------------------------------------------- -------------------
On- and off-balance
sheet information
($ millions)
Cash, deposits with
banks and securities $ 92,189 $ 99,411 $100,204 $ 92,189 $100,204
Loans and acceptances 174,580 171,090 164,797 174,580 164,797
Total assets 343,063 347,734 326,580 343,063 326,580
Deposits 238,203 239,976 221,169 238,203 221,169
Common shareholders'
equity 11,046 12,472 11,025 11,046 11,025
Average assets 349,005 344,528 326,088 346,742 321,023
Average interest-
earning assets 296,427 293,166 285,127 294,778 280,895
Average common
shareholders' equity 12,328 11,181 10,964 11,748 10,715
Assets under
administration 1,205,077 1,169,570 1,165,585 1,205,077 1,165,585
----------------------------------------------------- -------------------
Balance sheet quality
measures
Common equity to risk-
weighted assets(2) 9.6% 10.6% 8.7% 9.6% 8.7%
Risk-weighted assets
($ billions)(2) $ 114.8 $ 117.4 $ 127.2 $ 114.8 $ 127.2
Tier 1 capital ratio(2) 10.5% 11.4% 9.5% 10.5% 9.5%
Total capital ratio(2) 14.4% 15.2% 14.1% 14.4% 14.1%
----------------------------------------------------- -------------------
Other information
Retail/wholesale
ratio(3) 68%/32% 71%/29% 73%/27% 68%/32% 73%/27%
Regular workforce
headcount 40,345 40,237 40,488 40,345 40,488
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----------------------------------------------------- -------------------
(1) For additional information, see the "Non-GAAP measures" section.
(2) Q1/08 and Q2/08 are 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
-------------------------------------------------------------------------
Net loss for the quarter was $1,111 million, compared to net income of
$807 million for the same quarter last year and net loss of $1,456 million for
the prior quarter. Net loss for the six months ended April 30, 2008 was
$2,567 million, compared with net income of $1,577 million for the same period
in 2007.
Our results for the current quarter were affected by the following items:- Loss on structured credit run-off business of $2.48 billion
($1.67 billion after-tax), which includes mark-to-market losses, net
of gains on index hedges, on unhedged exposures related to the U.S.
residential mortgage market (USRMM) ($114 million, $77 million
after-tax), charges on credit protection purchased from ACA Financial
Guaranty Corp. (ACA) and other financial guarantors ($2.17 billion,
$1.46 billion after-tax), gain on credit hedges on structured credit
counterparties ($63 million, $42 million after-tax), losses on sales
of certain positions, and direct expenses related to managing the
run-off activities;
- $50 million ($34 million after-tax) of valuation charges against
credit exposures to derivatives counterparties, other than financial
guarantors;
- $26 million ($18 million after-tax) of severance accruals;
- $22 million ($19 million after-tax and minority interest) loss on
Visa initial public offering adjustment (Visa IPO adjustment);
- $65 million ($21 million after-tax) foreign exchange loss on the
repatriation of retained earnings from our U.S. operations; and
- $14 million ($9 million after-tax) positive impact of changes in
credit spreads on the mark-to-market (MTM) of credit derivatives in
our corporate loan hedging programs.Compared with Q2, 2007
The loss on structured credit run-off business noted above was the main
factor for the significant drop of revenue from the same quarter last year.
The impact of the sale of some of our U.S. businesses, lower revenue from U.S.
real estate finance, higher funding costs for retail lending products, and
lower retail brokerage revenue also contributed to the decline. Revenue
benefited from volume growth in cards, mortgages and deposits. Provision for
credit losses was up mainly due to the reversal of general allowance in the
same quarter last year. Non-interest expenses were down largely due to lower
performance-related compensation, partially offset by higher litigation
expenses.
Compared with Q1, 2008
Revenue was up mainly due to lower charges on credit protection purchased
from financial guarantors and lower mark-to-market losses related to our USRMM
positions. Revenue in the quarter was negatively impacted by lower gains on
our corporate loan credit derivatives, lower Canadian investment banking
revenue, the Visa IPO adjustment noted above, and two fewer days. Non-interest
expenses were up as a result of higher litigation expenses. The lower loss in
the quarter resulted in a lower tax benefit.
Compared with the six months ended April 30, 2007
Revenue in the current period was significantly lower due to the charges
on credit protection purchased from financial guarantors and mark-to-market
losses related to our USRMM positions. Lower revenue from U.S. real estate
finance, the impact of the sale of some of our U.S. businesses, and higher
funding costs for retail lending products also contributed to the decline.
Revenue benefited from higher gains on our corporate loan credit derivatives,
volume growth in cards, mortgages and deposits, and the FirstCaribbean
International Bank (FirstCaribbean) acquisition. Provision for credit losses
was up mainly due to the reversal of general allowance in the same period last
year and higher losses in the corporate lending portfolio. Non-interest
expenses were down largely due to lower performance-related compensation and
the sale of some of our U.S. businesses. The loss for the period resulted in a
tax benefit.
Our results for the prior periods were affected by the following items:-------------------------------------------------------------------------
Q1, 2008
--------
- $171 million ($115 million after-tax) positive impact of changes in
credit spreads on corporate loan credit derivatives ($128 million,
$86 million after-tax) and financial guarantors credit hedges
($43 million, $29 million after-tax);
- $56 million positive impact of favourable tax-related items;
- $2.28 billion ($1.54 billion after-tax) charge on the credit
protection purchased from 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
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.
Q2, 2007
--------
- $91 million of favourable tax recoveries and reversals;
- $24 million ($17 million after-tax) reversal of the general allowance
for credit losses; and
- $10 million ($7 million after-tax) positive impact of changes in
credit spreads on corporate loan credit derivatives.
Q1, 2007
--------
- $6 million ($4 million after-tax) negative impact of credit spreads
on corporate loan credit derivatives.
-------------------------------------------------------------------------Significant events
Global market credit issues
Problems originating in the U.S. sub-prime mortgage market last year
continued to have global impact during the second quarter, particularly in
March. Our structured credit business, within CIBC World Markets, had losses
for the quarter of $2.48 billion, primarily due to further deterioration in
the credit quality of financial guarantors and mark-to-market of the
underlying assets which resulted in significant increases in valuation
adjustments to the value of credit protection bought. During the quarter we
continued to actively manage our exposures, reducing notional exposures by
approximately $30 billion and unwound related purchased credit derivatives of
a similar amount.
In April, the Financial Stability Forum (a group of G7 central banks and
supervision groups) tabled recommendations with the G7 countries to enhance
disclosure of what are deemed to be high risk activities. Based on these
recommendations we have presented a number of related disclosures in the
"Run-off businesses" and "Other selected activities" sections of the MD&A.
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 to Oppenheimer. During
the first and second quarters, we recorded a loss of $82 million on the sale.
It is anticipated that the sale of certain other U.S. capital markets related
businesses located in the U.K. and Asia to Oppenheimer will close in the third
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.
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.
The disposition is not expected to have a significant impact on our
ongoing results of operations.
Issue of share capital
During the first 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.
We issued 23.9 million common shares for net proceeds of $1.5 billion,
through a private placement 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.
We also issued 21.4 million common shares for net proceeds of
$1.4 billion, through a public offering.
Visa Inc.
In March 2008, Visa Inc. proceeded with the IPO of its Class A shares at
US$44 per share. As a result of the mandatory redemption of 56.19% of our
shares and the final adjustment process, we recorded a pre-tax loss of
$22 million ($19 million after-tax and minority interest) in the current
quarter. Visa's Class A shares have appreciated significantly since the IPO
and as a result we did not record an other-than-temporary impairment on our
remaining holdings.
Outlook
Canadian economic growth is expected to remain very sluggish in the
coming quarter, held back by weak exports as the U.S. appears to be entering a
mild recession. We expect both economies should return to moderate growth by
the final calendar quarter of 2008, helped by ongoing central bank interest
rate cuts and fiscal stimulus. Healthy global resource markets and a stable
housing market are expected to keep the Canadian economy from an outright
recession.
CIBC Retail Markets should benefit from continued low unemployment rates
and stable housing markets, which support lending and deposit growth. A slower
pace of real estate price increases may moderate mortgage growth rates.
For CIBC World Markets, mergers and acquisition and equity activity will
likely remain slower than in the prior year due to credit concerns affecting
global leveraged deals. We expect loan demand to increase due to reduced
investor appetite for asset-backed securities. 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.
RUN-OFF BUSINESSES
-------------------------------------------------------------------------
Given the uncertain market conditions and to focus on our core businesses
in CIBC World Markets, we have curtailed activity in our structured credit and
leveraged finance businesses and have established a focused team with the
mandate to manage and reduce the residual exposures.
-------------------------------------------------------------------------
Background information on special purpose entities
Structured credit activities usually involve special purpose entities
(SPEs). SPEs are legal vehicles, often in the form of trusts, which are
designed to fulfill specific and narrow needs. SPEs are used to provide
market liquidity to clients and to create investment products by
aggregating either pools of homogenous assets or a variety of different
assets, and issuing either single tranche short term debt securities,
referred to as asset-backed commercial paper (ABCP) or longer term multi-
tiered debt instruments which include super senior, senior, subordinated
or mezzanine, and equity tranches. Often SPEs are referred to by
reference to the type of assets that are aggregated within the SPE such
as RMBS which aggregate mortgage loans or collateralized loan obligations
(CLOs) which aggregate corporate loans. In addition, SPEs can also
aggregate debt securities issued by other SPEs, such as RMBS, and are
referred to as CDOs. In more complex structures, SPEs which aggregate
securities issued by other CDOs and then issue a further tranche of debt
securities are referred to as CDOs squared. Our involvement with SPEs
is discussed in the "Off balance sheet arrangements" section of the MD&A.
-------------------------------------------------------------------------
Structured credit run-off business
Overview and results
Our structured credit business, within CIBC World Markets, comprises our
activities as principal and for client facilitation. These activities include
warehousing of assets and structuring of SPEs which could result in the
holding of unhedged positions. Other activities include intermediation,
correlation, and flow trading which earn a spread on matching positions.
Exposures
Our exposures largely consist of the following categories:Unhedged -
- USRMM
- non-USRMM
Hedged -
- financial guarantors (USRMM and non-USRMM)
- other counterparties (USRMM and non-USRMM)
Results, before taxes
--------------------------------------------------------------- ---------
For
the six
For the months
three months ended ended
------------------- ---------
2008 2008 2008
$ millions Apr. 30 Jan. 31 Apr. 30
--------------------------------------------------------------- ---------
Trading $ 2,340 $ 3,378 $ 5,718
Available-for-sale (AFS) 144 86 230
--------------------------------------------------------------- ---------
$ 2,484 $ 3,464 $ 5,948
--------------------------------------------------------------- ---------
--------------------------------------------------------------- ---------
The structured credit business had losses during the quarter of
$2.48 billion, compared to losses of $3.46 billion in the prior quarter. These
losses were primarily driven by further deterioration in the credit quality of
financial guarantors and the mark-to-market of the underlying assets, which
resulted in significant increases in credit valuation adjustments.
Change in exposures
During the quarter, we had three main changes in our exposures:
- We reduced exposures in the correlation and flow trading books by
approximately $30 billion and unwound related purchased credit
derivatives of a similar amount for a total reduction in credit
derivatives of $60 billion. These transactions resulted in a net loss
of $18 million.
- We unwound several of our USRMM exposures that were hedged by ACA.
- We assumed $1.8 billion of assets and unwound the related written
credit derivatives of the same amount with no impact to our results.
-------------------------------------------------------------------------
2008 2008
US$ millions, as at Apr. 30 Jan. 31
-------------------------------------------------------------------------
Notional
Investments & loans(1) $ 10,678 $ 7,468
Written credit derivatives(2) 35,832 72,965
-------------------------------------------------------------------------
Total gross exposures $ 46,510 $ 80,433
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Purchased credit derivatives and index hedges $ 44,963 $ 75,249
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Notional for investments and loans represent original investment
costs.
(2) Includes notional amount for written credit derivatives and liquidity
and credit facilities.
Total exposures
The exposures held within our structured credit run-off business within
CIBC World Markets are summarized in the table below. Our subsidiary,
FirstCaribbean, within CIBC Retail Markets, also has holdings in securities
with USRMM exposure, commercial mortgage backed securities (CMBS) and asset
backed securities (ABS), which are being managed separately and are included
in the table below.
US$ millions, as at April 30, 2008
-------------------------------------------------------------------------
Exposures(1) Hedged by
-------------------------------------- -----------
Written credit Purchased
derivatives credit
and liquidity derivatives
and credit and index
Investments & loans facilities(2) hedges
-------------------- ----------------- -----------
Financial
guarantors
-----------
Fair Fair
Notional value(4) Notional value(3) Notional
---------- --------- --------- --------- ---------
USRMM(6)
Unhedged
--------
Super senior
CDO of Mezzanine
RMBS $ - $ - $ 283 $ 256 $ -
CDO Squared 234 - 183 183 -
Warehouse - RMBS 388 54 - - -
Mezzanine - CDO
Squared 116 - - - -
Various(7) 153 24 - - -
Index hedges - - - - -
--------------------------------------------------
891 78 466 439 -
Hedged
------
Other CDO 1,532 461 5,509 4,082 6,338
Unmatched purchased
credit derivatives(9) - - - - 1,541
--------------------------------------------------
Total USRMM $ 2,423 $ 539 $ 5,975 $ 4,521 $ 7,879
--------------------------------------------------
Non-USRMM
Unhedged
--------
CLO $ 252 $ 215 $ 94 $ 13 $ -
Corporate debt 337 308 - - -
CMBS(7) 201 199 - - -
Third party sponsored
ABCP conduits(2)(10) 381 272 892 n/a -
Warehouse - non-RMBS 159 84 - - -
Others(7) 136 136 - - -
--------------------------------------------------
1,466 1,214 986 13 -
Hedged
------
CLO 6,037 5,136 8,563 632 14,075
Corporate debt - - 16,215 494 6,959
CMBS - - 777 144 777
Others 752 640 3,316 269 2,942
Unmatched purchased
credit derivatives - - - - -
--------------------------------------------------
Total non-USRMM 8,255 6,990 29,857 1,552 24,753
-------------------------------------------------------------------------
Total $ 10,678 $ 7,529 $ 35,832 $ 6,073 $ 32,632
-------------------------------------------------------------------------
-------------------------------------------------------------------------
US$ millions, as at April 30, 2008
-------------------------------------------------------------------------
Hedged by Unhedged Unhedged
------------------------------ exposures USRMM
Purchased
credit
derivatives
and index
hedges
------------------------------
Financial
guarantors Others
---------- ------------------- --------- ---------
Fair Net
value Fair Net expo-
(3)(4) Notional value(3) notional sure(5)
---------- --------- --------- --------- ---------
USRMM(6)
Unhedged
--------
Super senior
CDO of Mezzanine
RMBS $ - $ - $ - $ 283 $ 27
CDO Squared - - - 417 -
Warehouse - RMBS - - - 388 54
Mezzanine - CDO
Squared - - - 116 -
Various(7) - - - 153 24
Index hedges - 300 197 (300) (103)
----------------------------------------
- 300 197 1,057
Hedged
------
Other CDO 4,771 591(8) 288 112
Unmatched purchased
credit derivatives(9) 1,452 - - n/a
----------------------------------------
Total USRMM $ 6,223 $ 891 $ 485 $ 1,169
----------------------------------------
Non-USRMM
Unhedged
--------
CLO $ - $ - $ - $ 346
Corporate debt - - - 337
CMBS(7) - - - 201
Third party sponsored
ABCP conduits(2)(10) - - - 1,273
Warehouse - non-RMBS - - - 159
Others(7) - - - 136
----------------------------------------
- - - 2,452
Hedged
------
CLO 1,122 529 1 (4)
Corporate debt 249 9,256 245 -
CMBS 144 - - -
Others 325 1,308 45 (182)
Unmatched purchased
credit derivatives - 347 - n/a
----------------------------------------
Total non-USRMM 1,840 11,440 291 2,266
---------------------------------------------------------------
Total $ 8,063 $ 12,331 $ 776 $ 3,435
---------------------------------------------------------------
---------------------------------------------------------------
(1) We have excluded from the table above our holdings in securities
issued by entities established by Federal National Mortgage
Association (Fannie Mae), Federal Home Loan Mortgage Corporation
(Freddie Mac), Government National Mortgage Association (Ginnie Mae)
and Student Loan Marketing Association (Sally Mae) with notional
value of US$1,526 million and fair value of US$1,508 million as at
April 30, 2008.
(2) Liquidity and credit facilities only apply to third party sponsored
ABCP conduits.
(3) This is the value of the contracts, which were typically
zero, or close to zero, at the time they were entered into.
(4) Gross of Valuation Adjustments (VA) for investments and loans of
$14 million and for purchased credit derivatives of $5.17 billion.
(5) After write-downs.
(6) As at April 30, 2008, the rating for super senior CDO of Mezzanine
RMBS and CDO squared was B- and CCC- (negative watch) respectively.
The rating for the warehouse RMBS was approximatley 81% investment
grade and 19% non-investment grade (based on % of market value). The
rating for the mezzanine CDO squared was CC and the rating for the
remaining various positions not written down was AAA.
(7) Includes the following exposures held in FirstCaribbean as at
April 30, 2008: USRMM with a notional of US$25 million and fair
value of US$24 million that mature in 6 to 35 years and are rated
AA1 to AAA; CMBS with a notional of US$201 million and fair value of
US$199 million; and other ABS with a notional of US$14 million and
fair value of US$14 million that mature in 4 to 24 years and are
rated AAA. As at April 30, 2008, FirstCaribbean also had commercial
mortgage index hedges with a notional of US$46 million and a
positive fair value of US$2 million which partly mitigate the risk
of its overall investment portfolio exposure. These commercial
mortgage index hedges are excluded from the table above.
(8) Hedged with a large American diversified multi-national insurance
and financial services company with which CIBC has market standard
collateral arrangements.
(9) During the quarter, we have sold and unwound some of our USRMM
exposures that were previously hedged, leaving the purchased credit
derivatives unmatched.
(10) Estimated USRMM exposure in the third party sponsored ABCP conduits
was $20 million as at April 30, 2008.
n/a not applicableUnhedged USRMM exposures
Our remaining unhedged exposure to the USRMM, after write downs, was
US$105 million ($106 million) as at April 30, 2008. To mitigate this exposure,
we also have subprime index hedges with a notional amount of US$300 million
($302 million) and a fair value of US$197 million ($198 million) as at
April 30, 2008. During the quarter, we had realized and unrealized losses, net
of gains on index hedges, of US$113 million ($114 million) on these exposures.
Unhedged non-USRMM exposures
Our unhedged exposures to non-USRMM primarily relates to five categories:
CLO, corporate debt, CMBS in FirstCaribbean, third party sponsored ABCP
conduits, warehouse non-RMBS, and other.
CLO
Our unhedged CLO assets with notional of US$346 million ($348 million)
were rated AAA as at April 30, 2008, and are backed by diversified pools of
European based senior secured leveraged loans.
Corporate debt
Approximately 51%, 33% and 16% of the unhedged corporate debt exposures
with notional of US$337 million ($339 million) are related to positions in
Europe, Canada and other countries respectively.
CMBS in FirstCaribbean
The CMBS held by FirstCaribbean with notional of US$201 million
($202 million) matures in 7 to 42 years and were rated A2 to AAA as at
April 30, 2008.
Third party sponsored ABCP conduits
We hold positions in and provide liquidity facilities with a total
notional of US$1,273 million ($1,282 million) to ABCP conduits that are
parties to the "Montreal Accord" and ABCP conduits that are not parties to the
Montreal Accord.
Montreal Accord
------------------------
As at April 30, 2008 we held $358 million (October 31, 2007:
$358 million) in par value holdings in non-bank sponsored ABCP subject to the
Montreal Accord. In addition, subsequent to quarter end, we purchased
additional non-bank sponsored ABCP with a notional value of $94 million at an
agreed upon price which was in excess of management's estimate of fair value
of these instruments, to settle claims. The costs of the settlement were
accrued within the results for the quarter. We also provided a liquidity
facility of $266 million to one of these conduits which was undrawn as at
April 30, 2008. The conditions of the facility require the conduit's notes,
which are currently unrated, to be rated R-1 (high) by DBRS, hence it is
unlikely to be drawn. If the restructuring plan set out in the Montreal Accord
ultimately prevails as we expect, we will receive $145 million in senior Class
A-1 notes, $154 million in senior Class A-2 notes and $153 million in various
subordinated and tracking notes in exchange for our existing ABCP with par
value of $452 million in the third quarter. The Class A-1 and Class A-2 notes
pay a variable rate of interest that will be below market levels. The
subordinated notes are expected to be zero coupon in nature paying interest
and principal only after the Class A-1 and Class A-2 notes are settled in
full. The tracking notes will pass through the cash flows of the underlying
assets. All of the notes are expected to mature in December 2016. There is
significant uncertainty as to the recoverability of the various subordinated
and tracking notes and accordingly we have ascribed no value to them.
Based on our estimate of the $258 million combined fair value of these
notes, we recorded losses of $144 million in the second quarter in addition to
losses of $26 million recorded through to the end of the first quarter of
2008. As at April 30, 2008, all amounts previously recorded in accumulated
other comprehensive income (AOCI) have been recognized in the consolidated
statement of operations.
In addition, pursuant to the restructuring plan, we expect to participate
in a Margin Funding Facility (MFF) to support the collateral requirements of
the restructured conduits. Under the terms of the MFF, we will be committed to
provide a $300 million undrawn loan facility to be used in the unlikely event
that the amended collateral triggers of the related credit derivatives are
breached and the new trusts to be created under the Montreal Accord do not
have sufficient assets to support the collateral requirements. If the loan
facility was fully drawn and more collateral was required, we would then have
the right to limit our commitment to the original $300 million, although the
consequence would likely be the loss of that $300 million loan.
Other ABCP conduits
-------------------
We also provided liquidity and credit related facilities of $632 million,
undrawn as at April 30, 2008, to third party sponsored ABCP conduits that are
not parties to the Montreal Accord. Of this amount, $128 million was subject
to liquidity agreements under which the conduits maintain the right to put
their assets back to CIBC at par. Approximately 58% of the $128 million is
provided to a conduit with U.S. mortgage defeasance loans, and 38% is to
conduits with CDO assets. In addition, as at April 30, 2008, we had
investments of $26 million in third party sponsored ABCP conduits that are not
parties to the Montreal Accord.
Warehouse non-RMBS
Of the unhedged warehouse non-RMBS assets with notional of US$159 million
($160 million), approximately 70% is investment in CLOs backed by diversified
pools of U.S. based senior secured leveraged loans. Approximately 14% is
investment in CDOs backed by trust preferred securities with exposure to U.S.
real estate investment trusts. Another 10% has exposure to the U.S. commercial
real estate market.
Other
Other unhedged exposure with notional and fair value of US$136 million
($137 million) is primarily related to film rights receivable.
Hedged with financial guarantors (USRMM and non-USRMM)
During the quarter, we recorded a charge of US$634 million ($643 million)
on our exposures hedged by ACA. In addition, we have increased our valuation
adjustments by US$96 million ($97 million) against the receivable from ACA for
unmatched purchased credit derivatives, bringing the total valuation
adjustments for ACA to US$3.01 billion ($3.03 billion) as at April 30, 2008.
We also recorded a charge of US$1.51 billion ($1.52 billion) on the hedging
contracts provided by other financial guarantors to increase our valuation
adjustments for other financial guarantors to US$2.16 billion ($2.17 billion)
as at April 30, 2008. As at April 30, 2008, the fair value of derivative
contracts with ACA and other financial guarantors net of the valuation
adjustment amounted to US$2.89 billion ($2.91 billion). Further significant
losses could result depending on the performance of both the underlying assets
and the financial guarantors.
Mitigating our exposure to these financial guarantors are credit hedges
with a notional amount of US$650 million ($654 million) and a fair value of
US$112 million ($113 million) as at April 30, 2008. During the quarter, we
recognized a gain of US$56 million ($56 million) on these hedges.
In addition, we have loan and tranched securities positions that are
partly secured by direct guarantees from financial guarantors or by bonds
guaranteed by financial guarantors. As at April 30, 2008, each of these
positions was performing and the total amount guaranteed by financial
guarantors was approximately $260 million.
The following tables present the notional amounts and fair values of
purchased protection from financial guarantors by counterparty. The fair value
net of valuation adjustments is included in derivative instruments in other
assets on the consolidated balance sheet.US$ millions, as at April 30, 2008
-------------------------------------------------------------------------
USRMM related
------------------------------------- -----------------------------------
Standard Moody's Credit-
Counter- and investor Fitch Fair related
party Poor's services Ratings Notional value(1) VA
-------------------------------------------------------------------------
I AAA(2) Aaa(2) AA(2) $ 85 $ - $ -
II AAA(2) Aaa(2) AA(2) 546 363 (59)
III A+(2) A1(3) A-(2) 623 560 (274)
IV BB(2) Baa3(2) BBB(2) 566 498 (459)
V A-(2) A3(2) BB(2) 2,611 1,759 (862)
VI CCC(4) - - 3,448 3,043 (3,013)
VII AAA Aaa AAA - - -
VIII AAA Aaa AAA - - -
IX AAA Aaa AAA - - -
X AA(2) Aa3(2) A+(4)(5) - - -
XI A+(2) Aa2(2) AA(2) - - -
-------------------------------------------------------------------------
Total financial guarantors $ 7,879 $ 6,223 $ (4,667)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
US$ millions, as at January 31, 2008
------------------------------------
I AAA(2) Aaa(2) AAA $ 85 $ - $ -
II AAA(2) Aaa(2) AA(2) 549 217 (18)
III AAA(2) Aaa(2) AAA 628 556 (47)
IV AA(4) Aaa(2) AA(2) 566 362 (101)
V AAA(2) Aaa(2) A(2) 2,628 1,508 (369)
VI CCC(4) - - 3,453 2,353 (2,283)
VII AAA Aaa AAA - - -
VIII AAA Aaa AAA - - -
IX AAA Aaa AAA - - -
X AA Aa3 A+(4) - - -
XI AA(2) Aa2(2) AA(2) - - -
-------------------------------------------------------------------------
Total financial guarantors $ 7,909 $ 4,996 $ (2,818)
-------------------------------------------------------------------------
Total USRMM
Non-USRMM and non-USRMM
---------------------- ------------------------------ -------------------
Credit- Net
Counter- Fair related fair
party Notional value(1) VA Notional value
-------------------------------------------------------------------------
I $ 2,085 $ 219 $ (34) $ 2,170 $ 185
II 1,796 253 (41) 2,342 516
III 1,535 165 (81) 2,158 370
IV 2,309 166 (153) 2,875 52
V 2,678 217 (106) 5,289 1,008
VI - - - 3,448 30
VII 5,200 199 (31) 5,200 168
VIII 5,195 401 (27) 5,195 374
IX 1,494 122 (6) 1,494 116
X 2,262 94 (23) 2,262 71
XI 199 4 - 199 4
-------------------------------------------------------------------------
Total financial
guarantors $ 24,753 $ 1,840 $ (502) $ 32,632 $ 2,894
-------------------------------------------------------------------------
-------------------------------------------------------------------------
US$ millions, as at January 31, 2008
------------------------------------
I $ 2,333 $ 131 $ (11) $ 2,418 $ 120
II 1,819 87 (7) 2,368 279
III 1,514 61 (5) 2,142 565
IV 2,262 49 (14) 2,828 296
V 2,701 74 (18) 5,329 1,195
VI - - - 3,453 70
VII 5,200 219 (21) 5,200 198
VIII 5,103 119 (10) 5,103 109
IX 1,668 58 (4) 1,668 54
X 2,268 87 (22) 2,268 65
XI 199 - - 199 -
-------------------------------------------------------------------------
Total financial
guarantors $ 25,067 $ 885 $ (112) $ 32,976 $ 2,951
-------------------------------------------------------------------------
(1) Before VA
(2) On credit watch with negative implications
(3) Downgraded to Ba2 in May 2008.
(4) On credit watch
(5) Rating withdrawn in May 2008; no longer rated by Fitch ratings.
The underlying of the exposure hedged by financial guarantors is as
follows:
US$ millions, as at April 30, 2008
-------------------------------------------------------------------------
USRMM
related Non USRMM related
--------- -------------------------------------------------
Notional Notional
-----------------------------------------------------------
Corporate
Counterparty CDO CLO(1) Debt(2) CMBS(3) Other(4) Total
-------------------------------------------------------------------------
I $ 85 $ 712 $ - $ 777 $ 596 $ 2,085
II 546 952 - - 844 1,796
III 623 1,388 - - 147 1,535
IV 566 2,011 - - 298 2,309
V 2,611 2,678 - - - 2,678
VI 3,448 - - - - -
VII - - 5,200 - - 5,200
VIII - 4,945 - - 250 5,195
IX - 1,314 - - 180 1,494
X - 75 1,759 - 428 2,262
XI - - - - 199 199
-------------------------------------------------------------------------
Total $ 7,879 $ 14,075 $ 6,959 $ 777 $ 2,942 $ 24,753
-------------------------------------------------------------------------
-------------------------------------------------------------------------
US$ millions, as at January 31, 2008
------------------------------------
I $ 85 $ 712 $ - $ 777 $ 844 $ 2,333
II 549 1,033 - - 786 1,819
III 628 1,362 - - 152 1,514
IV 566 1,964 - - 298 2,262
V 2,628 2,701 - - - 2,701
VI 3,453 - - - - -
VII - - 5,200 - - 5,200
VIII - 4,853 - - 250 5,103
IX - 1,314 - - 354 1,668
X - 75 1,759 - 434 2,268
XI - - - - 199 199
-------------------------------------------------------------------------
Total $ 7,909 $ 14,014 $ 6,959 $ 777 $ 3,317 $ 25,067
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) AAA-rated; underlyings are senior secured loans made to
non-investment grade borrowers; subordination of 6-67%, weighted
average of 32%
(2) Synthetic CDS with investment grade underlyings; subordination of
15-30%; weighted average of 19%.
(3) Synthetic CDO with 62% of underlying rated BBB- and above, and the
remaining rated BB+ to B.
(4) Includes non-U.S. RMBS, trust preferred shares, high-yield bonds.USRMM related positions comprise super senior CDOs with underlyings being
approximately 55% subprime RMBS, 21% Alt-A RMBS, 15% ABS CDOs and 9%
non-USRMM. Subprime and Alt-A underlyings consist of approximately 37%
pre-2006 vintage and 63% 2006 and 2007 vintage RMBS. Subprime exposures are
defined as having Fair Isaac Corporation (FICO) scores less than 660; and Alt
A underlyings as those exposures that have FICO scores of 720 or below but
greater than 660.
Hedged with other counterparties
The following table provides the notional amounts and fair values of
purchased credit derivatives from counterparties other than financial
guarantors.-------------------------------------------------------------------------
USRMM related Non-USRMM
------------------- -------------------
US$ millions, as at Fair Fair
April 30, 2008 Notional value Notional value
-------------------------------------------------------------------------
Non-bank financial institutions $ 591 $ 288 $ 401 $ 17
Banks - - 1,434 28
Canadian conduits - - 9,256 245
Governments - - 347 -
Others - - 2 1
-------------------------------------------------------------------------
$ 591 $ 288 $ 11,440 $ 291
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total
---------------------------------------
Notional Fair value
------------------- -------------------
US$ millions, as at 2008 2008 2008 2008
April 30, 2008 Apr. 30 Jan. 31 Apr. 30 Jan. 31
-------------------------------------------------------------------------
Non-bank financial institutions $ 992 $ 11,772 $ 305 $ 366
Banks 1,434 19,856 28 546
Canadian conduits 9,256 10,281 245 430
Governments 347 362 - -
Others 2 2 1 1
-------------------------------------------------------------------------
$ 12,031 $ 42,273 $ 579 $ 1,343
-------------------------------------------------------------------------
The underlying of the exposure hedged by counterparties other than
financial guarantors is as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
USRMM Non-USRMM related
related
--------- ---------------------------------------
Notional Notional
--------- ---------------------------------------
CDO CLO Corporate Other
US$ millions, as at debt
April 30, 2008
-------------------------------------------------------------------------
Non-bank financial
institutions $ 591 $ - $ - $ 401(1)
Banks - 529 - 905(1)
Canadian conduits - 9,256 -
Governments - - 347
Others - - 2(1)
-------------------------------------------------------------------------
$ 591 $ 529 $ 9,256 $ 1,655
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Consists largely of simgle name credit default swaps which hedge
written single name credit default swaps and securities.Approximately 91% of other counterparties hedging our non-USRMM exposures
have internal credit ratings equivalent to investment grade.
Canadian conduits
We purchase credit derivatives protection from Canadian conduits and
create revenue through selling the same protection on to third parties. The
reference portfolios consist of diversified indices of corporate loans and
bonds. These conduits are in compliance with their collateral posting
arrangements and have posted collateral exceeding current market exposure. One
of the conduit counterparties, Great North Trust, is sponsored by CIBC and the
remaining conduit counterparties are parties to the Montreal Accord.-------------------------------------------------------------------------
US$ millions, as at Mark-to- Collateral
April 30, 2008 Underlying Notional market held(2)
-------------------------------------------------------------------------
Conduits
--------
Great North Investment grade
Trust corporate credit
index(1) $ 4,906 $ 153 $ 297
Nereus I 160 Investment grade
corporates 2,200 47 248
Nereus II 160 Investment grade
corporates 2,150 45 221
-------------------------------------------------------------------------
$ 9,256 $ 245 $ 766
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jan. 31, 2008 $ 10,300 $ 430 $ 911
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Consists of a static portfolio of 125 North American corporate
reference entities that were investment grade rated when the index
was created. 50% of the entities are rated Baa1 or higher. 123
reference entities are listed in the U.S. and financial guarantors
represent approximately 2.4% of the portfolio. Attachment point is
30% and there is no direct exposure to USRMM or the U.S. commercial
real estate market.
(2) Comprises investment grade notes issued by third party sponsored
conduits, corporate floating rate notes, commercial paper issued by
CIBC sponsored securitization conduits, and CIBC bankers acceptances.Leveraged finance business
We provide leveraged finance to non-investment grade customers to
facilitate their buyout, acquisition and restructuring activities. We
generally underwrite leveraged financial loans and syndicate the majority of
the loans, earning a fee during the process.
We are exiting our European leveraged finance (ELF) business. As with the
structured credit run-off business, the risk in the ELF run-off business is
also managed by a focused team with the mandate to manage down the residual
exposures. As at April 30, 2008, we have funded leveraged loans of
$851 million (January 31, 2008: $822 million) and unfunded letter of credits
and commitments of $374 million (January 31, 2008: $383 million), none of
which is considered impaired. During the quarter, we had immaterial realized
losses and no write-downs in exiting the ELF business.
In addition, we sold our U.S. leveraged finance business as part of our
sale of some of our U.S. businesses to Oppenheimer.
OTHER SELECTED ACTIVITIES
-------------------------------------------------------------------------
In response to the recommendations of the Financial Stability Forum, this
section provides additional details on other selected activities.
Securitization business
Our securitization business provides clients access to funding in the
debt capital markets. We sponsor several multi-seller conduits in Canada that
purchase pools of financial assets from our clients, and finance the purchases
by issuing commercial paper to investors. We generally provide the conduits
with commercial paper backstop liquidity facilities, securities distribution,
accounting, cash management and other financial services.
As at April 30, 2008, our holdings of ABCP issued by our sponsored
conduits were $786 million (October 31, 2007: $3.1 billion), and our committed
backstop liquidity facilities to these conduits were $11.37 billion. We also
provided credit facilities of $70 million to these conduits as at April 30,
2008.
The following table shows the underlying collateral and the average
maturity for each asset type in our multi-seller conduits:$ millions, as at April 30, 2008
-------------------------------------------------------------------------
Estimated
weighted
Funded avg. life
amount (years)
-------------------------------------------------------------------------
Asset class
Residential mortgages 4,075 2.48
Vehicle leases $ 3,109 1.31
Franchise loans 1,873 1.49
Auto loans 769 1.12
Credit cards 975 4.88(1)
Dealer floorplan 600 1.54
Equipment leases/loans 582 1.39
Other 177 0.27
-------------------------------------------------------------------------
$ 12,160 2.00
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Based on the revolving period and amortization period contemplated in
the transaction.The short-term notes issued by the conduits are backed by the above
assets. The performance of the above assets has met the criteria required to
retain the ratings of the notes issued by the multi-seller conduits.
In addition, we also securitize our mortgages and credit cards
receivables. Details of our securitization transactions during the quarter are
provided in Note 6 to the consolidated financial statements.
U.S. real estate finance
In our U.S. Real Estate Finance business, we operate a full service
platform which originates commercial mortgages to mid-market clients. The
construction and interim programs offer floating rate and fixed rate financing
to development and transitional properties under construction or to be leased.
Once the construction and interim phase is complete and the properties are
ready to become income producing, borrowers are offered fixed rate financing
within the permanent program. These commercial mortgages are then sold into
CMBS programs. The business also maintains CMBS trading and distribution
capabilities although there are no outstanding inventories as at April 30,
2008. The table below provides a summary of our positions in this business as
at April 30, 2008.US$ millions, as at April 30, 2008
-------------------------------------------------------------------------
Lines
of credits Loans
-------------------------------------------------------------------------
Commercial mortgages $ - $ 504
Commercial construction loans 413 1,440
-------------------------------------------------------------------------
$ 413 $ 1,944
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FINANCIAL PERFORMANCE REVIEW
----------------------------------------------------- -------------------
For the
For the three months ended six months ended
----------------------------- -------------------
2008 2008 2007 2008 2007
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Net interest income $ 1,349 $ 1,154 $ 1,079 $ 2,503 $ 2,138
Non-interest income (1,223) (1,675) 1,971 (2,898) 4,003
----------------------------------------------------- -------------------
Total revenue 126 (521) 3,050 (395) 6,141
Provision for credit
losses 176 172 166 348 309
Non-interest expenses 1,788 1,761 1,976 3,549 3,919
----------------------------------------------------- -------------------
(Loss) income before taxes
and non-controlling
interests (1,838) (2,454) 908 (4,292) 1,913
Income tax (benefit)
expense (731) (1,002) 91 (1,733) 322
Non-controlling interests 4 4 10 8 14
----------------------------------------------------- -------------------
Net (loss) income $ (1,111) $ (1,456) $ 807 $ (2,567) $ 1,577
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------Net interest income
Net interest income was up $270 million or 25% from the same quarter last
year, mainly due to decreased trading-related funding costs resulting from
lower trading activities, volume growth in retail products, favourable spreads
in deposits, and the impact of one more day. These factors were offset in part
by higher funding costs for retail lending products.
Net interest income was up $195 million or 17% from the prior quarter,
primarily due to decreased trading-related funding costs noted above,
favourable spreads in cards and mortgages, higher treasury revenue, and volume
growth in retail products. These factors were offset in part by the impact of
two fewer days in the quarter and spread compression in deposits.
Net interest income for the six months ended April 30, 2008 was up
$365 million or 17% from the same period in 2007, primarily due to decreased
trading-related funding costs and volume growth in retail products. In
addition, favourable spreads in deposits and the impact of one more day also
contributed to the increase. These factors were offset in part by higher
funding costs for retail lending products and lower treasury revenue.
Non-interest income
Non-interest income was down $3,194 million from the same quarter last
year, and was down $6,901 million for the six months ended April 30, 2008 from
the same period in 2007. The significant drop was primarily due to charges on
credit protection purchased from financial guarantors and mark-to-market
losses related to our exposure to the USRMM. In addition, lower trading
activities, the impact of the sale of some of our U.S. businesses in the prior
quarter, lower gains on AFS securities, losses relating to third-party
sponsored ABCP, and the foreign exchange loss on the repatriation of retained
earnings from our U.S. operations also contributed to the decline. These
factors were partially offset by higher gains on credit derivatives resulting
from the widening of credit spreads.
Non-interest income was up $452 million from the prior quarter, primarily
due to lower charges on credit protection purchased from financial guarantors,
and lower mark-to-market losses related to our exposure to the USRMM. These
factors were partially offset by lower trading activities, lower gains on
credit derivatives, and the foreign exchange loss on the repatriation noted
above.
Provision for credit losses
Provision for credit losses was up $10 million or 6% from the same
quarter last year, mainly due to the $24 million reversal of general allowance
in the second quarter of 2007, partially offset by improvements in the
personal lending portfolio.
Provision for credit losses was up $4 million or 2% from the prior
quarter, primarily due to volume driven higher losses in the cards portfolio,
partially offset by lower losses in the business and government lending
portfolio.
Provision for credit losses for the six months ended April 30, 2008 was
up $39 million or 13% from the same period in 2007. Higher losses in the cards
and business and government lending portfolios were partially offset by
improvement in the personal lending portfolio. The second quarter of 2007
benefited from the $24 million reversal of the general allowance.
Non-interest expenses
Non-interest expenses were down $188 million or 10% from the same quarter
last year, primarily due to lower performance-related compensation, partially
offset by higher litigation expenses. In addition, the current quarter
benefited from lower commission, pension, and computer expenses.
Non-interest expenses were up $27 million or 2% from the prior quarter
due to higher litigation expenses, professional fees and capital taxes,
partially offset by lower performance-related compensation.
Non-interest expenses were down $370 million or 9% for the six months
ended April 30, 2008 from the same period in 2007. The decrease was mainly due
to lower performance related compensation, commission and pension expenses,
partially offset by higher litigation expenses.
Income taxes
Income tax benefit was $731 million, compared to an expense of
$91 million in the same quarter last year. Income tax benefit for the six
months ended April 30, 2008 was $1,733 million, compared with an expense of
$322 million in the same period in 2007. The income tax benefit was due to the
loss during the current period.
Income tax benefit was down $271 million from the prior quarter,
primarily due to a lower loss before tax.
The effective tax recovery rate was 39.8% for the quarter, compared to an
effective tax rate of 10.0% for the same quarter last year and a tax recovery
rate of 40.8% for the prior quarter. The effective tax recovery rate for the
six months ended April 30, 2008 was 40.4% compared to an effective tax rate of
16.8% for the same period in 2007.
At the end of the quarter, our future income tax asset was $1.06 billion,
net of a US$82 million ($83 million) valuation allowance. Accounting standards
require a valuation allowance when it is more likely than not that all or a
portion of a future income tax asset will not be realized prior to its
expiration. Although realization is not assured, we believe that based on all
available evidence, it is more likely than not that all of the future income
tax asset, net of the valuation allowance, will be realized.
Included in the future income tax asset are $724 million related to
Canadian non-capital loss carryforwards which expire in 20 years, and
$68 million related to Canadian capital loss carryforwards which have no
expiry date.
The adjusted effective tax recovery and taxable equivalent (TEB) recovery
rates for the quarter ended April 30, 2008 were 39.8%(1) and 37.7%(1),
respectively.
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 12%
on average relative to the U.S. dollar from the same quarter last year,
resulting in a $180 million decrease in the translated value of our U.S.
dollar functional earnings.
The Canadian dollar depreciated 1% on average relative to the U.S. dollar
from the prior quarter, resulting in a $10 million increase in the translated
value of our U.S. dollar functional earnings.
The Canadian dollar appreciated 13% on average relative to the U.S.
dollar for the six months ended April 30, 2008 from the same period in 2007,
resulting in a $253 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 Apr. 30 Jan. 31 Oct. 31 Jul. 31 Apr. 30 Jan. 31
-------------------------------------------------------------------------
Revenue
CIBC Retail
Markets $ 2,239 $ 2,371 $ 2,794 $ 2,386 $ 2,309 $ 2,273
CIBC World
Markets (2,166) (2,957) 5 455 606 662
Corporate
and Other 53 65 147 138 135 156
-------------------------------------------------------------------------
Total revenue 126 (521) 2,946 2,979 3,050 3,091
Provision for
credit losses 176 172 132 162 166 143
Non-interest
expenses 1,788 1,761 1,874 1,819 1,976 1,943
-------------------------------------------------------------------------
(Loss) income
before taxes
and non-
controlling
interests (1,838) (2,454) 940 998 908 1,005
Income tax
(benefit)
expense (731) (1,002) 45 157 91 231
Non-controlling
interests 4 4 11 6 10 4
-------------------------------------------------------------------------
Net (loss)
income $ (1,111) $ (1,456) $ 884 $ 835 $ 807 $ 770
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Loss) earnings
per share
- basic $ (3.00) $ (4.39) $ 2.55 $ 2.33 $ 2.29 $ 2.13
- diluted
(1) $ (3.00) $ (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
---------------------------------
Revenue
CIBC Retail
Markets $ 2,171 $ 2,164
CIBC World
Markets 572 551
Corporate
and Other 147 111
---------------------------------
Total revenue 2,890 2,826
Provision for
credit losses 92 152
Non-interest
expenses 1,892 1,883
---------------------------------
(Loss) income
before taxes
and non-
controlling
interests 906 791
Income tax
(benefit)
expense 87 125
Non-controlling
interests - 4
---------------------------------
Net (loss)
income $ 819 $ 662
---------------------------------
---------------------------------
(Loss) earnings
per share
- basic $ 2.34 $ 1.88
- diluted
(1) $ 2.32 $ 1.86
---------------------------------
---------------------------------
(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 resulted in an increase in revenue in
CIBC Retail Markets since the first quarter of 2007. In addition, revenue was
particularly high in the fourth quarter of 2007 due to the gain recorded on
the Visa restructuring. 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 two quarters due to the charges on
credit protection purchased from financial guarantors. 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 quarter of 2007 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 two quarters of 2008 had an income tax benefit resulting from
the loss during the period. 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 the last two quarters of 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 gain recorded on
the Visa restructuring and the last two quarters of 2007 benefited from a
lower tax rate on the net reversal of litigation accruals. Income tax benefit
on the foreign exchange loss on the repatriation of retained earnings from our
foreign operations was included in the second quarter of 2008. Income tax
expense on the repatriation of capital and retained earnings from our foreign
operations was included in the fourth quarter of 2007.
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
For the three months ended six months ended
$ millions, ----------------------------- -------------------
except per 2008 2008 2007 2008 2007
share amounts Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Net interest income $ 1,349 $ 1,154 $ 1,079 $ 2,503 $ 2,138
Non-interest income (1,223) (1,675) 1,971 (2,898) 4,003
----------------------------------------------------- -------------------
Total revenue
per financial
statements A 126 (521) 3,050 (395) 6,141
TEB adjustment B 60 61 54 121 116
----------------------------------------------------- -------------------
Total revenue
(TEB)(1) C $ 186 $ (460) $ 3,104 $ (274) $ 6,257
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Non-interest
expenses
per financial
statements D $ 1,788 $ 1,761 $ 1,976 $ 3,549 $ 3,919
Less: amortization
of other
intangible assets 10 10 12 20 17
----------------------------------------------------- -------------------
Cash non-interest
expenses(1) E $ 1,778 $ 1,751 $ 1,964 $ 3,529 $ 3,902
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(Loss) income
before taxes and
non-controlling
interests
per financial
statements F $ (1,838) $ (2,454) $ 908 $ (4,292) $ 1,913
TEB adjustment B 60 61 54 121 116
----------------------------------------------------- -------------------
(Loss) income
before taxes and
non-controlling
interests (TEB)(1) G $ (1,778) $ (2,393) $ 962 $ (4,171) $ 2,029
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Reported income
taxes per
financial
statements H $ (731) $ (1,002) $ 91 $ (1,733) $ 322
TEB adjustment B 60 61 54 121 116
Other tax
adjustments I - 56 91 56 91
----------------------------------------------------- -------------------
Adjusted income
taxes(1) J $ (671) $ (885) $ 236 $ (1,556) $ 529
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Net (loss) income
applicable to
common shares K $ (1,141) $ (1,486) $ 772 $ (2,627) $ 1,488
Add: after tax
effect of
amortization of
other intangible
assets 8 8 9 16 13
----------------------------------------------------- -------------------
Cash net (loss)
income applicable
to common
shares(1) L $ (1,133) $ (1,478) $ 781 $ (2,611) $ 1,501
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Basic weighted
average common
shares (thousands) M 380,754 338,732 337,320 359,512 336,896
Diluted weighted
average common
shares (thousands) N 382,377 340,811 340,613 361,366 340,272
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Cash efficiency
ratio (TEB)(1) E/C n/m n/m 63.2% n/m 62.3%
Reported effective
income tax rate
(TEB)(1)(2) (H+B)/G 37.7% 39.3% 15.1% 38.6% 21.6%
Adjusted
effective income
tax rate(1)(2) (H+I)/F 39.8% 38.5% 20.0% 39.1% 21.6%
Adjusted
effective income
tax rate
(TEB)(1)(2) J/G 37.7% 37.0% 24.5% 37.3% 26.1%
Cash basic (loss)
earnings per
share(1) L/M $ (2.98) $ (4.36) $ 2.32 $ (7.26) $ 4.46
Cash diluted (loss)
earnings per
share(1)(3) L/N $ (2.98) $ (4.36) $ 2.29 $ (7.26) $ 4.41
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Non-GAAP measure.
(2) For the periods ended April 30, 2008 and 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 provides a full range of financial products and
services to individual and business banking clients, as well as investment
management services globally to retail and institutional clients.
Results(1)
----------------------------------------------------- -------------------
For the
For the three months ended six months ended
----------------------------- -------------------
2008 2008 2007 2008 2007
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Revenue
Personal and small
business banking $ 540 $ 544 $ 501 $ 1,084 $ 1,018
Imperial Service 239 244 232 483 469
Retail brokerage 264 276 294 540 596
Cards 415 423 399 838 809
Mortgages and
personal lending 302 319 356 621 737
Asset management 116 120 124 236 247
Commercial banking 117 126 121 243 242
FirstCaribbean 122 126 150 248 200
Other 124 193 132 317 264
----------------------------------------------------- -------------------
Total revenue (a) 2,239 2,371 2,309 4,610 4,582
Provision for credit
losses 174 155 186 329 334
Non-interest
expenses (b) 1,380 1,353 1,418 2,733 2,771
----------------------------------------------------- -------------------
Income before taxes
and non-controlling
interests 685 863 705 1,548 1,477
Income tax expense 174 202 81 376 279
Non-controlling
interests 2 4 7 6 11
----------------------------------------------------- -------------------
Net income (c) $ 509 $ 657 $ 617 $ 1,166 $ 1,187
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Efficiency ratio (b/a) 61.6% 57.1% 61.4% 59.3% 60.5%
Amortization of other
intangible assets (d) $ 8 $ 8 $ 10 $ 16 $ 13
Cash efficiency
ratio(2) ((b-d)/a) 61.3% 56.7% 61.0% 58.9% 60.2%
ROE(2) 42.0% 54.0% 51.6% 48.0% 52.7%
Charge for economic
capital(2) (e) $ (154) $ (156) $ (153) $ (310) $ (290)
Economic profit(2)
(c+e) $ 355 $ 501 $ 464 $ 856 $ 897
Regular workforce
headcount 28,253 27,984 27,773 28,253 27,773
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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 down $108 million or 18% from the same quarter last year,
which benefited from a tax recovery of $80 million. Excluding the tax recovery
and the Visa IPO adjustment this quarter, net income was down slightly mainly
due to lower revenue as a result of higher funding costs, lower retail
brokerage and FirstCaribbean revenues.
Net income was down $148 million or 23% from the prior quarter, largely
due to lower revenue as a result of decreased treasury revenue allocations,
two fewer days in the quarter and the Visa IPO adjustment.
Net income for the six months ended April 30, 2008 was down $21 million
or 2% from the same period in 2007. Excluding the tax recovery and the Visa
IPO adjustment, net income was up on higher revenue and lower expenses.
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 down $70 million or 3% from the same quarter last year.
Personal and small business banking revenue was up $39 million, mainly
due to favourable spreads and volume growth.
Imperial Service revenue was up $7 million, primarily due to volume
growth.
Retail brokerage revenue was down $30 million, largely due to lower
trading and new issue activity, offset in part by favourable spreads.
Cards revenue was up $16 million, driven by volume growth, partially
offset by higher funding costs.
Mortgages and personal lending revenue was down $54 million, primarily
due to higher funding costs partially offset by volume growth.
Asset management revenue was down $8 million, largely due to lower fee
income as a result of a change in the asset mix.
FirstCaribbean revenue was down $28 million, primarily due to a stronger
Canadian dollar and lower securities revenue.
Other revenue was down $8 million, mainly due to lower treasury revenue
allocations, partially offset by increased revenue in President's Choice
Financial.
Revenue was down $132 million or 6% from the prior quarter.
Retail brokerage revenue was down $12 million, primarily due to lower
fee-based revenue and new issue activity.
Cards revenue was down $8 million, primarily due to the Visa IPO
adjustment, two fewer days in the quarter, and lower fee income, partially
offset by favourable spreads.
Mortgages and personal lending revenue was down $17 million largely due
to two fewer days in the quarter and lower mortgage refinancing fees.
Commercial banking revenue was down $9 million, largely due to compressed
deposit spreads.
Other revenue was down $69 million, primarily due to lower treasury
revenue allocations.
Revenue for the six months ended April 30, 2008 was up $28 million or 1%
from the same period in 2007.
Personal and small business banking revenue was up $66 million, led by
favourable spreads and volume growth.
Imperial Service revenue was up $14 million, led by volume growth.
Retail brokerage revenue was down $56 million, as a result of lower
trading and new issue activity, partially offset by favourable spreads and
higher fee-based revenue.
Cards revenue was up $29 million, primarily due to volume growth and
higher fee income, partially offset by higher funding costs and the Visa IPO
adjustment.
Mortgages and personal lending revenue was down $116 million, primarily
due to higher funding costs and the shift to secured lending which have lower
spreads, partially offset by volume growth.
Asset management revenue was down $11 million, primarily due to lower fee
income as a result of a change in the asset mix.
Other revenue was up $53 million, due to higher treasury revenue
allocations.
Provision for credit losses
Provision for credit losses was down $12 million or 6% from the same
quarter last year, largely due to lower losses in the personal and small
business portfolio, partially offset by higher losses due to continued volume
growth in the cards portfolio.
Provision for credit losses was up $19 million or 12% from the prior
quarter, largely due to higher seasonal losses and volume growth in the cards
portfolio and lower recoveries and reversals in the agricultural loan
portfolio.
Provision for credit losses for the six months ended April 30, 2008 was
down $5 million or 1% from the same period in 2007, primarily due to lower
losses in the personal and small business portfolio and higher recoveries and
reversals in the agricultural loan portfolio, partially offset by continued
volume growth in cards portfolio and higher recoveries and reversals in
commercial banking portfolio in the prior year.
Non-interest expenses
Non-interest expenses were down $38 million or 3% from the same quarter
last year, primarily due to lower performance-related compensation, corporate
support costs, and communication expenses.
Non-interest expenses were up $27 million or 2% from the prior quarter,
resulting mainly from higher FirstCaribbean expenses, business and capital
taxes, and advertising expenses.
Non-interest expenses for the six months ended April 30, 2008 were down
$38 million or 1% from the same period in 2007, primarily due to lower
performance-related compensation, corporate support costs, and business and
capital taxes, partially offset by the FirstCaribbean acquisition.
Income taxes
Income taxes were up $93 million from the same quarter last year and were
up $97 million or 35% for the six months ended April 30, 2008 from the same
period in 2007, primarily due to the tax recovery noted above.
Income taxes were down $28 million or 14% from the prior quarter due to a
decrease in income.
Regular workforce headcount
The regular workforce headcount of 28,253 was up 480 from the same
quarter last year and up 269 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
For the three months ended six months ended
----------------------------- -------------------
2008 2008 2007 2008 2007
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Revenue (TEB)(2)
Capital markets $ (2,253) $ (3,169) $ 351 $ (5,422) $ 800
Investment banking
and credit products 102 283 247 385 451
Merchant banking 5 9 85 14 162
Other 40 (19) (23) 21 (29)
----------------------------------------------------- -------------------
Total revenue
(TEB)(2)(a) (2,106) (2,896) 660 (5,002) 1,384
TEB adjustment 60 61 54 121 116
----------------------------------------------------- -------------------
Total revenue (b) (2,166) (2,957) 606 (5,123) 1,268
Provision for
(reversal of) credit
losses 2 17 - 19 (5)
Non-interest
expenses (c) 358 351 459 709 945
----------------------------------------------------- -------------------
(Loss) income before
taxes and non-
controlling interests (2,526) (3,325) 147 (5,851) 328
Income tax benefit (891) (1,166) (16) (2,057) (5)
Non-controlling
interests 2 - 3 2 3
----------------------------------------------------- -------------------
Net (loss) income (d) $ (1,637) $ (2,159) $ 160 $ (3,796) $ 330
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Efficiency ratio (c/b) n/m n/m 75.8% n/m 74.5%
Efficiency ratio
(TEB)(2)(c/a) n/m n/m 69.6% n/m 68.3%
ROE(2) (293.9)% (391.7)% 36.9% (342.4)% 39.1%
Charge for economic
capital(2) (e) $ (73) $ (72) $ (55) $ (145) $ (107)
Economic (loss)
profit(2) (d+e) $ (1,710) $ (2,231) $ 105 $ (3,941) $ 223
Regular workforce
headcount 1,145 1,287 1,846 1,145 1,846
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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 $1,637 million, compared to net income of $160 million in
the same quarter last year. CIBC World Markets' results were significantly
affected by the $1.46 billion after-tax charge with respect to the
counterparty credit protection purchased from financial guarantors.
Net loss was down $522 million from the prior quarter, primarily due to
lower credit valuation charges on our hedged exposure and lower losses on our
unhedged exposure to the USRMM.
Net loss for the six months ended April 30, 2008 was up $4,126 million
from the same period in 2007, mainly due to the reasons noted above.
Revenue
Revenue was down $2,772 million from the same quarter last year. For a
more detailed discussion of some of the significant items, refer to the "Run-
off businesses" section of the MD&A.
Capital markets revenue was down $2,604 million, primarily due to the
credit valuation charges on credit protection purchased from financial
guarantors, including ACA, mark-to-market losses related to our exposure to
the USRMM, and charges related to third-party sponsored ABCP. Revenue was also
lower due to the impact of the sale of our U.S. equities business in the prior
quarter.
Investment banking and credit products revenue was down $145 million,
primarily due to lower investment banking revenue, including the impact of the
sale of our U.S. investment and corporate banking business, which accounted
for $41 million of the decrease, lower revenue from U.S. real estate finance,
and lower gains associated with corporate loan hedging programs.
Merchant banking revenue was down $80 million, mainly due to lower gains
from third-party managed funds and direct investments.
Other revenue was up $63 million, primarily due to higher net internal
funding credits.
Revenue was up $791 million from the prior quarter.
Capital markets revenue was up $916 million, primarily due to lower
credit valuation charges and lower losses on our unhedged exposure related to
the USRMM.
Investment banking and credit products revenue was down $181 million,
primarily due to lower gains associated with corporate loan hedging programs
and lower investment banking revenue, including the impact of the sold U.S.
investment and corporate banking business.
Other revenue was up $59 million, primarily due to the loss on sale of
some of our U.S. businesses recorded in the prior quarter.
Revenue for the six months ended April 30, 2008 was down $6,391 million
from the same period in 2007.
Capital markets revenue was down $6,222 million, primarily due to the
$5.1 billion charge on credit protection purchased from financial guarantors.
During the current period, we also had losses of $587 million related to the
USRMM.
Investment banking and credit products revenue was down $66 million,
primarily due to lower gains from U.S. real estate finance and the impact of
the sale of our U.S. investment and corporate banking business, partially
offset by higher gains associated with corporate loan hedging programs.
Merchant banking revenue was down $148 million, primarily due to lower
gains from direct investments and third-party managed funds.
Other revenue was up $50 million mainly due to higher treasury revenue
allocations.
Provision for (reversal of) credit losses
Provision for credit losses was $2 million, compared with nil for the
same quarter last year.
Provision for credit losses was $2 million, compared with $17 million in
the prior quarter, mainly due to lower losses in Canada.
Provision for credit losses for the six months ended April 30, 2008 was
$19 million, compared to a reversal of $5 million in the same period in 2007,
mainly due to higher losses in Canada and lower recoveries from Europe,
partially offset by lower losses in the U.S.
Non-interest expenses
Non-interest expenses were down $101 million or 22% from the same quarter
last year, primarily due to the impact of the sale of some of our U.S.
businesses and lower performance-related compensation, partially offset by
higher litigation expenses.
Non-interest expenses were up $7 million or 2% from the prior quarter,
primarily due to higher litigation expenses, partially offset by lower
performance-related compensation and the impact of the sale of some of our
U.S. businesses.
Non-interest expenses for the six months ended April 30, 2008 were down
$236 million or 25% from the same period in 2007, primarily due to lower
performance-related compensation and the impact of the sale of some of our
U.S. businesses, partially offset by higher litigation and professional
expenses.
Income taxes
Income tax benefit was $891 million, compared to $16 million in the same
quarter last year, due to the higher credit valuation charges and higher
losses related to the USRMM.
Income tax benefit was down $275 million from the prior quarter, mainly
due to the higher loss in the prior quarter, resulting from the charge on the
credit protection purchased from financial guarantors noted above.
Income tax benefit for the six months ended April 30, 2008 was
$2,057 million, compared with $5 million for the same period in 2007, mainly
due to the reasons noted above.
Regular workforce headcount
The regular workforce headcount of 1,145 was down 701 from the same
quarter last year and down 142 from the prior quarter, primarily due to the
sale of some of our U.S. businesses and exiting some of our structured credit
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
For the three months ended six months ended
----------------------------- -------------------
2008 2008 2007 2008 2007
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Total revenue $ 53 $ 65 $ 135 $ 118 $ 291
Recovery of credit
losses - - (20) - (20)
Non-interest expenses 50 57 99 107 203
----------------------------------------------------- -------------------
Income before taxes 3 8 56 11 108
Income tax (benefit)
expense (14) (38) 26 (52) 48
----------------------------------------------------- -------------------
Net income $ 17 $ 46 $ 30 $ 63 $ 60
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Regular workforce
headcount 10,947 10,966 10,869 10,947 10,869
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.Financial overview
Net income was down $13 million or 43% from the same quarter last year,
primarily due to the foreign exchange loss on the repatriation of retained
earnings from our U.S. operations and lower unallocated revenue from treasury,
partially offset by lower unallocated corporate support costs.
Net income was down $29 million or 63% from the prior quarter, mainly due
to the foreign exchange loss on the repatriation noted above and lower income
tax benefit, partially offset by higher unallocated revenue from treasury and
lower unallocated corporate support costs.
Net income for the six months ended April 30, 2008 was up $3 million or
5% from the same period in 2007 primarily due to lower unallocated corporate
support costs and higher income tax recoveries, partially offset by foreign
exchange loss on the repatriation noted above and lower unallocated revenue
from treasury.
Revenue
Revenue was down $82 million or 61% from the same quarter last year,
primarily due to the foreign exchange loss on the repatriation noted above and
lower unallocated revenue from treasury.
Revenue was down $12 million or 18% from the prior quarter, mainly due to
the foreign exchange loss on the repatriation noted above, partially offset by
higher unallocated revenue from treasury and higher revenue from the hedging
of stock appreciation rights (SARs).
Revenue for the six months ended April 30, 2008 was down $173 million or
59% from the same period in 2007, mainly due to foreign exchange loss on the
repatriation noted above, lower unallocated revenue from treasury, and lower
revenue from the hedging of SARs.
Recovery of credit losses
The same quarter last year included a $20 million reversal of the general
allowance. Commencing 2008, we have allocated the general allowance for credit
losses between the two strategic business lines, CIBC Retail Markets and CIBC
World Markets.
Non-interest expenses
Non-interest expenses were down $49 million or 49% from the same quarter
last year, primarily due to lower unallocated corporate support costs.
Non-interest expenses were down $7 million or 12% from the prior quarter,
mainly due to lower unallocated corporate support costs, partially offset by
higher expenses related to SARs.
Non-interest expenses for the six months ended April 30, 2008 were down
$96 million or 47% for the same period in 2007, primarily due to lower
unallocated corporate support costs and lower expenses related to SARs.
Income tax
Income tax benefit was $14 million, compared to a $26 million income tax
expense in the same quarter last year. This change is primarily due to the
income tax benefit on the repatriation noted above and income tax recoveries,
partially offset by the tax effecting of current quarter losses at rates in
future years that are expected to be less than the current year's statutory
rate.
Income tax benefit was down $24 million or 63% from the prior quarter.
Prior quarter losses were largely tax effected at prior years' tax rates,
which were higher than the current year's statutory rate. Partially offsetting
this was the impact of the items noted above.
Income tax benefit was $52 million for the six months ended April 30,
2008, compared to a $48 million income tax expense from the same period in
2007 due to reasons noted above.FINANCIAL CONDITION
-------------------------------------------------------------------------
Review of consolidated balance sheet
-------------------------------------------------------------------------
2008 2007
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Assets
Cash and deposits with banks $ 13,092 $ 13,747
Securities 79,097 86,500
Securities borrowed or purchased under resale
agreements 33,170 34,020
Loans 165,824 162,654
Derivative instruments 23,549 24,075
Other assets 28,331 21,182
-------------------------------------------------------------------------
Total assets $343,063 $342,178
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity
Deposits $238,203 $231,672
Derivative instruments 26,206 26,688
Obligations related to securities lent or sold
short or under repurchase agreements 36,815 42,081
Other liabilities 22,344 21,977
Subordinated indebtedness 5,359 5,526
Preferred share liabilities 600 600
Non-controlling interests 159 145
Shareholders' equity 13,377 13,489
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $343,063 $342,178
-------------------------------------------------------------------------
-------------------------------------------------------------------------Assets
Total assets as at April 30, 2008 were up $885 million or 0.3% from
October 31, 2007.
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. treasuries and Government of Canada bonds
and a reduction in CIBC-sponsored ABCP securities. Trading securities
decreased due to normal trading activities, offset partially 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 decrease in securities borrowed or purchased under resale agreements
was primarily due to normal client-driven business activity.
Loans have increased due to volume growth in consumer loans and
residential mortgages (net of securitizations).
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 April 30, 2008 were up $997 million or 0.3% from
October 31, 2007.
The increase in deposits was mainly due to retail volume growth and
normal treasury activities.
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 and
treasury funding activities.
Subordinated indebtedness decreased primarily due to redemptions,
partially offset by the change in the fair value of the hedged debentures.
Shareholders' equity
Shareholders' equity as at April 30, 2008 was down $112 million or 0.8%
from October 31, 2007, primarily due to lower retained earnings resulting from
the loss in the current year to date, partly offset by the issuance of
additional share capital.
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
investments 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 April 30, 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 Apr. 30 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 12,009 $ 12,379
Tier 2 capital 4,481 6,304
Total regulatory capital 16,490 17,758
Risk-weighted assets 114,767 127,424
Tier 1 capital ratio 10.5% 9.7%
Total capital ratio 14.4% 13.9%
Assets-to-capital multiple 19.3x 19.0x
-------------------------------------------------------------------------
-------------------------------------------------------------------------Tier 1 ratio was up by 0.8% 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
current period, and certain other deductions, which under Basel II are now
subtracted directly from Tier 1 capital.
Total capital ratio was up by 0.5% from the year-end 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 For the
three six
months months
ended ended
Apr. 30, Apr. 30,
$ millions 2008 2008
-------------------------------------------------------------------------
Issue of common shares(1) $ 7 $ 2,923
Redemption of subordinated indebtedness (89) (339)
Dividends
Preferred shares - classified as equity (30) (60)
Preferred shares - classified as liabilities (8) (16)
Common shares (332) (623)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) After issuance costs, net of tax, of $1 million for the three
months ended April 30, 2008 ($33 million for the six months ended
April 30, 2008).For additional details, see Notes 7 and 8 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 of 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 Apr. 30
-------------------------------------------------------------------------
Undrawn Written
liquidity credit
and deriv-
Investment credit atives
and facil- (noti-
loans(1) ities onal)(2)
-------------------------------------------------------------------------
CIBC sponsored multi-seller conduits $ 786 $11,444(3) $ -
CIBC structured CDO vehicles 824 80 865
Third-party structured vehicles 7,694 1,678 16,941
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007
$ millions, as at Oct. 31
-------------------------------------------------------------------------
Undrawn Written
liquidity credit
and deriv-
Investment credit atives
and facil- (noti-
loans(1) ities onal)(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), Fannie Mae, Freddie Mac, Ginnie Mae and Sallie Mae.
$6.3 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 $(5.6) billion (Oct. 31, 2007:
$(3.8) billion). Notional amounts of $17.2 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 $1.9 million (Oct. 31, 2007: $3.4 billion).
Accumulated fair value losses amount to $669 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 $189 million (Oct. 31, 2007: $6.5 billion) and the fair
value was approximately $7 million (Oct. 31, 2007: $(470) million).
(3) Net of $786 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 $1.8 billion ($6.6 billion for the six months ended April 30, 2008) 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 $189 million 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 6 and 13 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 CMHC (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 for on- and off-balance sheet financial
instruments. Details on the calculation of exposure at default are provided on
the next page.$ millions, as at April 30, 2008 January 31, 2008
-------------------------------------------------------------------------
Stand- Stand-
AIRB ardized AIRB ardized
approach approach Total approach approach Total
-------------------------------------------------------------------------
Business and
government
portfolios
Corporate
Drawn $ 35,528 $ 4,999 $ 40,527 $ 34,276 $ 5,561 $ 39,837
Undrawn
commit-
ments 17,891 373 18,264 18,764 332 19,096
Repo-style
trans-
actions 25,114 18 25,132 26,201 46 26,247
Other off-
balance
sheet 5,235 174 5,409 6,215 197 6,412
OTC deri-
vatives 11,533 60 11,593 12,119 67 12,186
-------------------------------------------------------------------------
95,301 5,624 100,925 97,575 6,203 103,778
-------------------------------------------------------------------------
Sovereign
Drawn 22,465 1,722 24,187 20,968 953 21,921
Undrawn
commit-
ments 2,636 - 2,636 2,762 - 2,762
Repo-style
trans-
actions 1,055 - 1,055 1,082 - 1,082
Other off-
balance
sheet 29 - 29 32 2 34
OTC deri-
vatives 1,395 - 1,395 1,661 - 1,661
-------------------------------------------------------------------------
27,580 1,722 29,302 26,505 955 27,460
-------------------------------------------------------------------------
Banks
Drawn 10,206 1,631 11,837 14,428 854 15,282
Undrawn
commit-
ments 787 - 787 816 - 816
Repo-style
trans-
actions 48,647 175 48,822 57,051 354 57,405
Other off-
balance
sheet 50,657 - 50,657 41,120 14 41,134
OTC deri-
vatives 5,407 3 5,410 6,509 14 6,523
-------------------------------------------------------------------------
115,704 1,809 117,513 119,924 1,236 121,160
-------------------------------------------------------------------------
Total business
and government
portfolios 238,585 9,155 247,740 244,004 8,394 252,398
-------------------------------------------------------------------------
Retail
portfolios
Real estate
secured
personal
lending
Drawn 103,360 2,033 105,393 100,707 2,013 102,720
Undrawn
commit-
ments 28,101 - 28,101 23,795 - 23,795
-------------------------------------------------------------------------
131,461 2,033 133,494 124,502 2,013 126,515
-------------------------------------------------------------------------
Qualifying
revolving
retail
Drawn 15,756 - 15,756 15,259 - 15,259
Undrawn
commit-
ments 23,462 - 23,462 22,693 - 22,693
-------------------------------------------------------------------------
39,218 - 39,218 37,952 - 37,952
-------------------------------------------------------------------------
Other retail
Drawn 9,207 975 10,182 9,261 972 10,233
Undrawn
commit-
ments 2,104 53 2,157 2,086 53 2,139
Other off-
balance
sheet 108 - 108 108 - 108
-------------------------------------------------------------------------
11,419 1,028 12,447 11,455 1,025 12,480
-------------------------------------------------------------------------
Total retail
portfolios 182,098 3,061 185,159 173,909 3,038 176,947
-------------------------------------------------------------------------
Securitization
exposures(1) 16,204 761 16,965 17,482 839 18,321
-------------------------------------------------------------------------
Gross credit
exposure $436,887 $ 12,977 $449,864 $435,395 $ 12,271 $447,666
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Under the internal ratings based (IRB) 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 $70.3 billion (January 31, 2008: $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.Standard Moody's
CIBC & Poor's Investor Services
Grade rating equivalent 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. Traditionally, the valuation adjustment has been a function of
our estimates of the PD, the expected loss/exposure in the event of default,
and other factors such as risk mitigants. In the first quarter, we implemented
a new methodology for financial guarantors (excluding ACA) which takes into
account market observed credit default spreads for our counterparties. In the
current quarter, to reflect the deterioration in general credit conditions, we
added $50 million to our historical, formulaic calculation of the credit
valuation adjustment for non-financial guarantor derivatives counterparties.
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 $54.2 billion (January 31, 2008:
$53.1 billion) are reclassified to either sovereign or corporate exposures in
the table below.$ millions, as at
-------------------------------------------------------------------------
EAD 2008 2008
----------------------------- Apr. 30 Jan. 31
Grade Corporate Sovereign Banks Total Total
-------------------------------------------------------------------------
Investment grade $ 35,533 $ 80,021 $ 61,211 $176,765 $176,109
Non-investment grade 25,845 267 12,682 38,794 34,613
Watchlist 484 - - 484 1,257
Default 548 1 - 549 295
-------------------------------------------------------------------------
$ 62,410 $ 80,289 $ 73,893 $216,592 $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.2008 2008
$ millions, as at Apr. 30 Jan. 31
-------------------------------------------------------------------------
Strong $ 5,693 $ 5,594
Good 131 130
Satisfactory 40 40
Weak 6 7
Default 7 3
-------------------------------------------------------------------------
$ 5,877 $ 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); and 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
$54.2 billion (January 31, 2008: $53.1 billion) are reclassified to either
sovereign or corporate exposures. Retail portfolios include $3,913 million
(January 31, 2008: $3,947 million) of small business scored exposures.$ millions, as at
-------------------------------------------------------------------------
EAD
-------------------------------
Real estate
secured Qualifying 2008 2008
personal revolving Other Apr. 30 Jan. 31
PD lending retail retail Total Total
-------------------------------------------------------------------------
Exceptionally low $ 31,547 $ 17,129 $ 2,564 $ 51,240 $ 48,590
Very low 20,383 5,743 2,608 28,734 24,890
Low 25,324 10,390 4,374 40,088 39,552
Medium 129 4,122 1,393 5,644 5,663
High 75 1,695 97 1,867 1,840
Default 66 139 123 328 320
-------------------------------------------------------------------------
$ 77,524 $ 39,218 $ 11,159 $127,901 $120,855
-------------------------------------------------------------------------
-------------------------------------------------------------------------Exposures subject to the standardized approach
Exposures within FirstCaribbean, obligations of certain exposures of
individuals for non-business purposes, and certain exposures in the CIBC
Mellon joint ventures have been deemed immaterial, and are subject to the
standardized approach. A detailed breakdown of our standardized exposures
before allowance for credit losses by risk-weight is provided below. Eligible
financial collateral also impacts the risk weighting category for the
exposure.$ millions, as at
-------------------------------------------------------------------------
Risk-weight category
-------------------------------------------------
0% 20% 50% 75% 100% Total
-------------------------------------------------------------------------
Apr. 30, 2008
-------------
Corporate $ - $ 964 $ 92 $ - $ 4,568 $ 5,624
Sovereign 1,426 204 3 - 89 1,722
Banks - 1,781 - - 28 1,809
Real estate
secured
personal
lending - - - 2,028 5 2,033
Other retail - - - 53 975 1,028
-------------------------------------------------------------------------
$ 1,426 $ 2,949 $ 95 $ 2,081 $ 5,665 $ 12,216
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jan. 31, 2008 $ 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 IRB and standardized approach.
$ millions, as at
-------------------------------------------------------------------------
EAD 2008 2008
-------------------- Apr. 30 Jan. 31
Ratings IRB Standardized Total Total
-------------------------------------------------------------------------
AAA to BBB- $ 15,860 $ 761 $ 16,621 $ 18,029
BB+ to BB- 8 - 8 9
Below BB- 57 - 57 37
Unrated 279 - 279 246
-------------------------------------------------------------------------
$ 16,204 $ 761 $ 16,965 $ 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 $70.3 billion (January 31,
2008: $79.0 billion) of collateral held for our repurchase agreement
activities.$ millions, as at
-------------------------------------------------------------------------
Canada U.S. Europe Other Total
-------------------------------------------------------------------------
Apr. 30, 2008
-------------
Drawn $ 52,239 $ 9,464 $ 5,059 $ 1,437 $ 68,199
Undrawn commitments 19,001 1,696 288 329 21,314
Repo-style transactions 1,633 1,946 191 734 4,504
Other off-balance sheet 34,329 11,551 9,081 960 55,921
OTC derivatives 6,224 7,330 4,232 549 18,335
-------------------------------------------------------------------------
$113,426 $ 31,987 $ 18,851 $ 4,009 $168,273
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jan. 31, 2008 $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 $70.3 billion (January 31, 2008: $79.0 billion) of
collateral held for our repurchase agreement activities.$ millions, as at
-------------------------------------------------------------------------
Repo- Other
style off- OTC
Undrawn trans- balance deriv-
Drawn commitment actions sheet atives
-------------------------------------------------------------------------
Commercial mortgages $ 5,684 $ 193 $ - $ - $ -
Financial
institutions(1) 16,126 2,808 4,468 51,189 14,396
Retail and wholesale 2,407 1,493 - 265 72
Business and personal
services 3,301 945 3 167 143
Manufacturing, capital
goods 1,217 907 - 270 60
Manufacturing, consumer
goods 1,228 852 - 33 63
Real estate and
construction 5,636 1,629 - 726 112
Agriculture 2,548 1,292 - 18 11
Oil and gas 3,636 3,568 - 550 1,229
Mining 1,715 484 - 116 39
Forest products 552 202 5 82 20
Hardware and software 482 400 - 102 72
Telecommunications and
cable 650 600 - 221 452
Publishing, printing and
broadcasting 475 434 - 200 88
Transportation 1,355 583 - 862 48
Utilities 689 1,476 - 732 351
Education, health and
social services 1,317 834 4 149 46
Governments 19,181 2,614 24 239 1,133
-------------------------------------------------------------------------
$ 68,199 $ 21,314 $ 4,504 $ 55,921 $ 18,335
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2008 2008
$ millions, as at Apr. 30 Jan. 31
-------------------------------------------
Total Total
-------------------------------------------
Commercial mortgages $ 5,877 $ 5,774
Financial
institutions(1) 88,987 87,321
Retail and wholesale 4,237 4,319
Business and personal
services 4,559 6,363
Manufacturing, capital
goods 2,454 2,613
Manufacturing, consumer
goods 2,176 1,978
Real estate and
construction 8,103 8,246
Agriculture 3,869 3,925
Oil and gas 8,983 7,826
Mining 2,354 2,348
Forest products 861 927
Hardware and software 1,056 1,174
Telecommunications and
cable 1,923 1,327
Publishing, printing and
broadcasting 1,197 1,660
Transportation 2,848 2,237
Utilities 3,248 3,137
Education, health and
social services 2,350 2,158
Governments 23,191 21,661
-------------------------------------------
$168,273 $164,994
-------------------------------------------
-------------------------------------------
(1) OTC derivatives includes $5.2 billion (January 31, 2008:
$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 $2.9 billion (January 31, 2008:
$3.0 billion).
Impaired loans and allowance and provision for credit losses
-------------------------------------------------------------------------
2008 2007
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Gross impaired loans
Consumer $ 523 $ 493
Business and government(1) 371 370
-------------------------------------------------------------------------
Total gross impaired loans $ 894 $ 863
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allowance for credit losses
Consumer $ 369 $ 359
Business and government(1) 210 194
-------------------------------------------------------------------------
Specific allowance 579 553
General allowance 889 890
-------------------------------------------------------------------------
Total allowance for credit losses $ 1,468 $ 1,443
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes scored small business portfolios which are managed on a pool
basis under Basel II.Gross impaired loans were up $31 million or 4% from October 31, 2007.
Consumer gross impaired loans were up $30 million or 6%, whereas business and
government gross impaired loans were up $1 million. Total gross impaired loans
decreased $6 million in Canada and $3 million in the U.S. offset by an
increase of $40 million in other countries. The overall increase in gross
impaired loans was largely attributed to residential mortgages and the
business services sector.
Allowance for credit losses was up $25 million or 2% from October 31,
2007. Specific allowance was up $26 million or 5% from the year-end, primarily
due to increases in the retail sector, as well as credit cards. The general
allowance totaled $889 million, down $1 million from the year-end.
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.
The VaR for the three months ending April 30, 2008 disclosed in the table
and backtesting chart on the next page exclude our exposures in our run-off
businesses as described on pages 9 to 15 of the MD&A. Due to the volatile and
illiquid markets in recent months, the quantification of risk for these
positions is subject to a high degree of uncertainty. These positions are
being managed down independent of our trading businesses, and are not subject
to our internal VaR limits.
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
------------------------------------------------------
Apr. 30, 2008
------------------------------------------------------
$ millions High Low As at Average
-------------------------------------------------------------------------
Interest rate risk $ 13.0 $ 4.9 $ 7.5 $ 7.6
Credit spread risk 6.2 3.6 3.6 5.0
Equity risk 7.3 3.8 5.0 5.3
Foreign exchange
risk 1.9 0.3 0.5 0.6
Commodity risk 1.2 0.5 0.6 0.8
Debt specific risk 9.9 6.1 7.8 8.0
Diversification
effect(1) n/m n/m (13.0) (13.3)
-----------------
Total risk $ 19.0 $ 11.1 $ 12.0 $ 14.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the
As at or for the three months ended six months ended
------------------------------------ -----------------
Apr. 30, Apr. 30,
Jan. 31, 2008 Apr. 30, 2007 2008 2007
------------------------------------ -----------------
$ millions As at Average As at Average Average Average
------------------------------------------------------- -----------------
Interest rate risk $ 10.9 $ 7.4 $ 7.5 $ 7.0 $ 7.5 $ 7.0
Credit spread risk 9.7 12.8 4.7 3.9 8.9 3.7
Equity risk 6.4 5.0 5.8 5.9 5.2 6.1
Foreign exchange
risk 0.7 0.7 0.4 0.5 0.7 0.4
Commodity risk 0.8 0.8 1.0 1.4 0.8 1.5
Debt specific risk 8.6 10.5 n/a n/a 9.2 n/a
Diversification
effect(1) (16.6) (18.5) (9.7) (9.5) (16.0) (9.6)
------------------------------------ -----------------
Total risk $ 20.5 $ 18.7 $ 9.7 $ 9.2 $ 16.3 $ 9.1
------------------------------------------------------- -----------------
------------------------------------------------------- -----------------
(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 down 25% from the last quarter, primarily due to
the exclusion of the run-off businesses in VaR. Total average risk was up more
than 52% from the same quarter last year, primarily due to inclusion of debt
specific risk measure in VaR starting in the fourth quarter of 2007, as well
as the higher market volatilities used in the calculation of VaR. If the
positions in our run-off businesses had been included for the quarter the
average daily VaR would have been $22 million and the VaR at quarter-end would
have been $21 million.
Trading revenue
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.
Trading revenue (TEB)(1) was positive for 53% 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 $0.6 million during the quarter.
The trading revenue (TEB)(1) for the current quarter excludes $2 million
related to the consolidation of variable interest entities as well as trading
losses from the run-off businesses including $2,384 million related to
reductions in fair value of structured credit assets and counterparty
credit-related valuation adjustments and $10 million related to revenue from
other positions in the run-off books. Trading revenue (TEB)(1) also excludes
the $50 million valuation charges against credit exposures to our derivative
counterparties, 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
Asset-Liability Management 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 2008
$ millions, as at Apr. 30 Jan. 31
-------------------------------------------------------------------------
C$ US$ Other C$ US$ Other
-------------------------------------------------------------------------
100 basis points increase
in interest rates
Net income $ 51 $ (6) $ (1) $ 23 $ (1) $ -
Change in present value
of shareholders' equity 171 16 33 101 31 36
100 basis points decrease
in interest rates
Net income $ (62) $ 6 $ 1 $ (56) $ 1 $ -
Change in present value
of shareholders' equity (264) (16) (35) (143) (31) (37)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------
2007
$ millions, as at Apr. 30
-------------------------------------------------
C$ US$ Other
-------------------------------------------------
100 basis points increase
in interest rates
Net income $ 23 $ 4 $ (5)
Change in present value
of shareholders' equity 223 34 35
100 basis points decrease
in interest rates
Net income $ (96) $ (4) $ 5
Change in present value
of shareholders' equity (257) (34) (35)
-------------------------------------------------
-------------------------------------------------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 April 30, 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 April 30, 2008, the net
change in fair value of these hedging derivatives included in accumulated
other comprehensive income amounted to an after-tax loss of $63 million
(October 31, 2007: after-tax loss of $73 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 Fair
$ millions, as at value value
-------------------------------------------------------------------------
Apr. 30, 2008 AFS securities $ 1,354 $ 1,923
Other assets(1) 219 240
-------------------------------------------------------------------------
$ 1,573 $ 2,163
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 April 30, 2008, Canadian dollar deposits from
individuals totalled $87.6 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 Apr. 30 Oct. 31
-------------------------------------------------------------------------
Cash $ 1.0 $ 1.0
Deposits with banks 12.1 12.7
Securities(1) 56.7 65.1
Securities borrowed or purchased under resale
agreements 33.2 34.0
-------------------------------------------------------------------------
$ 103.0 $ 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 April 30, 2008 totalled $23.3 billion (October 31, 2007: $27.7 billion).
While conditions have stabilized, the recent turmoil in global capital
markets continues to result in reduced liquidity and increased term funding
costs for financial institutions generally. One factor affecting the access of
financial institutions to unsecured funding markets is credit ratings. In
April, DBRS confirmed our ratings while revising our ratings trend to
"negative" from "under review with negative implications". No changes to our
ratings were made by the other major rating agencies during the second
quarter.
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.-------------------------------------------------------------------------
No
Less than 1 - 3 3 - 5 Over specified
$ millions, as at 1 year years years 5 years maturity
-------------------------------------------------------------------------
Liabilities
Deposits $119,327 $ 23,999 $ 9,226 $ 4,174 $ 81,477
Acceptances 8,756 - - - -
Obligations related to
securities sold short 485 1,042 1,170 3,891 3,697
Obligations related to
securities lent or
sold under repurchase
agreements 26,530 - - - -
Other liabilities 547 3,077 - - 10,123
Subordinated
indebtedness - - - 5,359 -
Preferred share
liabilities 600 - - - -
Structural assumptions (71,848) 3,995 - 73,000 (5,147)
-------------------------------------------------------------------------
$ 84,397 $ 32,113 $ 10,396 $ 86,424 $ 90,150
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------
2008 2008
Apr. 30 Jan. 31
$ millions, as at Total Total
-------------------------------------------
Liabilities
Deposits $238,203 $239,976
Acceptances 8,756 8,527
Obligations related to
securities sold short 10,285 10,077
Obligations related to
securities lent or
sold under repurchase
agreements 26,530 29,355
Other liabilities 13,747 12,885
Subordinated
indebtedness 5,359 5,402
Preferred share
liabilities 600 600
Structural assumptions - -
-------------------------------------------
$303,480 $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 expected liquidity requirements.Contract amounts expiration per period
----------------------------------------
Less than 1-3 3-5 Over
$ millions, as at 1 year years years 5 years
-------------------------------------------------------------------------
Unutilized credit commitments(1) $ 28,384 $ 1,956 $ 8,104 $ 1,211
Backstop liquidity facilities 13,803 - - -
Standby and performance letters
of credit 4,988 448 520 657
Documentary and commercial
letters of credit 189 - - 2
-------------------------------------------------------------------------
$ 47,364 $ 2,404 $ 8,624 $ 1,870
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2008 2008
Apr. 30 Jan. 31
$ millions, as at Total Total
-----------------------------------------------------
Unutilized credit commitments(1) $ 39,655 $ 39,169
Backstop liquidity facilities 13,803 14,810
Standby and performance letters
of credit 6,613 6,423
Documentary and commercial
letters of credit 191 256
-----------------------------------------------------
$ 60,262 $ 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.
Valuation of financial instruments
The table below presents the percentage of each category of financial
instruments which are fair valued using valuation technique based on
non-market observable inputs.-------------------------------------------------------------------------
2008 2007
As at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Assets
Trading securities 12.8% 4.0%
AFS securities 8.2 3.4
FVO financial instruments 1.4 1.8
Derivative instruments 14.7 16.1
-------------------------------------------------------------------------
Liabilities
Obligations related to securities sold short 0.4% 0.6%
Derivative instruments 22.8 16.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------Valuation techniques using non-market observable inputs are used for a
number of financial instruments including our USRMM and certain non-USRMM
positions. Indicative broker quotes in an inactive market, which we consider
to be non-market observable, are primarily used for the valuation of these
positions. Market observed credit spreads are a key factor in establishing
valuation adjustments against our counterparty credit exposures related to
financial guarantors.
In the first quarter of 2008, we changed our methodology for estimating
valuation adjustments against our counterparty credit exposures related to
financial guarantors (excluding ACA) to take into account market observed
credit spreads. The modification resulted in an increase in charges of
approximately $590 million in the first quarter. During the current quarter,
we continued to apply the key aspects of the market driven methodology
implemented last quarter but with modifications in certain limited respects.
In the current quarter, to reflect the deterioration in general credit
conditions, we added $50 million to our historical, formulaic calculation of
the credit valuation adjustment for non-financial guarantor derivative
counterparties.
A 10% adverse change in mark-to-market of our unhedged USRMM and
non-USRMM positions would result in a loss of approximately $11 million and
$123 million respectively, before index hedges. A 10% adverse change in
mark-to-market of our hedged USRMM and non-USRMM positions would, primarily
through an increase in credit valuation adjustment for financial guarantors,
result in a loss of $159 million and $47 million respectively, before credit
hedges.
The impact of a 10% widening in financial guarantor credit spreads would
result in an increase in the credit valuation adjustments of approximately
$206 million, before credit hedges.
Risk factors related to fair value 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.
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 Staff Position 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
and Chief Financial Officer, has evaluated the effectiveness, as at April 30,
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 April 30, 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 Apr. 30 Oct. 31
--------------------------------------------------------------- ---------
ASSETS
Cash and non-interest-bearing deposits with banks $ 1,142 $ 1,457
--------------------------------------------------------------- ---------
Interest-bearing deposits with banks 11,950 12,290
--------------------------------------------------------------- ---------
Securities
Trading 54,896 58,779
Available-for-sale (AFS) 8,616 17,430
Designated at fair value (FVO) 15,585 10,291
--------------------------------------------------------------- ---------
79,097 86,500
--------------------------------------------------------------- ---------
Securities borrowed or purchased
under resale agreements 33,170 34,020
--------------------------------------------------------------- ---------
Loans
Residential mortgages 92,703 91,664
Personal 30,297 29,213
Credit card 9,809 9,121
Business and government 34,399 34,099
Allowance for credit losses (Note 5) (1,384) (1,443)
--------------------------------------------------------------- ---------
165,824 162,654
--------------------------------------------------------------- ---------
Other
Derivative instruments 23,549 24,075
Customers' liability under acceptances 8,756 8,024
Land, buildings and equipment 1,922 1,978
Goodwill 1,916 1,847
Other intangible assets 406 406
Other assets (Note 10) 15,331 8,927
--------------------------------------------------------------- ---------
51,880 45,257
--------------------------------------------------------------- ---------
$343,063 $342,178
--------------------------------------------------------------- ---------
--------------------------------------------------------------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Personal $ 95,955 $ 91,772
Business and government 125,626 125,878
Bank 16,622 14,022
--------------------------------------------------------------- ---------
238,203 231,672
--------------------------------------------------------------- ---------
Other
Derivative instruments 26,206 26,688
Acceptances 8,756 8,249
Obligations related to securities sold short 10,285 13,137
Obligations related to securities lent or
sold under repurchase agreements 26,530 28,944
Other liabilities 13,588 13,728
--------------------------------------------------------------- ---------
85,365 90,746
--------------------------------------------------------------- ---------
Subordinated indebtedness (Note 7) 5,359 5,526
--------------------------------------------------------------- ---------
Preferred share liabilities 600 600
--------------------------------------------------------------- ---------
Non-controlling interests 159 145
--------------------------------------------------------------- ---------
Shareholders' equity
Preferred shares 2,331 2,331
Common shares (Note 8) 6,056 3,133
Treasury shares 8 4
Contributed surplus 90 96
Retained earnings 5,699 9,017
Accumulated other comprehensive (loss) income (AOCI) (807) (1,092)
--------------------------------------------------------------- ---------
13,377 13,489
--------------------------------------------------------------- ---------
$343,063 $342,178
--------------------------------------------------------------- ---------
--------------------------------------------------------------- ---------
The accompanying notes and shaded sections in "MD&A - Management of
risk" on pages 27 to 38 are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
For the
For the three months ended six months ended
------------------------------ -------------------
2008 2008 2007 2008 2007
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr.30 Apr. 30
----------------------------------------------------- -------------------
Interest income
Loans $ 2,310 $ 2,582 $ 2,350 $ 4,892 $ 4,654
Securities borrowed or
purchased under
resale agreements 419 529 499 948 971
Securities 697 664 719 1,361 1,481
Deposits with banks 192 230 200 422 373
----------------------------------------------------- -------------------
3,618 4,005 3,768 7,623 7,479
----------------------------------------------------- -------------------
Interest expense
Deposits 1,747 2,208 1,928 3,955 3,831
Other liabilities 452 563 678 1,015 1,343
Subordinated
indebtedness 62 72 75 134 151
Preferred share
liabilities 8 8 8 16 16
----------------------------------------------------- -------------------
2,269 2,851 2,689 5,120 5,341
----------------------------------------------------- -------------------
Net interest income 1,349 1,154 1,079 2,503 2,138
----------------------------------------------------- -------------------
Non-interest income
Underwriting and
advisory fees 88 176 178 264 363
Deposit and payment fees 191 195 193 386 386
Credit fees 56 60 82 116 151
Card fees 67 77 60 144 130
Investment management
and custodial fees 131 136 130 267 260
Mutual fund fees 204 212 216 416 428
Insurance fees,
net of claims 63 58 62 121 120
Commissions on
securities transactions 133 170 226 303 455
Trading revenue (Note 9) (2,401) (3,127) 296 (5,528) 671
AFS securities gains
(losses), net 12 (49) 119 (37) 251
FVO revenue (18) (29) 59 (47) 102
Income from
securitized assets 146 144 136 290 265
Foreign exchange
other than trading 3 132 101 135 185
Other 102 170 113 272 236
----------------------------------------------------- -------------------
(1,223) (1,675) 1,971 (2,898) 4,003
----------------------------------------------------- -------------------
Total revenue 126 (521) 3,050 (395) 6,141
----------------------------------------------------- -------------------
Provision for credit
losses (Note 5) 176 172 166 348 309
----------------------------------------------------- -------------------
Non-interest expenses
Employee compensation
and benefits 933 994 1,126 1,927 2,286
Occupancy costs 142 145 152 287 302
Computer and office
equipment 265 262 279 527 542
Communications 72 74 88 146 159
Advertising and
business development 58 53 66 111 116
Professional fees 61 51 43 112 82
Business and
capital taxes 35 25 34 60 69
Other 222 157 188 379 363
----------------------------------------------------- -------------------
1,788 1,761 1,976 3,549 3,919
----------------------------------------------------- -------------------
(Loss) income before
income taxes and
non-controlling
interests (1,838) (2,454) 908 (4,292) 1,913
Income tax
(benefit) expense (731) (1,002) 91 (1,733) 322
----------------------------------------------------- -------------------
(1,107) (1,452) 817 (2,559) 1,591
Non-controlling
interests 4 4 10 8 14
----------------------------------------------------- -------------------
Net (loss) income $ (1,111) $ (1,456) $ 807 $ (2,567) $ 1,577
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(Loss) earnings per
share (in dollars)
(Note 12) -Basic $ (3.00) $ (4.39) $ 2.29 $ (7.31) $ 4.42
-Diluted $ (3.00) $ (4.39) $ 2.27 $ (7.31) $ 4.37
Dividends per common
share (in dollars) $ 0.87 $ 0.87 $ 0.77 $ 1.74 $ 1.47
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
The accompanying notes and shaded sections in "MD&A - Management of
risk" on pages 27 to 38 are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the
For the three months ended six months ended
------------------------------ -------------------
2008 2008 2007 2008 2007
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Preferred shares
Balance at beginning
of period $ 2,331 $ 2,331 $ 2,431 $ 2,331 $ 2,381
Issue of preferred
shares - - 300 - 750
Redemption of
preferred shares - - - - (400)
----------------------------------------------------- -------------------
Balance at end
of period $ 2,331 $ 2,331 $ 2,731 $ 2,331 $ 2,731
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Common shares
Balance at
beginning of period $ 6,049 $ 3,133 $ 3,114 $ 3,133 $ 3,064
Issue of common
shares (Note 8) 8 2,948 21 2,956 71
Issuance costs, net of
related income taxes (1) (32) - (33) -
----------------------------------------------------- -------------------
Balance at end
of period $ 6,056 $ 6,049 $ 3,135 $ 6,056 $ 3,135
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Treasury shares
Balance at beginning
of period $ 12 $ 4 $ (1) $ 4 $ (19)
Purchases (2,147) (2,959) (1,213) (5,106) (2,569)
Sales 2,143 2,967 1,210 5,110 2,584
----------------------------------------------------- -------------------
Balance at end
of period $ 8 $ 12 $ (4) $ 8 $ (4)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Contributed surplus
Balance at beginning
of period $ 86 $ 96 $ 74 $ 96 $ 70
Stock option expense 2 3 1 5 3
Stock options exercised - (1) (1) (1) (5)
Net premium (discount)
on treasury shares
and other 2 (12) 2 (10) 8
----------------------------------------------------- -------------------
Balance at end
of period $ 90 $ 86 $ 76 $ 90 $ 76
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Retained earnings
Balance at beginning
of period, as
previously reported $ 7,174 $ 9,017 $ 7,693 $ 9,017 $ 7,268
Adjustment for change
in accounting
policies - (66)(1) - (66) (50)(2)
----------------------------------------------------- -------------------
Balance at beginning
of period, as
restated 7,174 8,951 7,693 8,951 7,218
Net (loss) income (1,111) (1,456) 807 (2,567) 1,577
Dividends -
Preferred (30) (30) (35) (60) (73)
Common (332) (291) (259) (623) (494)
Premium on redemption
of preferred shares
(classified as equity) - - - - (16)
Other (2) - (6) (2) (12)
----------------------------------------------------- -------------------
Balance at end
of period $ 5,699 $ 7,174 $ 8,200 $ 5,699 $ 8,200
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
AOCI, net of tax
Balance at beginning
of period $ (849) $ (1,092) $ (144) $ (1,092) $ (442)
Adjustment for change
in accounting
policies(2) - - - - 123
Other comprehensive
income (loss) (OCI) 42 243 (238) 285 (63)
----------------------------------------------------- -------------------
Balance at end
of period $ (807) $ (849) $ (382) $ (807) $ (382)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Retained earnings
and AOCI $ 4,892 $ 6,325 $ 7,818 $ 4,892 $ 7,818
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Shareholders' equity
at end of period $ 13,377 $ 14,803 $ 13,756 $ 13,377 $ 13,756
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Represents the impact of adopting the amended Canadian Institute of
Chartered Accountants (CICA) 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 27 to 38 are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME
For the
For the three months ended six months ended
------------------------------ -------------------
2008 2008 2007 2008 2007
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Net (loss) income $ (1,111) $ (1,456) $ 807 $ (2,567) $ 1,577
----------------------------------------------------- -------------------
OCI, net of tax
Foreign currency
translation
adjustments
Net gains (losses) on
investment in self-
sustaining foreign
operations 2 973 (1,089) 975 (284)
Net gains (losses) on
hedges of foreign
currency translation
adjustments 25 (746) 840 (721) 237
----------------------------------------------------- -------------------
27 227 (249) 254 (47)
----------------------------------------------------- -------------------
Net change in
AFS securities
Net unrealized gains
(losses) on AFS
securities 83 (21) 74 62 31
Transfer of net
(gains) losses to
net income (65) 106 1 41 (27)
----------------------------------------------------- -------------------
18 85 75 103 4
----------------------------------------------------- -------------------
Net change in cash
flow hedges
Net (losses) gains
on derivatives
designated as cash
flow hedges (5) (36) (55) (41) 18
Net losses (gains) on
derivatives
designated as
cash flow hedges
transferred to
net income 2 (33) (9) (31) (38)
----------------------------------------------------- -------------------
(3) (69) (64) (72) (20)
----------------------------------------------------- -------------------
Total OCI 42 243 (238) 285 (63)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Comprehensive (loss)
income $ (1,069) $ (1,213) $ 569 $ (2,282) $ 1,514
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
-------------------------------------------------------------------------
INCOME TAX (EXPENSE) BENEFIT ALLOCATED TO EACH COMPONENT OF OCI
For the
For the three months ended six months ended
------------------------------ -------------------
2008 2008 2007 2008 2007
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Foreign currency
translation adjustments
Changes on investment
in self-sustaining
foreign operations $ - $ (3) $ 10 $ (3) $ -
Changes on hedges of
foreign currency
translation
adjustments (41) 374 (425) 333 (112)
Net change in AFS
securities
Net unrealized
(gains) losses on
AFS securities (50) 15 (52) (35) (23)
Transfer of net
gains (losses) to
net income 41 (89) (1) (48) 15
Net change in cash
flow hedges
Changes on
derivatives
designated as cash
flow hedges 1 20 29 21 (10)
Changes on derivatives
designated as cash
flow hedges
transferred to
net income (2) 18 5 16 20
----------------------------------------------------- -------------------
$ (51) $ 335 $ (434) $ 284 $ (110)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
The accompanying notes and shaded sections in "MD&A - Management of
risk" on pages 27 to 38 are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the
For the three months ended six months ended
------------------------------ -------------------
2008 2008 2007 2008 2007
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr.30
----------------------------------------------------- -------------------
Cash flows provided by
(used in) operating
activities
Net (loss) income $ (1,111) $ (1,456) $ 807 $ (2,567) $ 1,577
Adjustments to
reconcile net (loss)
income to cash flows
provided by (used in)
operating activities:
Provision for
credit losses 176 172 166 348 309
Amortization of
buildings,
furniture,
equipment and
leasehold
improvements 51 52 59 103 112
Amortization of
other intangible
assets 10 10 12 20 17
Stock-based
compensation 2 (19) (2) (17) 16
Future income taxes (765) (53) 51 (818) 114
AFS securities
(gains) losses, net (12) 49 (119) 37 (251)
(Gains) losses on
disposal of land,
buildings and
equipment (1) - - (1) -
Other non-cash
items, net (13) 66 (11) 53 39
Changes in operating
assets and
liabilities
Accrued interest
receivable 32 104 74 136 (32)
Accrued interest
payable (93) (24) 29 (117) (445)
Amounts receivable
on derivative
contracts (79) 663 450 584 46
Amounts payable on
derivative contracts (82) (954) 629 (1,036) (329)
Net change in
trading securities 3,469 414 4,709 3,883 471
Net change in FVO
securities (1,321) (3,973) 837 (5,294) 208
Net change in
other FVO
financial
instruments (83) (581) 1,194 (664) 1,381
Current income taxes (74) (1,794) (457) (1,868) (834)
Other, net 218 (3,779) 1,325 (3,561) (417)
----------------------------------------------------- -------------------
324 (11,103) 9,753 (10,779) 1,982
----------------------------------------------------- -------------------
Cash flows (used in)
provided by financing
activities
Deposits, net of
withdrawals (1,643) 8,844 (3,619) 7,201 1,935
Obligations related
to securities sold
short 648 (3,076) (14) (2,428) (83)
Net obligations
related to
securities lent or
sold under
repurchase agreements (2,825) 411 2,517 (2,414) 1,339
Issue of subordinated
indebtedness - - 59 - 59
Redemption of
subordinated
indebtedness (89) (250) - (339) -
Issue of preferred
shares - - 300 - 750
Redemption of preferred
shares - - - - (416)
Issue of common shares,
net 7 2,916 21 2,923 71
Net proceeds from
treasury shares
(purchased) sold (4) 8 (3) 4 15
Dividends (362) (321) (294) (683) (567)
Other, net 223 (445) (154) (222) 199
----------------------------------------------------- -------------------
(4,045) 8,087 (1,187) 4,042 3,302
----------------------------------------------------- -------------------
Cash flows provided
by (used in) investing
activities
Interest-bearing
deposits with banks 4,570 (4,230) 1,020 340 (1,474)
Loans, net of repayments (4,694) (2,047) (5,976) (6,741) (4,681)
Proceeds from
securitizations 933 2,250 1,698 3,183 4,235
Purchase of AFS
securities (3,286) (1,924) (2,618) (5,210) (4,405)
Proceeds from sale of
AFS securities 1,944 5,870 3,353 7,814 4,815
Proceeds from maturity
of AFS securities 1,288 4,941 986 6,229 3,382
Net securities borrowed
or purchased under
resale agreements 2,455 (1,605) (6,948) 850 (5,484)
Net cash used in
acquisition(1) - - (262) - (1,040)
Purchase of land,
buildings and equipment (23) (43) - (66) (233)
Proceeds from disposal
of land, buildings and
equipment 2 - - 2 -
----------------------------------------------------- -------------------
3,189 3,212 (8,747) 6,401 (4,885)
----------------------------------------------------- -------------------
Effect of exchange rate
changes on cash and
non-interest-bearing
deposits with banks 1 20 (50) 21 (9)
----------------------------------------------------- -------------------
Net (decrease) increase
in cash and
non-interest-bearing
deposits with banks
during period (531) 216 (231) (315) 390
Cash and
non-interest-bearing
deposits with banks at
beginning of period 1,673 1,457 1,938 1,457 1,317
----------------------------------------------------- -------------------
Cash and
non-interest-bearing
deposits with banks at
end of period $ 1,142 $ 1,673 $ 1,707 $ 1,142 $ 1,707
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Cash interest paid $ 2,362 $ 2,875 $ 2,660 $ 5,237 $ 5,786
Cash income taxes paid $ 107 $ 846 $ 496 $ 953 $ 1,041
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Related to the acquisition of FirstCaribbean International Bank.
The accompanying notes and shaded sections in "MD&A - Management of
risk" on pages 27 to 38 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 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 capital components.
See Note 8 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 15 for additional details.
2. Fair value of financial instruments
Our approach for fair valuation of financial instruments is presented in
Note 2 to the 2007 consolidated financial statements.
Valuation techniques using non-market observable inputs are used for a
number of financial instruments including our U.S. residential mortgage
market (USRMM) and certain non-USRMM positions. Indicative broker quotes
in an inactive market, which we consider to be non-market observable, are
primarily used for the valuation of these positions. Market observed
credit spreads are a key factor in establishing valuation adjustments
against our counterparty credit exposures related to financial
guarantors.
A 10% adverse change in mark-to-market of our unhedged USRMM and
non-USRMM positions would result in a loss of approximately $11 million
and $123 million respectively, before index hedges. A 10% adverse change
in mark-to-market of our hedged USRMM and non-USRMM positions would,
primarily through an increase in credit valuation adjustment for
financial guarantors, result in a loss of approximately $159 million and
$47 million respectively, before credit hedges.
The impact of a 10% widening in financial guarantor credit spreads would
result in an increase in the credit valuation adjustments of
approximately $206 million, before credit hedges.
The total recognized loss in the consolidated financial statements on the
financial instruments outstanding as at the balance sheet date, whose
fair value was estimated using valuation techniques using non-market
observable inputs was $2.43 billion for the quarter ($5.51 billion for
the six months ended April 30, 2008).
3. 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 anticipated to close in the third
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,
recognized losses on certain leasehold improvements and computer
equipment and software, 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.
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.
As a result, we recorded a net pre-tax loss of $69 million in other
non-interest income in the 6 months ended April 30, 2008 (of which
$70 million was recorded in the first quarter). The pre-tax loss is net
of RSA reimbursements that became receivable from Oppenheimer in the
second quarter. We also recorded impairment and other charges of
$13 million (of which $10 million was recorded in the first quarter) in
other non-interest expenses related to our remaining U.S. operations.
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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4. 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.
--------------------------------------------------------------- ---------
2008 2008
Less than 31 to Over Apr. 30 Jan. 31
$ millions, as at 30 days 90 days 90 days Total Total
--------------------------------------------------------------- ---------
Residential mortgages $ 1,208 $ 534 $ 153 $ 1,895 $ 2,080
Personal 477 118 43 638 715
Credit card 416 126 80 622 610
Business and government 280 97 26 403 589
--------------------------------------------------------------- ---------
$ 2,381 $ 875 $ 302 $ 3,558 $ 3,994
--------------------------------------------------------------- ---------
-------------------------------------------------------------------------
5. Allowance for credit losses
---------------------------------------------------
For the three months ended
---------------------------------------------------
Apr. 30, Jan. 31, Apr. 30,
2008 2008 2007
---------------------------------------------------
Specific General Total Total Total
$ millions allowance allowance allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of
period $ 580 $ 889 $ 1,469 $ 1,443 $ 1,556
Provision for (recovery
of) credit losses 174 2 176 172 166
Write-offs (202) - (202) (187) (220)
Recoveries 26 - 26 31 22
Transfer from general to
specific(1) 2 (2) - - -
Other(2) (1) - (1) 10 (8)
-------------------------------------------------------------------------
Balance at end of
period $ 579 $ 889 $ 1,468 $ 1,469 $ 1,516
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprised of:
Loans $ 579 $ 805 $ 1,384 $ 1,379 $ 1,515
Undrawn credit
facilities(3) $ - $ 84 $ 84 90 -
Letters of credit(4) - - - - 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------
For the six months ended
-------------------------------------------
Apr. 30, Apr. 30,
2008 2007
-------------------------------------------
Total Total
$ millions allowance allowance
-------------------------------------------
Balance at beginning of
period $ 1,443 $ 1,444
Provision for (recovery
of) credit losses 348 309
Write-offs (389) (444)
Recoveries 57 75
Transfer from general to
specific(1) - -
Other(2) 9 132
-------------------------------------------
Balance at end of
period $ 1,468 $ 1,516
-------------------------------------------
-------------------------------------------
Comprised of:
Loans $ 1,384 $ 1,515
Undrawn credit
facilities(3) $ 84 -
Letters of credit(4) - 1
-------------------------------------------
-------------------------------------------
(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.
6. Securitizations and variable interest entities
Securitizations (residential mortgages)
-------------------------------------------------------------------------
For the three months ended
--------------------------------------
2008 2008 2007
$ millions Apr. 30 Jan. 31 Apr. 30
-------------------------------------------------------------------------
Securitized $ 2,663 $ 6,308 $ 1,356
Sold 937 2,272 1,707
Net cash proceeds 933 2,250 1,698
Retained interests 20 48 34
Gain on sale, net of transaction
costs 9 14 16
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained interest assumptions (%)
Weighted-average remaining life (in
years) 4.0 3.7 4.2
Prepayment/payment rate 11.0 - 35.0 11.0 - 36.0 11.0 - 39.0
Discount rate 2.9 - 3.6 3.8 - 4.6 4.1 - 4.4
Expected credit losses 0.0 - 0.1 0.0 - 0.1 0.0 - 0.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------
For the six months ended
--------------------------
2008 2007
$ millions Apr. 30 Apr. 30
------------------------------------------------------------
Securitized $ 8,971 $ 5,206
Sold 3,209 4,256
Net cash proceeds 3,183 4,235
Retained interests 68 67
Gain on sale, net of transaction
costs 23 26
------------------------------------------------------------
------------------------------------------------------------
Retained interest assumptions (%)
Weighted-average remaining life (in
years) 3.8 3.6
Prepayment/payment rate 11.0 - 36.0 11.0 - 39.0
Discount rate 2.9 - 4.6 4.1 - 4.4
Expected credit losses 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 second
quarter, we purchased certain reference assets at a par amount of
$1.8 billion from a third-party structured vehicle in consideration for
the termination of the related total return swaps. This is in addition to
the $4.8 billion of reference assets purchased during the first quarter
from two third party structured vehicles also 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 $189 million
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
April 30, 2008, our direct investment in commercial paper issued by our
sponsored conduits was $786 million. We were not considered to be the
primary beneficiary of any of these conduits. At April 30, 2008 our
maximum exposure to loss relating to CIBC sponsored multi-seller conduits
was $11.9 billion (October 31, 2007: $ 15.1 billion). The maximum
exposure to loss relating to these conduits comprises the fair value for
investments and notional amounts of liquidity and credit facilities.
7. 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.
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.
8. 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 April 30, 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 April 30, 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 April. 30 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 12,009 $ 12,379
Total regulatory capital 16,490 17,758
Risk-weighted assets 114,767 127,424
Tier 1 capital ratio 10.5 % 9.7 %
Total capital ratio 14.4 % 13.9 %
Assets-to-capital multiple 19.3x 19.0x
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares
During the first 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.
During the second quarter, we issued 0.2 million common shares for
$8 million (for the six months ended April 30, 2008: 0.4 million common
shares for $19 million), pursuant to stock option plans. We also incurred
additional issuance costs net of tax of $1 million related to common
shares issued for cash.
9. Financial guarantors
We have derivative contracts with financial guarantors 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 $643 million (for the three months ended
January 31, 2008: $2.28 billion) on purchased credit derivatives from ACA
Financial Guaranty Corp (ACA) to increase our valuation adjustments for
ACA to $3.03 billion (January 31, 2008: $2.29 billion). As at April 30,
2008, the fair value of purchased credit derivatives with ACA, net of
valuation adjustment, amounted to $30 million (January 31, 2008:
$70 million). Further charges could result depending on the performance
of both the underlying assets and ACA.
During the quarter, we also recorded a charge of $1.52 billion on
purchased credit derivatives from financial guarantors other than ACA to
increase our valuation adjustments for these financial guarantors to
$2.17 billion (January 31, 2008: $650 million).
The amount of the charge is based on the estimated fair value of the
derivative contracts, which in turn is based on market value of the
underlying reference assets.
In the first quarter of 2008, we changed our methodology for estimating
valuation adjustments against our counterparty credit exposures related
to financial guarantors (excluding that for ACA) to take into account
market observed credit spreads. The modification resulted in an increase
in charges of approximately $590 million in the first quarter. During the
quarter, we continued to apply the key aspects of the market driven
methodology implemented last quarter for the calculation of the valuation
adjustments for financial guarantors but with modifications in certain
limited respects.
We believe that we have made appropriate fair value adjustments to date.
The establishment of fair value adjustments involves estimates that are
based on accounting processes and judgments by management. We evaluate
the adequacy of the fair value adjustments on an ongoing basis. Market
and economic conditions relating to these counterparties may change in
the future, which could result in significant future losses.
10. Income taxes
At the end of the quarter, our future income tax asset was $1.06 billion,
net of a US$82 million ($83 million) valuation allowance. Accounting
standards require a valuation allowance when it is more likely than not
that all or a portion of a future income tax asset will not be realized
prior to its expiration. Although realization is not assured, we believe
that, based on all available evidence, it is more likely than not that
all of the future income tax asset, net of the valuation allowance, will
be realized. Included in the future income tax asset are $724 million
related to Canadian non-capital loss carry forwards which expire in
20 years, and $68 million related to Canadian capital loss carry forwards
which have no expiry date.
11. Employee future benefit expenses
----------------------------------------------------- -------------------
For the
For the three months ended six months ended
----------------------------- -------------------
2008 2008 2007 2008 2007
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Defined benefit plans
Pension benefit plans $ 38 $ 38 $ 47 $ 76 $ 95
Other benefit plans 13 8 11 21 19
----------------------------------------------------- -------------------
$ 51 $ 46 $ 58 $ 97 $ 114
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Defined contribution
plans
CIBC's pension plans $ 4 $ 4 $ 5 $ 8 $ 9
Government pension
plans(1) 23 21 22 44 44
----------------------------------------------------- -------------------
$ 27 $ 25 $ 27 $ 52 $ 53
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal
Insurance Contributions Act.
12. (Loss) earnings per share (EPS)
----------------------------------------------------- -------------------
For the
For the three months ended six months ended
----------------------------- -------------------
$ millions, except per 2008 2008 2007 2008 2007
share amounts Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Basic EPS
Net (loss) income $ (1,111) $ (1,456) $ 807 $ (2,567) $ 1,577
Preferred share
dividends and premiums (30) (30) (35) (60) (89)
----------------------------------------------------- -------------------
Net (loss) income
applicable to common
shares $ (1,141) $ (1,486) $ 772 $ (2,627) $ 1,488
----------------------------------------------------- -------------------
Weighted-average common
shares outstanding
(thousands) 380,754 338,732 337,320 359,512 336,896
----------------------------------------------------- -------------------
Basic EPS $ (3.00) $ (4.39) $ 2.29 $ (7.31) $ 4.42
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Diluted EPS
Net (loss) income
applicable to common
shares $ (1,141) $ (1,486) $ 772 $ (2,627) $ 1,488
----------------------------------------------------- -------------------
Weighted-average common
shares outstanding
(thousands) 380,754 338,732 337,320 359,512 336,896
Add: stock options
potentially
exercisable(1)
(thousands) 1,623 2,079 3,293 1,854 3,376
----------------------------------------------------- -------------------
Weighted-average
diluted common shares
outstanding(2)
(thousands) 382,377 340,811 340,613 361,366 340,272
----------------------------------------------------- -------------------
Diluted EPS(3) $ (3.00) $ (4.39) $ 2.27 $ (7.31) $ 4.37
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Excludes average options outstanding of 2,128,531 with a weighted-
average exercise price of $79.50; average options outstanding of
850,531 with a weighted-average exercise price of $87.69; and average
options outstanding of 1,698 with a weighted-average exercise price
of $102.07 for the three months ended April 30, 2008, January 31,
2008, and April 30, 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.
13. Guarantees
-------------------------------------------------------------------------
2008 2007
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Maximum Maximum
potential potential
future Carrying future Carrying
payment(1) amount payment(1) amount
-------------------------------------------------------------------------
Securities lending with
indemnification(2) $ 50,707 $ - $ 43,287 $ -
Standby and performance
letters of credit 6,613 14 6,353 13
Credit derivatives written
options 32,148 5,833 67,283 3,971
Other derivative written
options(3) (4) 4,024 (4) 5,612
Other indemnification
agreements (4) - (4) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The total collateral available relating to these guarantees was
$59.3 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 $346 million (October 31, 2007: $631 million) related to
total return swaps (TRS). For TRS with notional amount of
approximately $189 million (October 31, 2007: $6.5 billion) and a
fair value liability of approximately $7 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.
14. 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.
In the first 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
-------------------------------------------------------------------------
Apr. 30, 2008
Net interest income $ 1,281 $ 17 $ 51 $ 1,349
Non-interest income 956 (2,183) 4 (1,223)
Intersegment revenue(1) 2 - (2) -
-------------------------------------------------------------------------
Total revenue 2,239 (2,166) 53 126
Provision for credit
losses 174 2 - 176
Amortization(2) 28 3 30 61
Other non-interest
expenses 1,352 355 20 1,727
-------------------------------------------------------------------------
Income (loss) before
income taxes and non-
controlling interests 685 (2,526) 3 (1,838)
Income tax expense
(benefit) 174 (891) (14) (731)
Non-controlling interests 2 2 - 4
-------------------------------------------------------------------------
Net income (loss) $ 509 $ (1,637) $ 17 $ (1,111)
-------------------------------------------------------------------------
Average assets(3) $ 242,219 $ 104,210 $ 2,576 $ 349,005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2007
Net interest income
(expense) $ 1,181 $ (187) $ 85 $ 1,079
Non-interest income 1,126 793 52 1,971
Intersegment revenue(1) 2 - (2) -
-------------------------------------------------------------------------
Total revenue 2,309 606 135 3,050
Provision for (reversal
of) credit losses 186 - (20) 166
Amortization(2) 20 5 33 58
Other non-interest
expenses 1,398 454 66 1,918
-------------------------------------------------------------------------
Income before income
taxes and non-
controlling interests 705 147 56 908
Income tax expense
(benefit) 81 (16) 26 91
Non-controlling interests 7 3 - 10
-------------------------------------------------------------------------
Net income $ 617 $ 160 $ 30 $ 807
-------------------------------------------------------------------------
Average assets(3) $ 224,387 $ 100,998 $ 703 $ 326,088
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CIBC CIBC
$ millions, for the Retail World Corporate CIBC
six months ended Markets Markets and Other Total
-------------------------------------------------------------------------
Apr. 30, 2008
Net interest income
(expense) $ 2,540 $ (147) $ 110 $ 2,503
Non-interest income 2,067 (4,976) 11 (2,898)
Intersegment revenue(1) 3 - (3) -
-------------------------------------------------------------------------
Total revenue 4,610 (5,123) 118 (395)
Provision for credit
losses 329 19 - 348
Amortization(2) 56 8 59 123
Other non-interest
expenses 2,677 701 48 3,426
-------------------------------------------------------------------------
Income (loss) before
income taxes and non-
controlling interests 1,548 (5,851) 11 (4,292)
Income tax expense
(benefit) 376 (2,057) (52) (1,733)
Non-controlling interests 6 2 - 8
-------------------------------------------------------------------------
Net income (loss) $ 1,166 $ (3,796) $ 63 $ (2,567)
-------------------------------------------------------------------------
Average assets(3) $ 238,711 $ 106,167 $ 1,864 $ 346,742
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2007
Net interest income
(expense) $ 2,326 $ (355) $ 167 $ 2,138
Non-interest income 2,252 1,623 128 4,003
Intersegment revenue(1) 4 - (4) -
-------------------------------------------------------------------------
Total revenue 4,582 1,268 291 6,141
Provision for (reversal
of) credit losses 334 (5) (20) 309
Amortization(2) 51 10 68 129
Other non-interest
expenses 2,720 935 135 3,790
-------------------------------------------------------------------------
Income before income
taxes and non-
controlling interests 1,477 328 108 1,913
Income tax expense
(benefit) 279 (5) 48 322
Non-controlling interests 11 3 - 14
-------------------------------------------------------------------------
Net income $ 1,187 $ 330 $ 60 $ 1,577
-------------------------------------------------------------------------
Average assets(3) $ 219,596 $ 100,804 $ 623 $ 321,023
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.
15. 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 and standardized approaches
displayed in both accounting categories and Basel II portfolios.
$ millions, as at April 30, 2008
-------------------------------------------------------------------------
Accounting categories Basel II portfolios
------------------------- ----------------------------------------------
Real estate
secured
personal
Corporate Sovereign Bank lending
------------------------- ----------------------------------------------
Non-interest bearing
deposits with banks $ - $ - $ 196 $ -
Interest-bearing deposits
with banks 11 486 4,262 -
Securities -
Trading 125 19 - -
AFS 1,751 3,860 31 -
FVO 4 15,581 - -
Loans
Residential mortgages 593 1,172 - 89,585
Personal loans 285 - 18 15,801
Credit card loans - - - -
Business and government
loans 29,004 679 295 -
Customers' liability under
acceptances 7,816 411 529 -
Other assets 938 1,979 6,506 7
-------------------------------------------------------------------------
Total credit exposure $ 40,527 $ 24,187 $ 11,837 $ 105,393
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-----------------------------------------------------------------
Accounting categories Basel II portfolios
------------------------- --------------------------------------
Qualifying
revolving Other
retail retail Securitization
------------------------- --------------------------------------
Non-interest bearing
deposits with banks $ - $ - $ -
Interest-bearing deposits
with banks - - -
Securities -
Trading - - 2,026
AFS - - 1,641
FVO - - -
Loans -
Residential mortgages - - -
Personal loans 6,021 8,036 -
Credit card loans 9,704 105 -
Business and government
loans - 2,041 134
Customers' liability under
acceptances - - -
Other assets 31 - 33
-----------------------------------------------------------------
Total credit exposure $ 15,756 $ 10,182 $ 3,834
-----------------------------------------------------------------
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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
