News Releases
Back
CIBC Announces Second Quarter 2009 Results
TORONTO, May 28 /CNW/ - CIBC (CM: TSX; NYSE) announced a net loss of $51
million for the second quarter ended April 30, 2009, compared with a net loss
of $1.1 billion for the same period last year. Diluted loss per share was
$0.24, compared with a diluted loss per share of $3.00 a year ago. Cash
diluted loss per share was $0.21(1), compared with a cash diluted loss per
share of $2.98(1) a year ago.
CIBC's Tier 1 and Total capital ratios at April 30, 2009 remain strong,
at 11.5% and 15.9%, respectively. During the quarter, CIBC strengthened its
capital position with the issuance of $525 million of preferred shares and
$1.6 billion of Tier 1 Notes through CIBC Capital Trust.
"Our core businesses performed well this quarter. Retail Markets
continued to deliver solid results against a backdrop of a challenging market
environment and Wholesale Banking generated good revenue momentum while making
further progress in the area of risk and maintaining discipline around
expenses," says Gerald T. McCaughey, President and Chief Executive Officer of
CIBC. "We also continued to focus on balance sheet strength as evidenced by
our Tier 1 capital ratio which is amongst the strongest of any bank in North
America."
"Losses in structured credit did impact our results but the bulk of these
losses occurred early in the quarter before market conditions improved," adds
McCaughey. "The rate of deterioration in the broader economy appeared to slow
and liquidity levels recovered during the quarter -- both of which are
encouraging signs as we head into the last half of the year."Results for the second quarter of 2009 were affected by the following
items of note aggregating to a negative impact of $1.65 per share:
- $475 million ($324 million after-tax, or $0.85 per share) loss on
structured credit run-off activities, driven primarily by a
deterioration in the credit quality of financial guarantors,
particularly early in the second quarter, as well as mark-to-market
(MTM) losses on certain underlying positions within the structured
credit run-off portfolios hedged by financial guarantors. These
factors were mitigated by a decline in the fair value of the limited
recourse note payable to a third party and MTM gains, net of credit
valuation adjustments, on purchased credit derivatives that are
unmatched or hedging Held-To-Maturity (HTM) securities;
- $168 million ($115 million after-tax, or $0.30 per share) negative
impact of narrowing credit spreads on the MTM of credit derivatives
in CIBC's corporate loan hedging programs. These MTM losses reversed
previous gains and were incurred later in the second quarter as
market conditions improved;
- $159 million foreign exchange gain ($3 million after-tax, or $0.01
per share) on repatriation activities;
- $100 million of valuation charges ($65 million after-tax, or $0.17
per share) related to certain trading and available for sale
positions in exited and other run-off businesses;
- $65 million ($44 million after-tax, or $0.11 per share) provision for
credit losses in the general allowance;
- $57 million ($0.15 per share) write off of future tax assets mainly
due to lower future statutory tax rates;
- $49 million ($29 million after-tax, or $0.08 per share) of net
losses/write-downs on CIBC's legacy merchant banking portfolio.The net loss of $51 million for the second quarter of 2009 compared to
net income of $147 million for the prior quarter. Diluted loss per share and
cash diluted loss per share of $0.24 and $0.21(1), respectively, for the
second quarter of 2009 compared to diluted earnings per share and cash diluted
earnings per share of $0.29 and $0.31(1), respectively, for the prior quarter,
which included items of note that aggregated to a negative impact on results
of $1.36 per share.
Update on business priorities
Capital strength
CIBC continues to emphasize capital strength as a key area of focus.
CIBC's Tier 1 capital ratio of 11.5%, which is among the highest of major
commercial banks in North America, is well above CIBC's target of 8.5% and the
regulatory minimum of 7.0%. CIBC's capital strength positions CIBC for market
conditions that remain uncertain while CIBC continues to invest in its core
businesses for future growth.
Business strength
CIBC Retail Markets reported net income of $390 million. Retail Markets'
results in the second quarter reflect its focus on balancing growth with
expense and risk discipline in the current environment.
Revenue of $2.3 billion was comparable to the second quarter of 2008.
Volume growth and higher revenue from FirstCaribbean International Bank
(FirstCaribbean) were offset by spread compression and the impact of weaker
equity markets. Revenue in the second quarter of 2008 included a $22 million
loss related to the Visa initial public offering.
Expenses decreased to $1,304 million from $1,380 million a year ago. The
improvement was primarily due to lower performance-related compensation,
offset in part by the negative impact of a weaker Canadian dollar on the
translated U.S. dollar expenses of FirstCaribbean.
Loan losses were $403 million, up from $209 million a year ago, and
included $90 million of higher allowances for future losses. In addition, the
loan losses reflected increased provisions in the cards portfolio driven by
higher delinquencies and bankruptcies related to the deteriorating economic
environment.
During the quarter, CIBC's retail business continued its focus on
providing clients with greater access, flexibility and choice:- CIBC opened and expanded 14 branches in markets that provide
long-term, high growth potential;
- CIBC added Sunday banking hours to 22 branches across the country - a
first for many of the communities - and now have a total of 37
branches offering Sunday banking to clients;
- CIBC completed the replacement of almost 600 ABMs with state-of-the-
art machines that consume less power while offering the latest
technology, accessibility and security features;
- Building upon the success of CIBC's "It's worth a talk" campaign
launched last fall, and further emphasizing its advisory
capabilities, CIBC premiered two new television advertisements
highlighting the CIBC Financial HealthCheck and the CIBC Aerogold
credit card. These were further supported by radio and print
advertising, as well as direct mail campaigns in key markets.
CIBC's retail business also made progress on its strategic priority of
offering competitive products to further client relationships:
- CIBC led the 2009 Lipper Awards by winning four mutual fund Lipper
Awards and seven Lipper Certificates. These awards recognize mutual
funds with the highest risk-adjusted returns over the last year;
- CIBC mutual funds had an industry-leading 23 4-star or 5-star funds,
as rated by Morningstar. CIBC also had the highest percentage of
funds above median, at 64%, for the one-year period ending
March 31st;
- CIBC introduced Registered Disability Savings Plans to help clients
with disabilities and their families save for the future.Wholesale banking reported a net loss of $373 million for the second
quarter.
Revenue of $(241) million was up $127 million from the prior quarter.
Lower structured credit losses, as well as higher revenue from capital markets
and corporate and investment banking, more than offset MTM losses this quarter
from corporate loan hedges (compared to gains in the prior quarter) and
valuation charges in exited and run-off businesses. The prior quarter also
included MTM losses relating to interest-rate hedges for the leveraged leases
portfolio that did not qualify for hedge accounting.
Expenses of $247 million were down $20 million from the prior quarter,
primarily due to lower employee-related expenses.
CIBC's corporate loan portfolio continues to perform well despite the
deteriorating economic environment. Loan losses were $46 million in the second
quarter, which included a $28 million increase to the general allowance for
credit losses.
In support of its goal of being the premier client-focused wholesale bank
based in Canada, CIBC has aligned the branding of CIBC's wholesale business
unit under the CIBC brand and is now referring to the business as Wholesale
Banking. This change reflects a commitment to work effectively with all CIBC
businesses and colleagues so wholesale banking clients have access to the full
breadth of the CIBC business and brand. The legal entity name remains CIBC
World Markets Inc.
During the quarter, the Wholesale Banking franchise participated in
several notable achievements:- CIBC acted as lead agent and joint book-runner in a $0.9 billion
private placement, as well as lead manager and joint book-runner in a
$1.3 billion public offering, of ING Group's sale of its entire 70%
stake in ING Canada;
- CIBC is acting as a financial advisor to Suncor Energy Inc. on its
proposed $59 billion merger with Petro Canada;
- CIBC's covered bond program was awarded "Securitization Deal of the
Year" by leading finance law magazine, International Finance Law
Review. The program was recognized as the most innovative and
creative of all securitization deals done across the Americas in
2008;
- CIBC acted as sole underwriter in $259 million and $160 million
treasury offerings of Class A shares for Central Fund of Canada.
CIBC also made progress during the second quarter in reducing exposures
within its structured credit run-off business:
- CIBC terminated $2.1 billion (US$1.7 billion) of purchased credit
derivatives with MAV I and MAV II and unwound written credit
protection of a similar amount. As a result of the termination of the
purchased credit derivatives, CIBC received $252 million
(US$202 million) of assets previously held as collateral and recorded
a pre-tax gain of $7 million (US$7 million);
- CIBC terminated $396 million (US$323 million) of written credit
derivatives with exposures to commercial mortgage-backed securities.
As a result of this transaction, the related credit derivatives
purchased from the financial guarantor counterparty CIBC has
identified as "I" in its disclosure became unmatched;
- CIBC assumed $389 million (US$326 million) of Trust Preferred
securities (TruPs) into HTM securities on its balance sheet and
unwound the related written credit derivatives of a similar amount,
with negligible impact to our results;
- CIBC terminated $181 million (US$143 million) of written credit
derivatives and unwound the related purchased credit derivatives of a
similar amount from the financial guarantor counterparty previously
identified as "X" in its disclosure, with no impact to its results;
- Normal amortization of $119 million (US$100 million) reduced the
notional amount of credit derivatives purchased from financial
guarantors.As at April 30, 2009, the fair value, net of valuation adjustments, of
purchased protection from financial guarantor counterparties was $2.5 billion
(US$2.1 billion). Further significant losses could result depending on the
performance of both the underlying assets and the financial guarantors.
Productivity
In addition to continuing to invest and position its businesses for
long-term performance, CIBC continues to make progress in the area of expense
discipline.
Non-interest expenses for the second quarter were $1,639 million, down
from $1,788 million a year ago and well below CIBC's quarterly run-rate target
of $1,776 million, primarily due to continuing cost reduction initiatives and
reduced infrastructure support activities resulting from business
divestitures.
"Through a combination of better revenue performance, as well as a
continued focus on adjusting our infrastructure support activities to business
changes and evolving market conditions, we expect to achieve further progress
in the area of productivity," says McCaughey.
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. CIBC
continues to make a difference in communities through corporate donations,
sponsorships and the volunteer spirit of employees.
CIBC had several notable achievements in this area during the second
quarter:- CIBC continued its lead sponsorship of the annual National Aboriginal
Achievement Awards in 2009. The 16th annual awards, held in Winnipeg
on March 9th, celebrate excellence in the Aboriginal community
through recognition of outstanding career achievements of First
Nations, Inuit and Métis people in a wide range of occupations.
- CIBC was the proud sponsor, for the fourth year, of Eva's Initiatives
Award for Innovation. This award recognizes three community
organizations across Canada that are models of integrated support for
helping homeless youth become self-sufficient.
- CIBC and the YMCA announced their renewed alliance and the rollout of
the job readiness training and financial literacy seminars in
Vancouver during 2009. This follows a successful pilot of the
two-part program in Toronto in 2008. In addition, the financial
literacy seminars will be delivered in five locations this year
throughout the Greater Toronto Area.
- CIBC received a 2009 Edmonton Mayor's Celebration of the Arts Award
for Innovative Support for the "CIBC Theatre for All" program. The
program allows corporations and individuals to donate a percentage of
their Citadel Theatre tickets to Kids Up Front, a charity that re-
distributes tickets to agencies that work with disadvantaged youth.
------------------------------
(1) For additional information, see the "Non-GAAP measures" section.The information on the following pages forms a part of this press
release.
(The board of directors of CIBC reviewed this press release prior to it
being issued. CIBC's controls and procedures support the ability of the
President and Chief Executive Officer and the Chief 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 2008 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 28, 2009.
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
167 to 169 of our 2008 Annual Accountability Report.
External reporting changes
Second Quarter
- We have changed the name of our wholesale banking business from
CIBC World Markets to Wholesale Banking.
- We have replaced regular workforce headcount with full time
equivalent employees as a measure of the number of employees.
First Quarter
- In the first quarter of 2009 we realigned the businesses within
CIBC Retail Markets and Wholesale Banking. Prior period information
was restated to reflect the changes. The new reported businesses are
as follows:
CIBC Retail Markets:
- Personal banking - includes personal deposits and lending, cards,
residential mortgages, and insurance
- Business banking - includes business deposits and lending,
commercial mortgages, and commercial banking
- Wealth management - includes retail brokerage and asset management
- FirstCaribbean
- Other
Wholesale Banking:
- Capital markets - includes cash equities, global derivatives and
strategic risk, and fixed income, currencies and distribution
businesses
- Corporate and investment banking - includes corporate credit
products, investment banking, U.S. real estate finance, and core
merchant banking
- Other - includes legacy merchant banking, structured credit and
other run-off businesses, exited businesses, and corporate loan
hedging
- We moved the impact of securitization from CIBC Retail Markets to
Corporate and Other. Prior period information was restated.
- We moved the sublease income and related operating costs of our
New York premises from Wholesale Banking to Corporate and Other.
Prior period information was not restated.
- We have retroactively reclassified intangible assets relating to
application software from "Land, buildings and equipment" to
"Software and other intangible assets" on our consolidated balance
sheet.
Contents
5 A note about forward-looking statements
6 Second quarter financial highlights
7 Overview
8 Significant events
8 Outlook
9 Run-off businesses and other selected activities
9 Run-off businesses
17 Other selected activities
19 Financial performance review
19 Net interest income
19 Non-interest income
19 Provision for credit losses
20 Non-interest expenses
20 Income taxes
20 Foreign exchange
21 Review of quarterly financial information
22 Non-GAAP measures
23 Business line overview
23 CIBC Retail Markets
25 Wholesale Banking
27 Corporate and Other
29 Financial condition
29 Review of consolidated balance sheet
29 Capital resources
30 Off-balance sheet arrangements
31 Management of risk
31 Risk overview
31 Credit risk
33 Market risk
34 Liquidity risk
35 Operational risk
35 Other risks
36 Accounting and control mattersA 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 "Summary of second quarter results", "Update on
business priorities", "Overview - Outlook for 2009", "Run-off businesses",
"Other selected activities", "Financial performance review - Income Taxes" and
"Accounting and Control Matters" sections, of this report and other statements
about our operations, business lines, financial condition, risk management,
priorities, targets, ongoing objectives, strategies and outlook for 2009 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 for 2009" 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: credit, market, liquidity, strategic, operational, reputation and
legal, regulatory and environmental risk discussed in the Management of Risk
section of this report; 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; changes to our credit ratings; 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 business and 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; our ability to attract and
retain key employees and executives; 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
-------------------------------- ---------------------
2009 2009 2008 2009 2008
Unaudited Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
--------------------------------------------------- ---------------------
Common share
information
Per share
- basic (loss)
earnings $ (0.24) $ 0.29 $ (3.00) $ 0.05 $ (7.31)
- cash basic
(loss)
earnings(1) (0.21) 0.32 (2.98) 0.10 (7.26)
- diluted
(loss)
earnings (0.24) 0.29 (3.00) 0.05 (7.31)
- cash diluted
(loss)
earnings(1) (0.21) 0.31 (2.98) 0.10 (7.26)
- dividends 0.87 0.87 0.87 1.74 1.74
- book value 27.95 28.98 29.01 27.95 29.01
Share price
- high 54.90 57.43 74.17 57.43 99.81
- low 37.10 41.65 56.94 37.10 56.94
- closing 53.57 46.63 74.17 53.57 74.17
Shares outstanding
(thousands)
- average
basic 381,410 380,911 380,754 381,156 359,512
- average diluted 381,779 381,424 382,377 381,599 361,366
- end of period 381,478 381,070 380,770 381,478 380,770
Market
capitalization
($ millions) $ 20,436 $ 17,769 $ 28,242 $ 20,436 $ 28,242
--------------------------------------------------- ---------------------
Value measures
Price to earnings
multiple (12 month
trailing) 43.7 n/m n/m 43.7 n/m
Dividend yield
(based on closing
share price) 6.7% 7.4% 4.8% 6.6% 4.7%
Dividend payout
ratio n/m n/m n/m n/m n/m
Market value to
book value ratio 1.92 1.61 2.56 1.92 2.56
--------------------------------------------------- ---------------------
Financial results
($ millions)
Total revenue $ 2,161 $ 2,022 $ 126 $ 4,183 $ (395)
Provision for
credit losses 394 284 176 678 348
Non-interest
expenses 1,639 1,653 1,788 3,292 3,549
Net (loss) income (51) 147 (1,111) 96 (2,567)
--------------------------------------------------- ---------------------
Financial measures
Efficiency ratio 75.9% 81.8% n/m 78.7% n/m
Cash efficiency
ratio, taxable
equivalent basis
(TEB)(1) 74.9% 80.6% n/m 77.6% n/m
Return on equity (3.5)% 4.0% (37.6)% 0.4% (45.0)%
Net interest margin 1.48% 1.43% 1.57% 1.45% 1.45%
Net interest margin
on average
interest-earning
assets 1.85% 1.77% 1.85% 1.81% 1.71%
Return on average
assets (0.06)% 0.16% (1.29)% 0.05% (1.49)%
Return on average
interest-earning
assets (0.07)% 0.19% (1.52)% 0.07% (1.75)%
Total shareholder
return 17.0% (13.1)% 2.6% 1.7% (25.4)%
--------------------------------------------------- ---------------------
On- and off-balance
sheet information
($ millions)
Cash, deposits with
banks and
securities $ 94,523 $ 90,589 $ 92,189 $ 94,523 $ 92,189
Loans and
acceptances 162,962 174,499 174,580 162,962 174,580
Total assets 347,363 353,815 343,063 347,363 343,063
Deposits 221,912 226,383 238,203 221,912 238,203
Common
shareholders'
equity 10,661 11,041 11,046 10,661 11,046
Average assets 353,819 369,249 349,005 361,662 346,742
Average interest-
earning assets 282,414 299,136 296,427 290,914 294,778
Average common
shareholders'
equity 10,644 10,960 12,328 10,804 11,748
Assets under
administration 1,096,028 1,038,958 1,147,887 1,096,028 1,147,887
--------------------------------------------------- ---------------------
Balance sheet
quality measures
Common equity to
risk-weighted
assets 8.9% 9.0% 9.6% 8.9% 9.6%
Risk-weighted
assets
($ billions) $ 119.6 $ 122.4 $ 114.8 $ 119.6 $ 114.8
Tier 1 capital
ratio 11.5% 9.8% 10.5% 11.5% 10.5%
Total capital ratio 15.9% 14.8% 14.4% 15.9% 14.4%
--------------------------------------------------- ---------------------
Other information
Retail/wholesale
ratio(2) 64%/36% 63%/37% 68%/32% 64%/36% 68%/32%
Full time
equivalent
employees 42,305 42,320 44,124 42,305 44,124
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
(1) For additional information, see the "Non-GAAP measures" section.
(2) 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 $51 million, compared to a net loss of $1,111
million for the same quarter last year and net income of $147 million for the
prior quarter.
Our results for the current quarter were affected by the following items:
- $475 million ($324 million after-tax) loss on the structured credit
run-off business;
- $168 million ($115 million after-tax) negative impact of changes in
credit spreads on the mark-to-market (MTM) of credit derivatives in
our corporate loan hedging programs;
- $159 million foreign exchange gain ($3 million after-tax) on
repatriation activities;
- $100 million of valuation charges ($65 million after-tax) related to
certain trading and available for sale (AFS) positions in exited and
other run-off businesses;
- $65 million ($44 million after-tax) provision for credit losses in
the general allowance;
- $57 million write-off of future tax assets; and
- $49 million ($29 million after-tax) net losses/write-downs in our
legacy merchant banking portfolio.Compared with Q2, 2008
Revenue was higher than the same quarter last year, primarily due to the
higher structured credit losses in the last year quarter. The current quarter
also benefited from a foreign exchange gain on repatriation activities
compared to a foreign exchange loss in the last year quarter. Revenue was also
higher on volume growth in retail products, higher fixed income and equity
trading revenue and higher revenue from U.S. real estate finance. These
factors were partially offset by the negative impact of the MTM of credit
derivatives in our corporate loan hedging programs as noted above, compared to
a positive impact in the last year quarter, spread compression on retail
products, valuation charges in certain trading and AFS positions, and lower
wealth management related fee income.
Provision for credit losses was up primarily due to higher losses in the
cards and personal lending portfolios, driven by higher delinquencies and
bankruptcies, and an increase in the allowances, both related to the
deteriorating economic environment.
Non-interest expenses were lower mainly due to lower benefits, salaries
and professional fees partly offset by higher performance-related
compensation. The last year quarter included higher litigation expenses.
The current quarter included a tax expense related to the foreign
exchange gain on repatriation activities and the write-off of future tax
assets noted above. The structured credit losses in the last year quarter
resulted in a higher tax benefit in that quarter.
Compared with Q1, 2009
Revenue was marginally higher than the prior quarter mainly due to lower
structured credit losses. The current quarter included a foreign exchange gain
compared to the prior quarter loss on repatriation activities and MTM losses
on non-accounting hedges for leveraged leases. These factors were partially
offset by the negative impact of the MTM of credit derivatives compared to a
positive impact in the prior quarter, the valuation charges noted above,
spread compression on retail products, the impact of three fewer days, and
lower treasury revenue.
Provision for credit losses was up primarily due to higher losses in the
cards portfolio, driven by higher delinquencies and bankruptcies and an
increase in the allowances, both related to the deteriorating economic
environment.
Non-interest expenses were marginally lower mainly due to lower
performance-related compensation. The current quarter included a tax expense
related to repatriation activities compared to a tax recovery in the prior
quarter.
Compared with the six months ended April 30, 2008
Revenue in the current period was higher than the same period last year,
primarily due to the higher structured credit losses in the last year period.
Volume growth in retail products was more than offset by spread compression on
retail products, lower wealth management related fee income, net
losses/write-downs on our legacy merchant banking portfolio, and the valuation
charges noted above. The current period was also affected by the MTM losses on
non-accounting hedges for leveraged leases and the negative impact on the MTM
of credit derivatives compared to a positive impact in the same period last
year.
Provision for credit losses was up primarily due to higher losses in the
cards and personal lending portfolios, driven by higher delinquencies and
bankruptcies, and an increase in the allowances, both related to the
deteriorating economic environment.
Non-interest expenses were marginally lower mainly due to lower benefits,
salaries and professional fees partly offset by higher performance-related
compensation. The last year period included higher litigation expenses. The
structured credit losses in the last year period resulted in a higher tax
benefit in that period. The current period included a tax expense on
repatriation activities compared to a tax recovery in the last year period.Our results for the prior periods were affected by the following items:
-----------------------------------------------------------------------
Q1, 2009
--------
- $708 million ($483 million after-tax) loss on structured credit
run-off business;
- $94 million ($64 million after-tax) positive impact of changes in
credit spreads on corporate loan credit derivatives;
- $92 million ($51 million after-tax) MTM losses relating to
interest-rate hedges for the leveraged lease portfolio that did not
qualify for hedge accounting;
- $87 million ($52 million after-tax) losses/write-downs on our
merchant banking portfolio; and
- $48 million foreign exchange losses ($4 million after-tax gain) on
repatriation activities.
Q2, 2008
--------
- $2.5 billion ($1.7 billion after-tax) loss on structured credit
run-off business;
- $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 Inc.'s initial public offering (IPO) adjustment;
- $65 million ($21 million after-tax) foreign exchange loss on
repatriation activities; and
- $14 million ($9 million after-tax) positive impact of changes in
credit spreads on corporate loan credit derivatives.
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;
- $2.8 billion ($1.9 billion after-tax) losses on structured credit
related positions; 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.
-------------------------------------------------------------------------Significant events
Global market credit issues
Our structured credit business within Wholesale Banking had losses,
before taxes for the quarter of $475 million ($1,183 million for the six
months ended April 30, 2009). We continue to reduce our exposures through the
termination of written and purchased credit derivatives. These activities are
discussed in more detail in our "Run-off businesses" section.
Innovative Tier 1 Notes
On March 13, 2009, CIBC Capital Trust, a trust wholly owned by CIBC,
issued $1.3 billion of 9.976% CIBC Tier 1 Notes - Series A due June 30, 2108
and $300 million of 10.25% CIBC Tier 1 Notes - Series B due June 30, 2108
(together, the Notes). The Notes qualify as part of Tier 1 regulatory capital.
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 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.
Final closing agreements for leveraged leases were executed with the
Internal Revenue Service (IRS) during the quarter. CIBC is now engaged in the
process of finalizing amounts with the U.S. revenue authorities for the
various affected taxation years. It is expected this will be concluded (or
substantially concluded) in 2009. While CIBC believes its provisions and
charges to date accurately reflect the terms of the IRS settlement offer and
subsequent clarifications thereto by the IRS, it is possible that additional
charges could occur during the process of finalizing actual amounts with the
U.S. revenue authorities.
Outlook for 2009
A deepening global slowdown sent the Canadian economy into a recession in
the first fiscal quarter, one which has proven to be the steepest downturn
through its first two quarters than any previous post-war slump. Real GDP now
looks likely to drop by more than 2 1/2% for calendar 2009 as a whole. We
expect growth to return in the final quarter of the calendar year in response
to low interest rates and fiscal stimulus in Canada and abroad.
CIBC Retail Markets is expected to see slower demand for mortgage and
other credit products, reflecting softer housing turnover and prices, weaker
consumer spending growth, and higher unemployment rates. We expect a rise in
personal and small business bankruptcies associated with the weaker economic
backdrop.
For Wholesale Banking, a recovery in new issuance of equities and
corporate bonds could support improved corporate finance activities. Corporate
default rates are likely to head higher, but valuations on corporate debt
securities and the market for new debt and equity issues could continue to
improve. Loan demand could be supported by reduced competition from
foreign-based banks.RUN-OFF BUSINESSESGiven the uncertain market conditions and to focus on our core businesses
in Wholesale Banking, we curtailed activity in our structured credit and
non-Canadian 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 residential mortgage-backed securities (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 collateralized
debt obligations (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 Wholesale Banking, comprised our
activities as principal and for client facilitation. These activities included
warehousing of assets and structuring of SPEs, which could result in the
holding of unhedged positions. Other activities included intermediation,
correlation, and flow trading, which earned a spread on matching positions.
Exposures
Our exposures largely consist of the following categories:
Unhedged -
- U.S. residential mortgage market (USRMM)
- non-USRMM
Hedged -
- financial guarantors (USRMM and non-USRMM)
- other counterparties (USRMM and non-USRMM)
Results - losses before taxes
------------------------------------------------------------ ------------
For the
For the six months
three months ended ended
---------------------- ------------
2009 2009 2009
$ millions Apr. 30 Jan. 31 Apr. 30
------------------------------------------------------------ ------------
Trading $ 514 $ 758 $ 1,272
Held-to-maturity (HTM) (28) (69) (97)
Available-for-sale (AFS) (11) 19 8
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
Total $ 475 $ 708 $ 1,183
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------These losses were primarily driven by deterioration in the credit quality
of financial guarantors and MTM losses for certain underlying assets, which
resulted in increases in credit valuation adjustments (CVA). Reported losses
are net of the gain on the Cerberus protection, described below.
Reclassification of certain exposures
As a result of the unprecedented extent of the deterioration in global
market conditions and the lack of an active trading market, in the fourth
quarter of 2008, we changed our intention on certain positions from trading to
held-to-maturity. As a consequence, we reclassified notional of $5,973 million
(US$5,833 million) of CLOs and $455 million (US$444 million) CDOs of trust
preferred securities (TruPs) in our structured credit run-off business from
trading to non-trading held-to-maturity effective August 1, 2008. As at April
30, 2009, the estimated remaining weighted average life (WAL) of the CLOs, and
TruPs was 4.8 years and 15 years respectively. The impact of the
reclassifications is summarized in Note 4 to the 2008 annual consolidated
financial statements.
If the reclassification had not been made, income before taxes would have
been reduced by $77 million (US$65 million) and $399 million (US$318 million)
for the current quarter and for the six months ended April 30, 2009,
respectively.
Change in exposures
The following table summarizes our positions within our structured credit
run-off business:-------------------------------------------------------------------------
2009 2008
US$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Notional
Investments and loans $ 10,728 $ 10,304
Written credit derivatives(1) 25,889 30,931
-------------------------------------------------------------------------
Total gross exposures $ 36,617 $ 41,235
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Purchased credit derivatives $ 34,381 $ 37,039
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes notional amount for written credit derivatives and liquidity
and credit facilities.Cerberus transaction
In the fourth quarter of 2008, we transacted with Cerberus to obtain
downside protection on our USRMM CDO exposures while retaining upside
participation if the underlying securities recover. As at April 30, 2009, the
outstanding principal and fair value of the limited recourse note issued as
part of the Cerberus transaction was $667 million (US$559 million) and $330
million (US$276 million) respectively. The underlying CDO exposures had a fair
value of $416 million (US$357 million) as at April 30, 2009. We recorded a
gain of $117 million (US$96 million) and $153 million (US$125 million) on the
limited recourse note in the current and first quarter respectively.
Other changes in exposures
In addition to the termination of the $2.2 billion (US$1.8 billion) of
written credit derivatives and $155 million (US$126 million) of normal
amortization of our purchased credit derivatives in the first quarter, we
undertook a number of transactions during the current quarter to further
reduce our exposures, noted below:- We terminated $2.1 billion (US$1.7 billion) of purchased credit
derivatives with non-financial guarantors (MAV I and MAV II) and
unwound written credit protection of a similar amount. As a result of
the termination of the purchased credit derivatives, we received
$252 million (US$202 million) of assets previously held as
collateral. These transactions resulted in a pre-tax gain of
$8 million (US$7 million);
- We terminated $396 million (US$323 million) of written credit
derivatives with exposures to commercial mortgage backed securities
with negligible impact to our results. Subsequent to this
transaction, US$323 million of purchased credit derivatives that
previously hedged these positions became unmatched;
- We assumed $389 million (US$326 million) of TruPs assets (included
within Non-USRMM - Others HTM on the total exposure table on page 11)
and unwound the related written credit derivatives of the same amount
with negligible impact to our results;
- We terminated $181 million (US$143 million) of written credit
derivatives on non-USRMM exposures and unwound all our purchased
credit derivatives with a financial guarantor (previously reported as
counterparty X) with no impact to our results; and
- Normal amortization reduced the notional of our purchased credit
derivatives with financial guarantors by $119 million
(US$100 million).
Total exposures
The exposures held within our structured credit run-off business within
Wholesale Banking are summarized in the table below. Our subsidiary,
FirstCaribbean, within CIBC Retail Markets, had holdings in securities with
USRMM exposure which were all sold in the current quarter. The table below
excludes the Cerberus protection on our USRMM exposures.
-------------------------------------------------------------------------
US$ millions, as at April 30, 2009
-------------------------------------------------------------------------
Exposures(1)
-------------------------------------------------------------------------
Investments & loans Written credit
derivatives
and liquidity and
credit facilities(2)
---------------------------------- ----------------------
Fair Carrying Fair
Notional value value Notional value(4)
---------------------------------------------------------
USRMM
Unhedged(6)
-----------
Super senior
CDO of
mezzanine
RMBS $ 550 $ 1 $ 1 $ 814 $ 809
Warehouse -
RMBS 310 1 1 - -
Various(7) 323 1 1 321 312
-------------------------------------------------------------------------
1,183 3 3 1,135 1,121
Hedged
------
Other CDO 1,265 114 114 2,342 2,036
-------------------------------------------------------------------------
Total USRMM $ 2,448 $ 117 $ 117 $ 3,477 $ 3,157
-------------------------------------------------------------------------
Non-USRMM
Unhedged
--------
CLO(2) $ 67 $ 4 $ 4 $ 85 $ 6
CLO HTM 195 164 186 - -
Corporate
debt 171 109 109 - -
Montreal
Accord
notes(7) 376 152 152 251 n/a
Third party
sponsored
ABCP
conduits(2) 141 141 141 110 n/a
Warehouse -
non-RMBS 155 1 1 - -
Others(2) 219 212 219 263 21
Others HTM 164 138 138 - -
-------------------------------------------------------------------------
1,488 921 950 709 27
Hedged
------
CLO 220 160 161 7,695 648
CLO HTM(8) 5,619 4,425 5,057 - -
Corporate debt - - - 11,895 898
CMBS - - - 454 364
Others 240 71 70 1,659 680
Others HTM(9) 713 231 444 - -
Unmatched
purchased
credit
derivatives - - - - -
-------------------------------------------------------------------------
Total non-
USRMM $ 8,280 $ 5,808 $ 6,682 $ 22,412 $ 2,617
-------------------------------------------------------------------------
Total $ 10,728 $ 5,925 $ 6,799 $ 25,889 $ 5,774
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 10,304 $ 6,430 $ 6,952 $ 30,931 $ 5,924
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
US$ millions, as at April 30, 2009
-------------------------------------------------------------------------
Hedged by Unhedged
----------------------------------------------
Purchased credit derivatives and index hedges USRMM
----------------------------------------------------------
Financial guarantors Others
---------------------- --------------------
Fair Fair Net
Notional value(3)(4) Notional value(3)(4) exposure(5)
----------------------------------------------------------
USRMM
Unhedged(6)
-----------
Super senior
CDO of
mezzanine
RMBS $ - $ - $ - $ - $ 6
Warehouse -
RMBS - - - - 1
Various(7) - - - - 10
-------------------------------------------------------------------------
- - - - $ 17
Hedged
------
Other CDO 3,139 2,748 468 424
--------------------------------------------------------------
Total USRMM $ 3,139 $ 2,748 $ 468 $ 424
--------------------------------------------------------------
Non-USRMM
Unhedged
--------
CLO(2) $ - $ - $ - $ -
CLO HTM - - - -
Corporate
debt - - - -
Montreal
Accord
notes(7) - - - -
Third party
sponsored
ABCP
conduits(2) - - - -
Warehouse -
non-RMBS - - - -
Others(2) - - - -
Others HTM - - - -
--------------------------------------------------------------
- - - -
Hedged
------
CLO 7,679 634 237 32
CLO HTM(8) 5,437 457 212 29
Corporate debt 5,159 495 6,740 416
CMBS 454 363 - -
Others 1,492 778 456 77
Others HTM(9) 716 495 - -
Unmatched
purchased
credit
derivatives 2,123 393 69 -
--------------------------------------------------------------
Total non-
USRMM $ 23,060 $ 3,615 $ 7,714 $ 554
--------------------------------------------------------------
Total $ 26,199 $ 6,363 $ 8,182 $ 978
--------------------------------------------------------------
--------------------------------------------------------------
Oct. 31, 2008 $ 27,108 $ 5,711 $ 9,931 $ 1,195
--------------------------------------------------------------
--------------------------------------------------------------
(1) We have excluded our total holdings, including holdings related to
our treasury activities, of notional US$3,779 million with fair value
of US$3,768 million in the followings: debt securities issued by
Federal National Mortgage Association (Fannie Mae) (notional US$1,634
million, fair value US$1,629 million), Federal Home Loan Mortgage
Corporation (Freddie Mac) (notional US$1,140 million, fair value
US$1,134 million), Government National Mortgage Association
(Ginnie Mae) (notional US$155 million, fair value US$155 million),
and Federal Home Loan Banks (notional US$850 million, fair value
US$850 million).
(2) Liquidity and credit facilities to third party non-bank sponsored
ABCP conduits amounted to US$110 million and to non-USRMM unhedged
others amounted to US$33 million.
(3) Gross of CVA for purchased credit derivatives of US$4.3 billion.
(4) This is the gross fair value of the contracts, which were typically
zero, or close to zero, at the time they were entered into.
(5) After write-downs.
(6) As at April 30, 2009, the S&P rating for super senior CDO of
mezzanine RMBS ranges from CCC+ to CC. The rating for the warehouse
RMBS was approximately 21% investment grade and 79% non-investment
grade (based on market value).
(7) Includes estimated USRMM exposure of $126 million as at April 30,
2009.
(8) Investments and loans include unfunded investment commitments with a
notional of US$255 million.
(9) Represents TruPs.
n/a Not applicable.Unhedged USRMM exposures
Our remaining unhedged exposure to the USRMM, after write-downs, was $20
million (US$17 million) as at April 30, 2009.
Unhedged non-USRMM exposures
Our unhedged exposures to non-USRMM primarily relate to the following
categories: CLO, corporate debt, Montreal Accord related notes, third party
non-bank sponsored ABCP conduits, warehouse non-RMBS, and other.
CLO
Our unhedged CLO exposures, including HTM, with notional of $414 million
(US$347 million) are mostly rated AAA as at April 30, 2009, and are backed by
diversified pools of European-based senior secured leveraged loans.
Corporate debt
Approximately 19%, 55% and 26% of the unhedged corporate debt exposures
with notional of $204 million (US$171 million) are related to positions in
Europe, Canada and other countries respectively.
Montreal Accord related notes
The standstill and court approved restructuring plan proposed by
signatories to the Montreal Accord was ratified on January 21, 2009. As a
result, we received $141 million in senior Class A-1 notes, $152 million in
senior Class A-2 notes and $178 million of various subordinated and tracking
notes in exchange for our non-bank sponsored ABCP with par value of $471
million. As was the case with the original ABCP instruments, the new notes are
backed by fixed income, traditional securitization and CDO assets as well as
super senior credit default swaps on investment grade corporates. The
underlying assets that have U.S. subprime mortgage exposures have been
isolated and are specifically linked to tracking notes with a notional value
of $126 million as at April 30, 2009. In the current quarter, $11 million of
the tracking notes were paid down at par. As at April 30, 2009, the remaining
notional amount on all the notes was $449 million (US$376 million).
The Class A-1 and Class A-2 notes pay a variable rate of interest below
market levels. The subordinated notes are 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 pass through the cash flows of the
underlying assets. All of the restructured notes are expected to mature in
December 2016.
Based on our estimate of the $181 million combined fair value of the
notes as at April 30, 2009, we recorded a loss of $22 million during the
current quarter ($44 million for the six months ended April 30, 2009).
In addition, pursuant to the restructuring plan, we are a participant in
a Margin Funding Facility (MFF) to support the collateral requirements of the
restructured conduits. Under the terms of the MFF, we have provided a $300
million undrawn loan facility to be used if the amended collateral triggers of
the related credit derivatives are breached and the new trusts created under
the restructuring plan do not have sufficient assets to meet any collateral
calls. If the loan facility was fully drawn and subsequently more collateral
was required due to breaching further collateral triggers, we would not be
obligated to fund any additional collateral, although the consequence would
likely be the loss of that $300 million loan.
Third party non-Bank sponsored ABCP conduits
We provided liquidity and credit related facilities to third party
non-bank sponsored ABCP conduits. As at April 30, 2009, $299 million (US$251
million) of the facilities remained committed. Of this amount, $75 million
(US$63 million), which remained undrawn as at April 30, 2009, was provided to
a conduit, with U.S. auto loan assets, sponsored by a U.S. based auto
manufacturer.
The remaining $224 million (US$188 million) primarily relates to U.S.
CDOs, of which $168 million (US$141 million) was drawn as at April 30, 2009.
$45 million (US$38 million) of the undrawn facilities was subject to liquidity
agreements under which the conduits maintain the right to put their assets
back to CIBC at par. The underlying assets of the U.S. CDOs have maturities
ranging from three to seven years.
Warehouse non-RMBS
Of the unhedged warehouse non-RMBS assets with notional of $185 million
(US$155 million), 75% represents investments in CLOs backed by diversified
pools of U.S.-based senior secured leveraged loans. Approximately 12%
represents investments in CDOs backed by TruPs with exposure to U.S. real
estate investment trusts. Another 8% has exposure to the U.S. commercial real
estate market.
Other
Other unhedged exposures with notional of $575 million (US$482 million)
include $283 million (US$237 million) credit facilities (drawn US$204 million
and undrawn US$33 million) provided to SPEs with film rights receivables
(32%), lottery receivables (20%), and U.S. mortgage defeasance loans (42%).
The remaining $274 million (US$230 million) primarily represents written
protection on mostly AAA tranches of portfolios of high yield corporate debt.
We are only obligated to pay for any losses upon both the default of the
underlying corporate debt as well as that of the primary financial guarantor,
which was restructured in February 2009.
Other HTM unhedged exposures with notional of $196 million (US$164
million) relate to collateral received from the unwinding of MAV II and
primarily represents investment grade commercial paper.
Purchased protection from financial guarantors (USRMM and non-USRMM)
The total CVA charge for financial guarantors was $657 million (US$508
million) for the current quarter ($1,293 million (US$1,020 million) for six
months ended April 30, 2009). As at April 30, 2009, CVA on credit derivative
contracts with financial guarantors was $5.1 billion (US$4.3 billion) (October
31, 2008: $4.6 billion (US$3.8 billion)), and the fair value of credit
derivative contracts with financial guarantors net of valuation adjustments
was $2.5 billion (US$2.1 billion) (October 31, 2008: $2.3 billion (US$1.9
billion)). Further significant losses could result depending on the
performance of both the underlying assets and the financial guarantors.
In addition to our structured credit run-off positions, 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, 2009, these positions were performing and the total amount
guaranteed by financial guarantors was approximately $183 million (US$154
million).
The following table presents the notional amounts and fair values of
purchased protection from financial guarantors by counterparty. The fair value
net of valuation adjustments is included in derivative instruments in other
assets on the consolidated balance sheet.-------------------------------------------------------------------------
US$ millions, as at April 30, 2009 USRMM related
---------------------------------------- -------------------------------
Standard Moody's
Counter- and Investor Fitch Fair
party Poor's Services Ratings Notional value(1) CVA
-------------------------------------------------------------------------
I(5) BBB+(2) B3 -(4) $ 70 $ 35 $ (23)
II A(2) Ba3(3) -(4) 530 489 (304)
III BB(3) Ba3(3) -(4) - - -
IV -(4) Caa3(2) -(4) - - -
V -(4) Ca(3) -(4) 2,539 2,224 (1,972)
VI AA(2) Ba1 AA(2) - - -
VII AAA Aa2 AA(3) - - -
VIII AAA(2) Aa3(3) AA+(2) - - -
IX BBB-(2) Ba1 -(4) - - -
-------------------------------------------------------------------------
Total
financial
guarantors $ 3,139 $ 2,748 $ (2,299)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31,
2008 $ 3,786 $ 3,086 $ (2,260)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
US$ millions, as at
April 30, 2009 Non-USRMM Total
------------------------------- ---------------------
Net
Counter- Fair fair
party Notional value(1) CVA Notional value
-------------------------------------------------------------------------
I(5) $ 1,614 $ 838 $ (557) $ 1,684 $ 293
II 1,699 512 (318) 2,229 379
III 1,430 198 (66) 1,430 132
IV 2,106 228 (196) 2,106 32
V 2,628 205 (182) 5,167 275
VI 5,200 485 (153) 5,200 332
VII 4,707 585 (263) 4,707 322
VIII 1,450 234 (105) 1,450 129
IX 2,226 330 (172) 2,226 158
-------------------------------------------------------------------------
Total
financial
guarantors $ 23,060 $ 3,615 $ (2,012) $ 26,199 $ 2,052
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31,
2008 $ 23,322 $ 2,625 $ (1,520) $ 27,108 $ 1,931
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Before CVA.
(2) Credit watch/outlook with negative implication.
(3) Watch developing.
(4) Rating withdrawn.
(5) The counterparty was restructured in February 2009 with part of its
business transferred to a new entity.
The referenced assets underlying the protection purchased from financial
guarantors are as follows:
-------------------------------------------------------------------------
US$ millions, USRMM
as at related Non-USRMM related
April 30, --------- -------------------------------------------------
2009 Notional Notional
------------- --------- -------------------------------------------------
Corporate
Counterparty CDO CLO debt CMBS Others Total
-------------------------------------------------------------------------
I $ 70 $ 609 $ - $ 777(1) $228 $ 1,614
II 530 878 - - 821 1,699
III - 1,305 - - 125 1,430
IV - 1,850 - - 256 2,106
V 2,539 2,628 - - - 2,628
VI - - 5,200(1) - - 5,200
VII - 4,457 - - 250 4,707
VIII - 1,314 - - 136 1,450
IX - 75 1,759 - 392 2,226
-------------------------------------------------------------------------
Total
financial
guarantors $ 3,139 $ 13,116 $ 6,959 $ 777 $ 2,208 $ 23,060
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31,
2008 $ 3,786 $ 13,125 $ 6,959 $ 777 $ 2,461 $ 23,322
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes US$1.8 billion and US$323 million of unmatched purchase
protection related to corporate debt and CMBS respectively.USRMM
Our USRMM related positions of notional $3.7 billion (US$3.1 billion)
hedged by financial guarantors comprise super senior CDOs with underlyings
being approximately 15% sub-prime RMBS, 48% Alt-A RMBS, 13% asset backed
securities (ABS) CDO and 24% non-USRMM. Sub-prime and Alt-A underlyings
consist of approximately 9% pre-2006 vintage as well as 91% 2006 and 2007
vintage RMBS. Sub-prime exposures are defined as having Fair Isaac Corporation
(FICO) scores less than 660; and Alt-A underlyings as those exposures that
have FICO scores of 720 or below, but greater than 660.
Non-USRMM
The following provides further data and description of the non-USRMM
referenced assets underlying the protection purchased from financial
guarantors:----------------------------------------------------------------
US$ millions, Total Notional/Tranche
as at April 30, Fair tranches -----------------
2009 Notional value (1) High Low
----------------------------------------------------------------
CLO $13,116 $ 1,091 82 $ 375 $ 25
Corporate debt 5,159 495 9 800 259
Corporate debt
(Unmatched) 1,800 105 2 800 200
U.S. CMBS 454 364 1 453 1
U.S. CMBS
(Unmatched) 323 287 1 323 323
Others
TruPS 814 564 12 128 24
Non-US RMBS 196 114 3 107 28
Other 1,198 595 9 263 7
----------------------------------------------------------------
Total $23,060 $ 3,615 119 $ 3,249 $ 867
----------------------------------------------------------------
----------------------------------------------------------------
-------------------------------------------------------------------------
Weighted
average Invest-
life ment Subordination/
US$ millions, Fair value/Tranche (WAL)(2)(3) grade(4) attachment(5)
as at April 30, ------------------ in under- -----------------
2009 High Low years lyings Average Range
-------------------------------------------------------------------------
CLO $ 44 $ 1 4.8 1% 31% 6-67%
Corporate debt 191 21 3.6 67% 20% 15-30%
Corporate debt
(Unmatched) 81 18 3.0 - 16% 15-18%
U.S. CMBS 364 1 5.3 35% 43% 43-46%
U.S. CMBS
(Unmatched) 287 287 6.3 - 46% 46%
Others
TruPs 91 16 15.0 n/a 49% 45-57%
Non-US RMBS 63 16 3.0 n/a 53% 53%
Other 236 - 6.8 n/a 20% 0-53%
-------------------------------------
Total $ 1,357 $ 360
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) A tranche is a portion of a security offered as part of the same
transaction where the underlying may be an asset, pool of assets,
index or another tranche. The value of the tranche depends on the
value of the underlying, subordination and deal specific structures
such as tests/triggers.
(2) The WAL of the positions is impacted by assumptions on collateral,
interest deferrals and defaults, and prepayments, and for TruPs CDOs,
also the potential for successful future auctions. These assumptions
and the resulting WAL, especially for TruPs CDOs, may change
significantly from quarter to quarter.
(3) The WAL of a tranche will typically be shorter than the WAL for the
underlying collateral for one or more reasons relating to how cash
flows from repayment and default recoveries are directed to pay down
the tranche.
(4) Or equivalent based on internal credit ratings.
(5) Subordination/attachment points are the level of losses which can be
sustained on the referenced assets without losses impacting
guaranteed, matched and unmatched, tranches.CLO
Approximately 99% of the total notional amount of the CLO positions of
US$13.1 billion (including CLO HTM) at April 30, 2009 continues to be rated
AAA with the remainder rated AA. The majority of the underlying collateral
continues to be rated between B- and B+. The collateral comprise assets in a
wide range of industries with the highest concentration in the services
(personal and food) industry (28%); the broadcasting, publishing and
telecommunication sector (19%); and the manufacturing sector (15%). Only 3% is
in the real estate sector. Approximately 68% and 27% of the underlyings
represent U.S. and European exposures respectively.
Corporate Debt
The Corporate Debt underlyings consist of 11 super senior synthetic CDO
tranches that reference portfolios of primarily U.S. (56%) and European (29%)
corporate debt in various industries (manufacturing 28%, financial
institutions 13%, cable and telecommunications 10%, retail and wholesale 9%).
The average detachment points (maximum level of losses that can impact
guaranteed, matched and unmatched, tranches) are 44% and 38% with a range of
30% to 60% and 30% to 45% on corporate debt matched and unmatched
respectively.
CMBS
The two synthetic tranches reference CMBS portfolios, which are backed by
pools of commercial real estate mortgages located primarily in the U.S.
Others
Others are CDOs backed by TruPs, which are Tier II Innovative Capital
Instruments issued by U.S. regional banks and insurers, non-U.S. RMBS (such as
European residential mortgages) and other assets including tranches of CDOs,
aircraft leases, railcar leases and film receivables. Others HTM are all
TruPs.
Purchased protection from other counterparties
The following table provides the notional amounts and fair values (before
CVA of US$42 million (October 31, 2008: US$21 million)) of purchased credit
derivatives from counterparties other than financial guarantors, excluding
unmatched purchased credit derivatives:-------------------------------------------------------------------------
USRMM related Non-USRMM
------------------- -------------------
Fair Fair
US$ millions, as at Notional value Notional value
-------------------------------------------------------------------------
Non-bank financial institutions $ 468 $ 424 $ 93 $ 17
Banks - - 810 121
Canadian conduits - - 6,740 416
Others - - 2 -
-------------------------------------------------------------------------
Total $ 468 $ 424 $ 7,645 $ 554
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total
---------------------------------------
Notional Fair value
------------------- -------------------
2009 2009 2009 2009
US$ millions, as at Apr. 30 Jan. 31 Apr. 30 Jan. 31
-------------------------------------------------------------------------
Non-bank financial institutions $ 561 $ 592 $ 441 $ 451
Banks 810 793 121 74
Canadian conduits 6,740 8,379 416 505
Others 2 2 - -
-------------------------------------------------------------------------
Total $ 8,113 $ 9,766 $ 978 $ 1,030
-------------------------------------------------------------------------
-------------------------------------------------------------------------The non-financial guarantor counterparty hedging our USRMM exposures is a
large U.S. based diversified multinational insurance and financial services
company with which CIBC has market standard collateral arrangements.
Approximately 99% of other counterparties hedging our non-USRMM exposures have
internal credit ratings equivalent to investment grade.
The assets underlying the exposure hedged by counterparties other than
financial guarantors are as below:-------------------------------------------------------------------------
USRMM Non-USRMM related
related
---------- -----------------------------
Notional Notional
---------- -----------------------------
US$ millions, as at CDO(1) CLO(2) Corporate Other(3)
April 30, 2009 debt
-------------------------------------------------------------------------
Non-bank financial institutions $ 468 $ - $ - $ 93
Banks - 449 - 361
Canadian conduits - - 6,740 -
Others - - - 2
-------------------------------------------------------------------------
Total $ 468 $ 449 $ 6,740 $ 456
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The US$468 million represents super senior CDO with approximately 74%
sub-prime RMBS, 3% Alt-A RMBS, 11% ABS CDO, and 12% non-USRMM. Sub-
prime and Alt-A are all pre-2006 vintage.
(2) All underlyings are non-investment grade. 5% is North American
exposure and 95% is European exposure. Major industry concentration
is in the services industry (33%), the manufacturing sector (19%),
the broadcasting and communication industries (14%), and only 3% is
in the real estate sector.
(3) Approximately 56% of the underlyings are investment grade or
equivalent with the majority of the exposure located in the U.S. and
Europe. The industry concentration is primarily banking and finance,
manufacturing, broadcasting, publishing and telecommunication and
mining, oil and gas, with less than 3% in the real estate sector.Canadian conduits
We purchased credit derivative protection from Canadian conduits and
generated revenue by selling the same protection onto 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.
Great North Trust, is sponsored by CIBC and the remaining conduit
counterparty, MAV I was party to the Montreal Accord.
During the quarter, we terminated purchased credit derivatives of $2.1
billion (US$1.7 billion), representing part of our protection from MAV I and
all our protection from MAV II and unwound written credit protection of a
similar amount.-------------------------------------------------------------------------
Collateral
US$ millions, and
as at April Mark-to- guarantee
30, 2009 Underlying Notional(1) market notionals(2)
-------------------------------------------------------------------------
Conduits
--------
Great North Trust Investment grade
corporate
credit index(3) $ 4,142 $ 235 $ 348(4)
MAV I 160 Investment
grade
corporates(5) 2,598 181 307
-------------------------------------------------------------------------
Total $ 6,740 $ 416 $ 655
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 8,453 $ 660 $ 944
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) These exposures mature within 4 to 8 years.
(2) Comprises investment grade notes issued by third party sponsored
conduits, corporate floating rate notes, bankers acceptances, and
funding commitments. The fair value of the collateral at April 30,
2009 was US$608 million (October 31, 2008: US$921 million).
(3) Consists of a static portfolio of 126 North American corporate
reference entities that were investment grade rated when the index
was created. 81% of the entities are rated BBB- or higher. 99% of the
entities are U.S. entities. Financial guarantors represent
approximately 1.6% of the portfolio. 2.4% of the entities have
experienced credit events. Attachment point is 30% and there is no
direct exposure to USRMM or the U.S. commercial real estate market.
(4) Includes US$98 million (October 31, 2008: US$219 million) of funding
commitments (with indemnities) from certain third party investors in
Great North Trust.
(5) The underlying portfolio consists of a static portfolio of 160
corporate reference entities of which 91.3% were investment grade on
the trade date. 84.4% of the entities are currently rated BBB- or
higher (investment grade). 48% of the entities are U.S. entities.
Financial guarantors represent approximately 2.5% of the portfolio.
1.25% of the entities have experienced credit events. Attachment
point is 20% and there is no direct exposure to USRMM or the U.S.
commercial real estate market.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 sold our U.S. leveraged finance business as part of our sale of some
of our U.S. businesses to Oppenheimer and 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 reduce
the residual portfolio. As at April 30, 2009, we have funded leveraged loans
of $943 million (October 31, 2008: $935 million), and unfunded letters of
credits and commitments of $194 million (October 31, 2008: $210 million).
Exposures of ELF loans (none of which is impaired) by industry are as
below:-------------------------------------------------------------------------
$ millions, as at April 30, 2009 Drawn Undrawn
-------------------------------------------------------------------------
Publishing $ 99 $ 31
Telecommunications 15 15
Manufacturing 300 53
Services 270 41
Transportation and public utilities 17 9
Wholesale trade 242 45
-------------------------------------------------------------------------
Total $ 943 $ 194
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 935 $ 210
-------------------------------------------------------------------------
-------------------------------------------------------------------------U.S. total return swaps portfolio
Our U.S. total return swaps (TRS) portfolio consists of TRS on primarily
non-investment grade loans and units in hedge funds. The underlying loans
consist of six term loans to the corporate sector. The underlying assets are
rated Baa2 and below. The portfolio has an average term of 340 days. The total
current notional of the TRS portfolio is approximately $212 million (US$178
million). Of this total portfolio, $33 million (US$28 million) is loan related
and backed by $20 million (US$17 million) of cash collateral. The remaining
hedge fund exposures are subject to net asset value tests which determine
margin requirements keeping total assets available at 133% of notional. The
table below summarizes the notional value of our positions in the portfolio:-------------------------------------------------------------------------
US$ millions, as at April 30, 2009 Notional
-------------------------------------------------------------------------
Loans $ 28
Hedge Funds 150
-------------------------------------------------------------------------
Total $ 178
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 1,458
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the quarter we continued to reduce the portfolio by closing some of
the TRS and selling off the related underlying assets. The net loss of the TRS
portfolio was $6 million for the quarter ($13 million for six months ended
April 30, 2009).
OTHER SELECTED ACTIVITIESIn 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 ABCP 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, 2009, our holdings of ABCP issued by our sponsored
conduits that offer ABCP to external investors was $8 million (October 31,
2008: $729 million) and our committed backstop liquidity facilities to these
conduits was $5.7 billion (October 31, 2008: $8.7 billion). We also provided
credit facilities of $50 million (October 31, 2008: $70 million) and banker's
acceptances of $70 million (October 31, 2008: $76 million) to these conduits
as at April 30, 2009.
The following table shows the underlying collateral and the average
maturity for each asset type in these multi-seller conduits:-------------------------------------------------------------------------
Estimated
weighted
avg. life
$ millions, as at April 30, 2009 Amount(2) (years)
-------------------------------------------------------------------------
Asset class
Canadian residential mortgages $ 2,165 1.8
Auto leases 1,129 1.0
Franchise loans 722 1.0
Auto loans 285 0.9
Credit cards 975 3.9(1)
Equipment leases/loans 203 1.2
Other 9 0.9
-------------------------------------------------------------------------
Total $ 5,488 1.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 8,440 1.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Based on the revolving period and amortization period contemplated in
the transaction.
(2) The committed backstop facility of these assets was the same as the
amounts noted in the table, other than for franchise loans, for which
the facility was $900 million.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 credit ratings of the notes issued by the multi-seller conduits.
$198 million of the $2,165 million Canadian residential mortgages relates
to amounts securitized by the subsidiary of the finance arm of a U.S. auto
manufacturer.
Of the $1,129 million relating to auto leases, $360 million relates to
balances originated by Canadian fleet leasing companies and the remaining
relates to non-North American auto manufacturers.
Of the $285 million relating to auto loans, $68 million relates to
balances originated by the finance arms of two U.S. auto manufacturers, $18
million relates to balances originated by a regulated Canadian financial
institution and the remaining relates to non-North American auto
manufacturers.
In addition, during the first and second quarters, we acquired all of the
commercial paper issued by MACRO Trust, a CIBC-sponsored conduit. During the
current quarter, MACRO Trust acquired auto lease receivables from one of our
multi-seller conduits. The consolidation of the conduit resulted in $508
million of dealer floorplan receivables, $481 million of auto leases, and $16
million of medium term notes backed by Canadian residential mortgages being
recognized in the consolidated balance sheet as at April 30, 2009. The dealer
floor plan and auto lease receivables were originated by the finance arm of a
U.S. auto manufacturer, and have an estimated weighted average life of less
than a year. The commitment period for the dealer floor-plan receivables
expires on June 1, 2009.
We also participated in a syndicated facility for a 364-day commitment of
$475 million to a CIBC-sponsored single-seller conduit that provides funding
to franchisees of a major Canadian retailer. Our portion of the commitment is
$95 million. At April 30, 2009 we funded $70 million (October 31, 2008: $76
million) by the issuance of bankers' acceptances.
We also securitize our mortgages and credit cards receivables. Details of
our consolidated variable interest entities and securitization transactions
during the quarter are provided in Note 5 to the interim 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, under
three programs. The construction program offers floating rate financing to
properties under construction. The interim program offers fixed and
floating-rate financing for properties that are fully leased or with some
leasing or renovation yet to be done. These programs provide feeder product
for the group's permanent fixed-rate loan program and typically have an
average term of 1 to 3 years.
Once the construction and interim phases are complete and the properties
are income-producing, borrowers are offered fixed-rate financing within the
permanent program (typically with average terms of 10 years). The business
also maintains CMBS trading and distribution capabilities. As at April 30,
2009 we had CMBS inventory with a market value of less than US$1 million
(October 31, 2008: US$2 million). During the quarter we provided for an
allowance for credit losses of $7 million (US$6 million).
The following table provides a summary of our positions in this business
as at April 30, 2009:-------------------------------------------------------------------------
Unfunded Funded
US$ millions, as at April 30, 2009 commitments loans
-------------------------------------------------------------------------
Construction program $ 111 $ 521
Interim program 230 1,519
Commercial fixed rate mortgages - 91
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total $ 341 $ 2,131
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 416 $ 2,018
-------------------------------------------------------------------------
-------------------------------------------------------------------------North American auto industry exposure
We have exposures to the North American auto industry through our
securitization business and in our run-off exposure to third party non-Bank
sponsored ABCP conduits as discussed above. As at April 30, 2009, we had loans
and undrawn credit commitments to the North American auto-related industries
as shown in the table below. In addition, we also have MTM receivables of
approximately $11 million from derivatives transactions with these
counterparties.-------------------------------------------------------------------------
Undrawn
credit
$ millions, as at April 30, 2009 Loans(2) commitments
-------------------------------------------------------------------------
Finance arms associated with the U.S. auto
manufacturers(1) $ 163 $ 9
Motor vehicle parts suppliers and wholesalers 100 344
Canadian automobile dealers 524 493
-------------------------------------------------------------------------
Total $ 787 $ 846
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 819 $ 865
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) $113 million of the finance arms' exposure is economically hedged
with credit derivatives in our corporate loan hedging programs.
(2) Includes impaired loans of $5 million, $1 million net of allowances
as at April 30, 2009 (Impaired loans of $9 million, $6 million net of
allowances as at October 31, 2008).
FINANCIAL PERFORMANCE REVIEW
----------------------------------------------------- -------------------
For the three For the six
months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Net interest income $ 1,273 $ 1,333 $ 1,349 $ 2,606 $ 2,503
Non-interest income
(loss) 888 689 (1,223) 1,577 (2,898)
----------------------------------------------------- -------------------
Total revenue 2,161 2,022 126 4,183 (395)
Provision for credit
losses 394 284 176 678 348
Non-interest expenses 1,639 1,653 1,788 3,292 3,549
----------------------------------------------------- -------------------
Income (loss) before
taxes and non-
controlling interests 128 85 (1,838) 213 (4,292)
Income tax expense
(benefit) 174 (67) (731) 107 (1,733)
Non-controlling
interests 5 5 4 10 8
----------------------------------------------------- -------------------
Net (loss) income $ (51) $ 147 $ (1,111) $ 96 $ (2,567)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------Net interest income
Net interest income was down $76 million or 6% from the same quarter last
year, mainly due to lower treasury revenue and spread compression on retail
products. These factors were offset in part by volume growth in most retail
products, and higher interest income from U.S. real estate finance and
corporate credit products.
Net interest income was down $60 million or 5% from the prior quarter,
primarily due to the impact of three fewer days, spread compression on retail
products, and lower treasury revenue. These factors were offset in part by
higher interest income from U.S. real estate finance and corporate credit
products.
Net interest income for the six months ended April 30, 2009 was up $103
million or 4% from the same period in 2008, mainly due to volume growth in
most retail products, and higher interest income from U.S. real estate finance
and corporate credit products. These factors were offset in part by lower
treasury revenue and spread compression on retail products.
Non-interest income
Non-interest income was up $2,111 million from the same quarter last
year, primarily due to lower structured credit losses, the foreign exchange
gain on repatriation activities compared to a foreign exchange loss in the
prior year quarter, and higher AFS securities gains. These factors were
partially offset by losses associated with corporate loan hedging programs
compared to gains in the prior year quarter, valuation charges related to
certain trading and AFS positions in exited and run-off businesses, lower
wealth management related fee income, and write-downs in the merchant banking
portfolio.
Non-interest income was up $199 million or 29% from the prior quarter,
primarily due to lower structured credit losses, and the foreign exchange
gains on repatriation activities compared to a foreign exchange loss in the
prior quarter. The MTM losses relating to interest-rate hedges for the
leveraged lease portfolio that did not qualify for hedge accounting in the
prior quarter, and lower write-downs in the merchant banking portfolio also
contributed to the increase. These factors were partially offset by losses
associated with corporate loan hedging programs compared to gains in the prior
quarter, valuation charges noted above and lower AFS securities gains.
Non-interest income for the six months ended April 30, 2009 was up $4,475
million from the same period in 2008, primarily due to lower structured credit
losses, and higher AFS securities gains. The foreign exchange gain on
repatriation activities compared to a foreign exchange loss in the prior year,
and the prior year loss on the sale of some of our U.S. businesses also
contributed to the increase. These factors were partially offset by losses
associated with corporate loan hedging programs compared to gains in the prior
year, lower wealth management related fee income, write-downs in the merchant
banking portfolio, the valuation charges noted above, MTM losses relating to
interest-rate hedges for the leveraged lease portfolio that did not qualify
for hedge accounting, and lower advisory revenue.
Provision for credit losses
Provision for credit losses was up $218 million from the same quarter
last year, $110 million or 39% from the prior quarter and $330 million or 95%
for the six months ended April 30, 2009 compared to the same period last year.
Provision for credit losses in consumer portfolios was up $123 million
from the same quarter last year, and $49 million from the prior quarter, while
the six month year to date provision is up $209 million from the same period
last year. The increase was driven by higher delinquencies and bankruptcies in
the credit cards and personal lending portfolios.
Provision for credit losses in business and government lending increased
by $33 million from the prior quarter, and $32 million from the same quarter
last year, while the six month provision is up $22 million from the same
period last year. This increase was primarily due to reduced recoveries, in
addition to an increase in impaired loans, largely in the U.S.
In addition, the general allowance increased by $65 million in the
current quarter primarily related to large corporate lending and credit cards
as a reflection of the deteriorating economic environment.
Non-interest expenses
Non-interest expenses were down $149 million or 8% from the same quarter
last year, primarily due to lower benefits, salaries, commissions,
professional fees and computer and office equipment, partially offset by
higher performance-related compensation. The last year quarter included higher
litigation expenses.
Non-interest expenses were down $14 million or 1% from the prior quarter,
primarily due to lower performance-related expenses, benefits, and salaries,
partially offset by higher occupancy expenses and communications.
Non-interest expenses for the six months ended April 30, 2009 were down
$257 million or 7% from the same period in 2008, primarily due to lower
salaries, benefits, commissions and computer and office equipment, partially
offset by higher performance-related compensation. The prior year included
higher litigation expenses.
Income taxes
Income tax expense was $174 million, compared to a benefit of $731
million in the same quarter last year. The primary reason for this change was
the tax impact of the loss incurred in the prior year quarter. The current
quarter included a $156 million tax expense related to foreign exchange gains
on repatriation activities and a $57 million tax expense mainly related to the
write off of future tax assets due to lower future statutory tax rates.
Income tax expense was $174 million compared to a benefit of $67 million
in the prior quarter. The current quarter included the above-noted items. The
prior quarter included a $52 million tax benefit related to foreign exchange
losses on repatriation activities.
Income tax expense was $107 million for the six months ended April 30,
2009 compared to an income tax benefit of $1,733 million in the same period
last year. The primary reason for this change was the tax impact of the loss
incurred in the prior year period. The current period also included a tax
expense on repatriation activities compared to a tax recovery in the prior
year period.
At the end of the quarter, our future income tax asset was $1,989
million, net of a US$52 million ($62 million) valuation allowance. Included in
the future income tax asset are $1,226 million related to Canadian non-capital
loss carryforwards that expire in 20 years, $75 million related to Canadian
capital loss carryforwards that have no expiry date, and $477 million related
to our U.S. operations. 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.
The Ontario Government, as part of its 2009 Budget, proposed to reduce
Ontario corporate tax rates from 14% to 10% by 2013. These reductions were not
substantively enacted for accounting purposes as at April 30, 2009. If
enacted, we would have to write down our future tax assets by up to $45
million.
Foreign exchange
Our U.S. dollar denominated results are impacted by fluctuations in the
U.S. dollar/Canadian dollar exchange rate. The Canadian dollar depreciated 23%
on average relative to the U.S. dollar from the same quarter last year,
resulting in a $23 million increase in the translated value of our U.S. dollar
earnings.
The Canadian dollar depreciated 1% on average relative to the U.S. dollar
from the prior quarter, resulting in a $1 million increase in the translated
value of our U.S. dollar earnings.
The Canadian dollar depreciated 23% on average relative to the U.S.
dollar for the six months ended April 30, 2009 from the same period in 2008,
resulting in a $33 million increase in the translated value of our U.S. dollar
earnings.Review of quarterly financial information
2009 2008
-------------------------------------------------------------------------
$ 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 $ 2,252 $ 2,416 $ 2,367 $ 2,377 $ 2,284 $ 2,410
Wholesale
Banking (241) (368) (318) (598) (2,166) (2,957)
Corporate and
Other 150 (26) 155 126 8 26
-------------------------------------------------------------------------
Total revenue 2,161 2,022 2,204 1,905 126 (521)
Provision for
credit losses 394 284 222 203 176 172
Non-interest
expenses 1,639 1,653 1,927 1,725 1,788 1,761
-------------------------------------------------------------------------
Income (loss)
before taxes and
non-controlling
interests 128 85 55 (23) (1,838) (2,454)
Income tax
(benefit) expense 174 (67) (384) (101) (731) (1,002)
Non-controlling
interests 5 5 3 7 4 4
-------------------------------------------------------------------------
Net income (loss) $ (51) $ 147 $ 436 $ 71 $(1,111) $(1,456)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss)
per share
- basic $ (0.24) $ 0.29 $ 1.07 $ 0.11 $ (3.00) $ (4.39)
- diluted(1) $ (0.24) $ 0.29 $ 1.06 $ 0.11 $ (3.00) $ (4.39)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007
-------------------------------------
$ millions, except
per share amounts,
for the three
months ended Oct. 31 Jul. 31
-------------------------------------
Revenue
CIBC Retail
Markets $ 2,855 $ 2,393
Wholesale
Banking 5 455
Corporate and
Other 86 131
-------------------------------------
Total revenue 2,946 2,979
Provision for
credit losses 132 162
Non-interest
expenses 1,874 1,819
-------------------------------------
Income (loss)
before taxes and
non-controlling
interests 940 998
Income tax
(benefit) expense 45 157
Non-controlling
interests 11 6
-------------------------------------
Net income (loss) $ 884 $ 835
-------------------------------------
-------------------------------------
Earnings (loss)
per share
- basic $ 2.55 $ 2.33
- diluted(1) $ 2.53 $ 2.31
-------------------------------------
-------------------------------------
(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 banking activities.
Revenue was higher in the fourth quarter of 2007 primarily due to the
gain recorded on the Visa restructuring. Wholesale Banking revenue has been
adversely affected since the third quarter of 2007 due to the MTM losses on
CDOs and RMBS, and more significantly in 2008 due to the charges on credit
protection purchased from financial guarantors and MTM losses related to our
exposure to the USRMM. Foreign exchange losses on repatriation activities were
included in the first quarter of 2009 and the second quarter of 2008. The
second quarter of 2009 and the fourth quarters of 2008 and 2007 included
foreign exchange gains on repatriation activities.
Retail lending provisions trended higher beginning the second half of
2008 largely due to higher losses in the cards portfolio. This is the result
of both volume growth as well as economic deterioration in the consumer
sector. Recoveries and reversals in Wholesale Banking have decreased from the
high levels in the past. There was an increase in general allowance in both
quarters of 2009.
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 fourth quarter of 2008 included
severance related expenses.
The first three quarters of 2008 had an income tax benefit resulting from
the loss during the period. A $486 million income tax reduction attributable
to an increase in our expected tax benefit relating to Enron-related
litigation settlements was recorded in the fourth quarter of 2008. Income tax
recoveries related to the favourable resolution of various income tax audits
and reduced tax contingencies were included in the second and fourth quarters
of 2008 and the last two quarters of 2007. Tax-exempt income has generally
been increasing over the period, until the third quarter of 2008. Thereafter,
the tax-exempt income has been steadily decreasing. Larger tax-exempt
dividends were received in the fourth quarter of 2007. 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 benefits on the
foreign exchange losses on repatriation activities were included in the first
quarter of 2009 and the second quarter of 2008. The second quarter of 2009 and
the fourth quarters of 2008 and 2007 included income tax expenses on
repatriation activities. The second quarter of 2009 included a write-off of
future tax assets.
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 54 of the 2008 Annual Accountability Report.
The following table provides 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.Operations Measures
----------------------------------------------------- -------------------
For the three For the six
months ended months ended
----------------------------- -------------------
$ millions, except 2009 2009 2008 2009 2008
per share amounts Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Net interest income $ 1,273 $ 1,333 $ 1,349 $ 2,606 $ 2,503
Non-interest income 888 689 (1,223) 1,577 (2,898)
----------------------------------------------------- -------------------
Total revenue per
financial
statements A 2,161 2,022 126 4,183 (395)
TEB adjustment B 14 15 60 29 121
----------------------------------------------------- -------------------
Total revenue
(TEB)(1) C $ 2,175 $ 2,037 $ 186 $ 4,212 $ (274)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Non-interest
expenses per
financial
statements D $ 1,639 $ 1,653 $ 1,788 $ 3,292 $ 3,549
Less: amortization
of other intangible
assets 12 11 10 23 20
----------------------------------------------------- -------------------
Cash non-interest
expenses(1) E $ 1,627 $ 1,642 $ 1,778 $ 3,269 $ 3,529
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Income (loss) before
taxes and non-
controlling
interests per
financial
statements F $ 128 $ 85 $ (1,838) $ 213 $ (4,292)
TEB adjustment B 14 15 60 29 121
----------------------------------------------------- -------------------
Income (loss) before
taxes and non-
controlling
interests (TEB)(1) G $ 142 $ 100 $ (1,778) $ 242 $ (4,171)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Net (loss) income
applicable to
common shares K $ (90) $ 111 $ (1,141) $ 21 $ (2,627)
Add: after-tax effect
of amortization of
other intangible
assets 9 9 8 18 16
----------------------------------------------------- -------------------
Cash net income
(loss) applicable
to common shares(1) L $ (81) $ 120 $ (1,133) $ 39 $ (2,611)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Basic weighted-
average common
shares (thousands) M 381,410 380,911 380,754 381,156 359,512
Diluted weighted-
average common
shares (thousands) N 381,779 381,424 382,377 381,599 361,366
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Cash efficiency
ratio (TEB)(1) E/C 74.9% 80.6% n/m 77.6% n/m
Cash basic
earnings (loss)
per share(1) L/M $ (0.21) $ 0.32 $ (2.98) $ 0.10 $ (7.26)
Cash diluted
earnings (loss)
per share(1)(2) L/N $ (0.21) $ 0.31 $ (2.98) $ 0.10 $ (7.26)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Non-GAAP measure.
(2) 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 three For the six
months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Revenue
Personal banking $ 1,399 $ 1,457 $ 1,409 $ 2,856 $ 2,824
Business banking 312 330 328 642 680
Wealth management 297 323 380 620 776
FirstCaribbean 204 180 122 384 248
Other 40 126 45 166 166
----------------------------------------------------- -------------------
Total revenue (a) 2,252 2,416 2,284 4,668 4,694
Provision for credit
losses 403 327 209 730 398
Non-interest expenses (b) 1,304 1,305 1,380 2,609 2,733
----------------------------------------------------- -------------------
Income before taxes and
non-controlling
interests 545 784 695 1,329 1,563
Income tax expense 150 217 177 367 381
Non-controlling
interests 5 5 2 10 6
----------------------------------------------------- -------------------
Net income (c) $ 390 $ 562 $ 516 $ 952 $ 1,176
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Efficiency ratio (b/a) 57.9% 54.0% 60.4% 55.9% 58.2%
Amortization of other
intangible assets (d) $ 9 $ 8 $ 8 $ 17 $ 16
Cash efficiency ratio(2)
((b-d)/a) 57.5% 53.7% 60.1% 55.5% 57.9%
ROE(2) 32.0% 45.5% 42.6% 38.4% 48.5%
Charge for economic
capital(2) (e) $ (165) $ (168) $ (154) $ (333) $ (310)
Economic profit(2)
(c+e) $ 225 $ 394 $ 362 $ 619 $ 866
Full time equivalent
employees 29,241 29,102 29,654 29,241 29,654
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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
In the first quarter of 2009, we realigned our business lines to better
reflect the management of our activities. As a result of the realignment, the
business lines are as follows:
- Personal banking - includes personal deposits and lending, cards,
residential mortgages, and insurance
- Business banking - includes business deposits and lending, commercial
mortgages, and commercial banking
- Wealth management - includes retail brokerage and asset management
- FirstCaribbean
- OtherWe also moved the impact of securitization from CIBC Retail Markets to
Corporate and Other which impacted total revenue, provision for credit losses
and net income.
Prior period information was restated to reflect these changes.
Net income for the quarter was $390 million, a decrease of $126 million
or 24% from the same quarter last year. These results continue to reflect the
economic conditions which resulted in an increase in the provision for credit
losses and lower wealth management revenues. These declines were partially
offset by solid volume growth across most products and expense management
activities.
Net income was down $172 million or 31% from the prior quarter on lower
revenue and an increase in the provision for credit losses.
Net income for the six months ended April 30, 2009 was $952 million, a
decrease of $224 million or 19% from the same period in 2008. An increase in
the provision for credit losses was partially offset by lower expenses.
Revenue
Revenue was down $32 million or 1% from the same quarter last year.
Personal banking revenue was down $10 million, with narrower spreads
partially offset by volume growth in all products, particularly in deposits
and secured lending. Overall spreads were compressed due to a lower interest
rate environment impacting spreads on deposits and a decrease in prepayment
penalty fees, partially offset by wider prime/BA spreads.
Business banking revenue was down $16 million, mainly due to lower
spreads as a result of a lower interest rate environment.
Wealth management revenue was down $83 million, primarily due to lower
fee income as a result of a market-driven decline in asset values.
FirstCaribbean revenue was up $82 million, primarily due to the impact of
a weaker Canadian dollar, gains on redemption of subordinated debt and lower
securities losses.
Revenue was down $164 million or 7% from the prior quarter.
Personal banking revenue was down $58 million, primarily due to three
fewer days in the quarter and narrower spreads mostly from a decrease in
prepayment penalty fees, partially offset by solid volume growth in deposits
and secured lending.
Business banking revenue was down $18 million, primarily due to three
fewer days in the quarter and a decrease in deposit volumes.
Wealth management revenue was down $26 million, mainly due to narrower
spreads and lower fee income as a result of a decline in asset values.
FirstCaribbean revenue was up $24 million, primarily due to gains on
redemption of subordinated debt and lower securities losses.
Other revenue was down $86 million, mainly due to lower treasury revenue
allocations.
Revenue for the six months ended April 30, 2009 was down $26 million or
1% from the same period in 2008.
Personal banking revenue was up $32 million, primarily due to volume
growth in most products, partially offset by narrower spreads mostly from
lower prepayment penalty fees, and the interest rate environment impacting
deposits.
Business banking revenue was down $38 million, mainly due to lower
spreads, partially offset by volume growth.
Wealth management revenue was down $156 million, mainly due to lower fee
income as a result of a decline in asset values due to market conditions.
FirstCaribbean revenue was up $136 million, primarily due to a weaker
Canadian dollar, lower securities losses, and gains on redemption of
subordinated debt.
Provision for credit losses
Provision for credit losses was up $194 million or 93% from the same
quarter last year and included a net increase to the allowance for loan losses
of $90 million. The increase was largely attributed to the cards and personal
lending portfolios driven by higher delinquencies and bankruptcies related to
the deteriorating economic environment.
Provision for credit losses was up $76 million or 23% from the prior
period mainly due to a net increase to the allowance for loan losses of $45
million.
Provision for credit losses for the six months ended April 30, 2009 was
up $332 million or 83% from the same period in 2008 and included a net
increase to the allowance for loan losses of $154 million. The increase was
largely attributed to cards and personal lending portfolios driven by higher
delinquencies and bankruptcies related to the deteriorating economic
environment.
Non-interest expenses
Non-interest expenses were down $76 million or 6% from the same quarter
last year. Non-interest expenses for the six months ended April 30, 2009 were
down $124 million or 5% from the same period in 2008. The decreases were
primarily due to lower performance-related compensation and expense management
activities, offset in part by a weaker Canadian dollar impacting
FirstCaribbean.
Income taxes
Income taxes were down $27 million or 15% from the same quarter last year
and were down $14 million or 4% for the six months ended April 30, 2009 from
the same period in 2008, mainly due to a decrease in income, largely offset by
a higher effective tax rate.
Income taxes were down $67 million or 31% from the prior quarter,
primarily due to a decrease in income.WHOLESALE BANKING
Wholesale Banking provides a wide range of capital markets, credit,
investment banking, merchant banking and research products and services to
government, institutional, corporate and retail clients in Canada and in key
markets around the world. In the current quarter, we have changed the name of
our wholesale banking business from CIBC World Markets to Wholesale Banking.
Results(1)
----------------------------------------------------- -------------------
For the three For the six
months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Revenue (TEB)(2)
Capital markets $ 318 $ 307 $ 194 $ 625 $ 418
Corporate and
investment banking 200 156 109 356 290
Other (745) (816) (2,409) (1,561) (5,710)
----------------------------------------------------- -------------------
Total revenue (TEB)(2) (227) (353) (2,106) (580) (5,002)
TEB adjustment 14 15 60 29 121
----------------------------------------------------- -------------------
Total revenue (241) (368) (2,166) (609) (5,123)
Provision for credit
losses 46 19 2 65 19
Non-interest expenses 247 267 358 514 709
----------------------------------------------------- -------------------
Loss before taxes and
non-controlling
interests (534) (654) (2,526) (1,188) (5,851)
Income tax benefit (161) (241) (891) (402) (2,057)
Non-controlling
interests - - 2 - 2
----------------------------------------------------- -------------------
Net loss (income) (a) $ (373) $ (413) $ (1,637) $ (786) $ (3,796)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
ROE(2) (59.0)% (63.4)% (293.9)% (60.4)% (342.4)%
Charge for economic
capital(2) (b) $ (92) $ (94) $ (73) $ (186) $ (145)
Economic loss(2) (a+b) $ (465) $ (507) $ (1,710) $ (972) $ (3,941)
Full time equivalent
employees 1,084 1,092 1,255 1,084 1,255
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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
In the first quarter of 2009, we realigned our business lines to better
reflect the repositioning of our activities. As a result of the realignment,
the business lines are as follows:
- Capital markets - includes cash equities, global derivatives and
strategic risk, and fixed income, currencies and distribution
businesses
- Corporate and investment banking - includes corporate credit
products, investment banking, U.S. real estate finance, and core
merchant banking
- Other - includes legacy merchant banking, structured credit and other
run-off businesses, exited businesses, and corporate loan hedgingPrior period information was restated to reflect these changes.
Net loss for the current quarter was $373 million, compared to a net loss
of $1,637 million in the same quarter last year due to lower structured credit
losses.
Net loss was down $40 million from the prior quarter, mainly due to lower
losses in structured credit and other run-off businesses and higher income in
corporate and investment banking, partially offset by MTM losses on corporate
loan hedges and valuation charges related to certain trading and AFS positions
in our exited and other run-off businesses. In the prior quarter, we recorded
MTM losses relating to interest-rate hedges for the leveraged lease portfolio
that did not qualify for hedge accounting.
Net loss for the six months ended April 30, 2009 was down $3,010 million
from the same period in 2008, mainly due to lower structured credit losses,
partially offset by MTM losses on corporate loan hedges.
Revenue
Revenue was up $1,925 million from the same quarter last year.
Capital markets revenue was up $124 million, primarily due to higher
fixed income and equity trading revenue and higher revenue from equity
issuances.
Corporate and investment banking revenue was up $91 million, mainly due
to higher revenue from U.S. real estate finance and corporate credit products.
Other revenue was up $1,664 million, primarily due to lower structured
credit losses. The increase was partially offset by MTM losses on corporate
loan hedges.
Revenue was up $127 million from the prior quarter.
Capital markets revenue was up $11 million, mainly due to higher fixed
income trading and equity new issue revenue, partially offset by lower foreign
exchange and equity trading revenue.
Corporate and investment banking revenue was up $44 million, primarily
due to higher revenue from U.S. real estate finance and higher revenue from
our core merchant banking portfolio.
Other revenue was up $71 million as lower losses from structured credit
were partially offset by MTM losses on corporate loan hedges and the valuation
charges noted above. In the prior quarter, we also recorded MTM losses
relating to interest-rate hedges for the leveraged lease portfolio that did
not qualify for hedge accounting.
Revenue for the six months ended April 30, 2009 was up $4,514 million
from the same period in 2008.
Capital markets revenue was up $207 million, primarily due to higher
equity, fixed income, and foreign exchange trading revenue.
Corporate and investment banking revenue was up $66 million, primarily
due to higher revenue from U.S. real estate finance and corporate credit
products, partially offset by lower advisory revenue.
Other revenue was up $4,149 million, primarily due to lower structured
credit losses, partially offset by higher MTM losses on corporate loan hedges
and higher write-downs in the legacy merchant banking portfolio.
Provision for credit losses
Provision for credit losses was $44 million higher than the same quarter
last year, mainly due to an increase in the general provision for credit
losses, lower recoveries and higher losses in the U.S.
Provision for credit losses was $27 million higher than the prior
quarter, mainly due to higher losses and lower recoveries.
Provision for credit losses for the six months ended April 30, 2009 was
up $46 million from the same period in 2008, mainly due to an increase in the
general provision for credit losses and higher losses in the U.S.
Non-interest expenses
Non-interest expenses were down $111 million or 31% from the same quarter
last year, primarily due to lower litigation related and severance expenses.
Non-interest expenses were down $20 million or 7% from the prior quarter,
primarily due to lower employee-related expenses.
Non-interest expenses for the six months ended April 30, 2009 were down
$195 million or 28% from the same period last year, primarily due to lower
litigation-related and severance expenses and the impact of the sale of some
of our U.S. businesses.
Income taxes
Income tax recovery was $161 million and $402 million in the current
quarter and six months ended April 30, 2009 respectively, compared with a
recovery of $891 million in the same quarter last year and $2,057 million for
the six months ended April 30, 2008. The lower income tax recoveries were
mainly due to lower structured credit losses. There was also lower tax exempt
dividend income in the current periods.
Income tax recovery was down $80 million from the prior quarter, mainly
due to the lower losses in the structured credit and other run-off businesses
and the write off of $21 million of future tax assets.
Full time equivalent employees
The full time equivalent employees were down 171 from the same quarter
last year primarily due to continuing cost reduction initiatives.CORPORATE AND OTHERCorporate and Other comprises the five functional groups - Technology and
Operations; Corporate Development; Finance (including Treasury);
Administration; and Risk Management - 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 impact of
securitization is retained within Corporate and Other. The remaining revenue
and expenses are generally allocated to the business lines.Results(1)
----------------------------------------------------- -------------------
For the
For the three months ended six months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Total revenue $ 150 $ (26) $ 8 $ 124 $ 34
Reversal of credit losses (55) (62) (35) (117) (69)
Non-interest expenses 88 81 50 169 107
----------------------------------------------------- -------------------
(Loss) income before
taxes and
non-controlling
interests 117 (45) (7) 72 (4)
Income tax expense
(benefit) 185 (43) (17) 142 (57)
----------------------------------------------------- -------------------
Net (loss) income $ (68) $ (2) $ 10 $ (70) $ 53
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------- -------------------
Full time equivalent
employees 11,980 12,126 13,215 11,980 13,215
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.Financial overview
In the first quarter of 2009, we moved the impact of securitization from
CIBC Retail Markets to Corporate and Other which impacted total revenue,
reversal of credit losses and net income. Prior period information was
restated to reflect this change.
Net loss in the current quarter was $68 million compared to net income of
$10 million in the same quarter last year, primarily due to lower treasury
revenue and higher unallocated corporate support costs, partially offset by
the net gain on repatriation activities.
Net loss was up $66 million from the prior quarter primarily due to
adjusting future tax assets at future years' lower statutory rates and lower
treasury revenue, partially offset by lower losses on securitization
activities.
Net loss was $70 million for the six months ended April 30, 2009,
compared to a net income of $53 million for the same period last year,
primarily due to adjusting future tax assets at future years' lower statutory
rates, lower treasury revenue, higher unallocated corporate support costs and
higher losses on securitization activities. These losses were partially offset
by the net gain on repatriation activities.
Revenue
Revenue was up $142 million from the same quarter last year, primarily
due to a $159 million foreign exchange gain, compared to a $65 million foreign
exchange loss in the last year quarter, on repatriation activities, offset by
lower treasury revenue, and higher losses related to securitization
activities.
Revenue was up $176 million from the prior quarter primarily due to the
foreign exchange gain on repatriation activities noted above, compared to a
$48 million foreign exchange loss in the prior quarter, and lower losses
related to securitization activities, offset by lower treasury revenue.
Revenue for the six months ended April 30, 2009 was up $90 million from
the same period in 2008 primarily due to a net $111 million foreign exchange
gain on repatriation activities, compared to a $65 million foreign exchange
loss in the same period last year, partially offset by lower treasury revenue
and higher losses related to securitization activities. The same period last
year was impacted by losses from the hedging of stock appreciation rights
(SARs).
Reversal of credit losses
The reversal of credit losses is primarily a result of asset
securitization due to the reduction of loans and receivables attributable to
such activities.
Non-interest expenses
Non-interest expenses were up $38 million or 76% from the same quarter
last year, primarily due to severances and higher unallocated corporate
support costs.
Non-interest expenses were up $7 million or 9% from the prior quarter,
primarily due to severances, partially offset by lower unallocated corporate
support costs.
Non-interest expenses for the six months ended April 30, 2009 were up $62
million or 58% from the same period in 2008, primarily due to severances and
higher unallocated corporate support costs. The same period last year included
higher recoveries related to SARs.
Income tax
Income tax expense was $185 million, compared to an income tax benefit of
$17 million from the same quarter last year primarily due to the $156 million
tax expense related to the foreign exchange gain on repatriation activities
noted above and the write off of $36 million of future tax assets due to lower
future statutory tax rates. The prior year quarter included a $44 million tax
benefit related to foreign exchange loss on repatriation activities.
Income tax expense was $185 million and $142 million for the current
quarter and for the six months ended April 30, 2009 respectively, compared to
an income tax benefit of $43 million and $57 million in the prior quarter and
six months ended April 30, 2008 respectively. The change was primarily due to
the tax impacts of the items noted above and to the recognition of a tax
benefit of $52 million in the prior quarter related to a foreign exchange loss
on repatriation activities.
Full time equivalent employees
The full time equivalent employees were down 1,235 from the same quarter
last year primarily due to continuing cost reduction initiatives and reduced
infrastructure support resulting from the sale of some of our U.S. businesses.
The full time equivalent employees were down 146 from the prior quarter
primarily due to continuing cost reduction initiatives.FINANCIAL CONDITION
Review of consolidated balance sheet
-------------------------------------------------------------------------
2009 2008
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Assets
Cash and deposits with banks $ 8,301 $ 8,959
Securities 86,222 79,171
Securities borrowed or purchased
under resale agreements 32,674 35,596
Loans 153,512 171,475
Derivative instruments 34,048 28,644
Other assets 32,606 30,085
-------------------------------------------------------------------------
Total assets $ 347,363 $ 353,930
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity
Deposits $ 221,912 $ 232,952
Derivative instruments 38,094 32,742
Obligations related to securities lent or sold
short or under repurchase agreements 42,057 44,947
Other liabilities 24,096 22,015
Subordinated indebtedness 6,612 6,658
Preferred share liabilities 600 600
Non-controlling interests 175 185
Shareholders' equity 13,817 13,831
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 347,363 $ 353,930
-------------------------------------------------------------------------
-------------------------------------------------------------------------Assets
Total assets decreased for the six-month period by $6.6 billion or 2%
from October 31, 2008.
Securities increased by $7.1 billion or 9% and comprise AFS, trading,
fair value option (FVO) and HTM securities. During the six-month period,
matured trading securities were reinvested in debt and government securities
that are classified as AFS. FVO securities increased due to the continued
securitization of residential mortgages.
Securities borrowed or purchased under resale agreements decreased
primarily driven by business decisions to reduce certain underlying exposures.
Loans decreased by approximately $18.0 billion or 10% mainly due to
mortgage securitizations noted above and repayments, partly offset by volume
growth in most retail products.
Derivative instruments increased mainly due to market valuations on
interest rate derivatives driven by changes in the interest rate environment,
partially offset by reduction in market values of foreign exchange
derivatives.
Other assets increased mainly due to an increase in derivatives
collateral receivable and customers' liability under acceptances.
Liabilities
Total liabilities decreased for the six-month period by $6.6 billion or
2% from October 31, 2008.
Deposits decreased by $11.0 billion or 5% largely driven by a reduction
in business and government and bank deposits driven by our funding
requirements, partially offset by volume growth in personal deposits.
Derivative instruments liabilities increased due to the same factors
discussed under derivative instruments assets above.
Obligations related to securities lent or sold short or under repurchase
agreements decreased mainly on funding requirements.
Other liabilities increased mainly due to an increase in derivatives
collateral payable and bankers' acceptances.
Shareholders' equity
Shareholders' equity includes current year earnings and the proceeds from
issuance of preferred shares Series 35 and Series 37, offset by dividend
payments.
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 63 to 66 of the
2008 Annual Accountability Report.
Significant capital management activities
On March 13, 2009 CIBC Capital Trust, a trust wholly owned by CIBC,
issued $1.3 billion of 9.976% CIBC Tier 1 Notes - Series A due June 30, 2108
and $300 million of 10.25% CIBC Tier 1 Notes - Series B due June 30, 2108
(together, the Notes). The Notes qualify as part of Tier 1 regulatory capital.
During the quarter, we completed the offering of 13 million non-
cumulative Rate Reset Class A Preferred Shares, Series 35 for net proceeds of
$319 million and the offering of 8 million non-cumulative Rate Reset Class A
Preferred Shares, Series 37 for net proceeds of $196 million. We also
announced our intention to redeem our $750 million 4.25% Debentures
(subordinated indebtedness) due June 1, 2014, for their outstanding principal
amount, plus unpaid interest accrued to the redemption date, in accordance
with their terms.
The following table summarizes our significant capital management
activities:-------------------------------------------------------------------------
For the For the
three six
months months
ended ended
Apr. 30, Apr. 30,
$ millions 2009 2009
-------------------------------------------------------------------------
Issue of common shares $ 16 $ 28
Issue of preferred shares 525 525
Dividends
Preferred shares - classified as equity (39) (75)
Preferred shares - classified as liabilities (8) (16)
Common shares (331) (663)
-------------------------------------------------------------------------
-------------------------------------------------------------------------For additional details, see Notes 6 and 7 to the interim consolidated
financial statements.
Regulatory capital
Regulatory capital is determined in accordance with guidelines issued by
the Office of the Superintendent of Financial Institutions (OSFI).
The following table presents the changes to the components of our
regulatory capital:-------------------------------------------------------------------------
2009 2008
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 13,732 $ 12,365
Tier 2 capital 5,299 5,764
Total regulatory capital 19,031 18,129
Risk-weighted assets 119,561 117,946
Tier 1 capital ratio 11.5% 10.5%
Total capital ratio 15.9% 15.4%
Assets-to-capital multiple 16.6x 17.9x
-------------------------------------------------------------------------
-------------------------------------------------------------------------The Tier 1 ratio was up 1% and the total capital ratio was up 0.5% from
year-end mainly due to the Notes issued by CIBC Capital Trust and the issuance
of preferred shares noted above. The ratios also benefited from lower
risk-weighted assets on residential mortgages resulting from higher insured
mortgages. The ratios were negatively impacted by the structured credit
charges in the first half of the year and higher credit risk-weighted assets
in the trading book resulting primarily from financial guarantor downgrades.
In addition, the Tier 1 ratio was also adversely impacted by the expiry
of OSFI's transition rules related to the grandfathering of substantial
investments pre-December 31, 2006, which were deducted entirely from Tier 2
capital at year- end. Also, as required by OSFI, the planned redemption of our
$750 million 4.25% Debentures on June 1, 2009 was reflected in the total
capital ratio as at April 30, 2009.
Off-balance sheet arrangements
We enter into several types of off-balance sheet arrangements in the
normal course of our business. These include securitizations, derivatives,
credit-related arrangements, and guarantees. Details on our off-balance sheet
arrangements are provided on pages 67 to 69 of the 2008 Annual Accountability
Report.
The following table summarizes our exposures to unconsolidated entities
involved in the securitization of third-party assets (both CIBC
sponsored/structured and third-party structured). Investments, generally
securities, are at fair value and loans, none of which are impaired, are
carried at par. Undrawn liquidity and credit facilities and written credit
derivatives are at notional amounts.-------------------------------------------------------------------------
2009
$ millions, as at Apr. 30
-------------------------------------------------------------------------
Undrawn Written
Investment liquidity credit
and and credit derivatives
loans(1) facilities (notional)(2)
-------------------------------------------------------------------------
CIBC-sponsored
conduits $ 78 $ 5,707(3) $ -
CIBC structured CDO vehicles 725 61 722
Third-party structured vehicles 6,926 857 15,497
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2008
$ millions, as at Oct. 31
-------------------------------------------------------------------------
Undrawn Written
Investment liquidity credit
and and credit derivatives
loans(1) facilities (notional)(2)
-------------------------------------------------------------------------
CIBC-sponsored
conduits $ 805 $ 7,984(3) $ -
CIBC structured CDO vehicles 772 69 766
Third-party structured vehicles 8,167 1,091 17,174
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Excludes securities issued by entities established by Canada Mortgage
and Housing Corporation (CMHC), Fannie Mae, Freddie Mac, Ginnie Mae,
Federal Home Loan Banks, Federal Farm Credit Bank, and Sallie Mae.
$6.0 billion (Oct. 31, 2008: $6.7 billion) of the exposure related to
CIBC structured CDO and third-party structured vehicles was hedged by
credit derivatives.
(2) Comprises credit derivatives (written options and total return swaps)
under which we assume exposures. The negative fair value recorded on
the consolidated balance sheet was $5.8 billion (Oct. 31, 2008:
$5.6 billion). Notional amounts of $14.5 billion (Oct. 31, 2008:
$16.0 billion) were hedged with credit derivatives protection from
third parties, the fair value of these hedges net of CVA was
$1.1 billion (Oct. 31, 2008: $1.2 billion). Accumulated fair value
losses amount to $1.4 billion (Oct. 31, 2008: $1.3 billion) on
unhedged written credit derivatives.
(3) Net of $78 million (Oct. 31, 2008: $805 million) of investment and
loans in CIBC sponsored conduits.During the quarter, MACRO Trust, a CIBC-sponsored conduit, acquired auto
lease receivables from one of our multi-seller conduits. During the first and
second quarters, we acquired all of the commercial paper issued by MACRO
Trust. The consolidation of the conduit resulted in $508 million of dealer
floorplan receivables, $481 million of auto leases, and $16 million of medium
term notes backed by Canadian residential mortgages being recognized in the
consolidated balance sheet as at April 30, 2009. The dealer floorplan
receivables and retail auto receivables were originated by the finance arm of
a U.S. auto manufacturer and have an estimated weighted average life of less
than a year. The commitment period for the dealer floorplan receivables
expires on June 1, 2009.
Also during the quarter, CIBC Capital Trust, a trust wholly owned by
CIBC, issued $1.6 billion of CIBC Tier 1 Notes.
For additional details, see Notes 5 and 7 to the interim consolidated
financial statements.MANAGEMENT OF RISKOur approach to management of risk has not changed significantly from
that described on pages 70 to 83 of the 2008 Annual Accountability Report.
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. Key risk management policies are approved or
renewed by the applicable Board and management committees annually. Further
details on the Board and management committees, as applicable to the
management of risk, are provided in the "Governance" section included within
the 2008 Annual Accountability Report.
Several groups within Risk Management, independent of the originating
businesses, contribute to our management of risk. Following a realignment of
risk management during the first quarter, there are four groups which are as
follows:- Capital Markets Risk Management - provides independent oversight of
policies, procedures and standards concerning the measurement,
monitoring and control of market risks (both trading and
non-trading), trading credit risk and trading operational risk across
CIBC's portfolios.
- Product Risk Management, Card Products, Mortgages & Retail Lending -
oversees the management of credit and fraud risk in the credit card,
residential mortgages and retail lending portfolios, including the
optimization of lending profitability.
- Wholesale Credit & Investment Risk Management - responsible for the
credit quality of CIBC's risk-rated credits through the global
management of adjudication of small business, commercial and
wholesale credit risks, as well as management of the special loans
and investments portfolios.
- Risk Services - responsible for a range of activities, including:
strategic risk analytics; credit portfolio management; Basel II
reporting; economic capital; credit risk analytics; risk rating
methodology; corporate and operational risk management; and vetting
and validating of models and parameters.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 risk mitigation
Our credit risk management policies include requirements relating to
collateral valuation and management, including verification requirements and
legal certainty. Valuations are updated periodically depending on the nature
of the collateral. The main types of collateral are cash or securities for
securities lending and reverse repurchase transactions; charges over
inventory, receivables and real properties for lending to commercial
borrowers; mortgages over residential real properties for retail lending; and
operating assets for corporate and small business borrowers.
We obtain third-party guarantees and insurance to reduce the risk in our
lending portfolios. The most material of these guarantees relates to that part
of our residential mortgage portfolio that is guaranteed by CMHC, a Government
of Canada owned corporation, or other investment grade counterparties.
We use credit derivatives to reduce industry sector concentrations and
single-name exposures, or as part of portfolio diversification techniques.
We limit the credit risk of derivatives traded over-the-counter through
the use of multi-product derivative master netting agreements and collateral.
Exposure to credit risk
Our gross credit exposure measured as exposure at default (EAD) for on-
and off-balance sheet financial instruments was $474.6 billion as at April 30,
2009 (October 31, 2008: $458.7 billion). An increase in drawn exposure in the
sovereign category, largely exposures to Canadian and U.S. governments and
their agencies, accounted for the majority of the increase. This increase was
partially offset by a decrease in drawn exposures in real estate secured
personal lending due to exposures being securitized into mortgage
securitization programs over the period.Gross exposure at default, before credit risk mitigation
-------------------------------------------------------------------------
2009 2008
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Business and government portfolios-AIRB
approach(1)
Drawn $ 117,542 $ 83,686
Undrawn commitments 21,466 21,309
Repo-style transactions 82,776 82,975
Other off-balance sheet 39,408 41,163
OTC derivatives 17,982 18,763
-------------------------------------------------------------------------
$ 279,174 $ 247,896
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retail Portfolios-AIRB approach(1)
Drawn $ 114,495 $ 128,648
Undrawn commitments 45,328 44,003
Other off-balance sheet 302 105
-------------------------------------------------------------------------
$ 160,125 $ 172,756
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Standardized portfolios $ 14,582 $ 14,714
Securitization exposures 20,740 23,356
-------------------------------------------------------------------------
$ 474,621 $ 458,722
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Advanced internal ratings based (AIRB) approach.Included in the business and government portfolios-AIRB approach is EAD
of $2.1 billion in the probability of default band considered watch list as at
April 30, 2009 (October 31, 2008: $1.7 billion).
The increase in watch list exposures was largely driven by increases in
the financial services sector. The majority of watch list exposures are from
the financial services sector, including financial guarantor exposures
discussed in more detail in our "Run-off businesses" section.
Counterparty credit exposures
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 2008
consolidated financial statements.
We establish a credit valuation adjustment for expected future credit
losses from each of our derivative counterparties. As at April 30, 2009, the
credit valuation adjustment for all derivative counterparties was $5.3 billion
(October 31, 2008: $4.7 billion).Rating profile of derivative MTM receivables(1)
-------------------------------------------------------------------------
2009 2008
$ billions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Standard & Poor's rating equivalent
AAA to BBB- $ 7.3 67.3% $ 8.3 80.9%
BB+ to B- 2.6 23.2 1.2 11.5
CCC+ to CCC- 0.9 8.2 0.7 6.6
Below CCC- 0.1 1.1 - 0.2
Unrated - 0.2 0.1 0.8
-------------------------------------------------------------------------
Total $ 10.9 100.0% $ 10.3 100.0%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) MTM value of the derivative contracts after credit valuation
adjustments and derivative master netting agreements but before any
collateral.
Impaired loans and allowance and provision for credit losses
-------------------------------------------------------------------------
2009 2008
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Gross impaired loans
Consumer $ 721 $ 584
Business and government(1) 542 399
-------------------------------------------------------------------------
Total gross impaired loans $ 1,263 $ 983
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allowance for credit losses
Consumer $ 1,021 $ 888
Business and government(1) 672 558
-------------------------------------------------------------------------
Total allowance for credit losses $ 1,693 $ 1,446
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprises:
Specific allowance for loans $ 780 $ 631
General allowance for loans(2) 913 815
-------------------------------------------------------------------------
Total allowance for credit losses $ 1,693 $ 1,446
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes scored small business portfolios which are managed on a pool
basis under Basel II.
(2) Excludes general allowance for undrawn credit facilities of
$75 million (October 31, 2008: $77 million).Gross impaired loans were up $280 million or 28% from October 31, 2008.
Consumer gross impaired loans were up $137 million or 23%, largely attributed
to increased new classifications in residential mortgages and personal lending
in Canada. Business and government loans increased by $143 million or 36%,
with the business services sector accounting for $73 million of the increase.
Gross impaired real estate loans increased $28 million, attributable to two
new impaired accounts in the U.S.
Allowance for credit losses was up $247 million or 17% from October 31,
2008. Specific allowance was up $149 million or 24%, primarily due to credit
cards, personal lending and business services. The general allowance was up
$98 million or 12% due to large corporate lending and credit cards.
For details on the provision for credit losses, see the "Financial
performance review" section.
Market risk
Trading activities
The following table shows Value-at-Risk (VaR) by risk type for CIBC's
trading activities.
The VaR for the three months ended April 30, 2009 disclosed in the table
and backtesting chart below exclude our exposures in our run-off businesses as
described on pages 9 to 16 of the MD&A. Due to the volatile and illiquid
markets, 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.
Total average risk was down 19% from the last quarter, primarily due to
proactive reduction of our market risk exposure across trading books.
Actual realized market loss experience may differ from that implied by
the VaR measure for a variety of reasons. Fluctuations in market rates and
prices may differ from those in the past that are used to compute the VaR
measure. Additionally, the VaR measure does not account for any losses that
may occur beyond the 99% confidence level.VaR by risk type - trading portfolio
-------------------------------------------------------------------------
As at or for the three months ended
-------------------------------------------
Apr. 30, 2009
-------------------------------------------
$ millions High Low As at Average
-------------------------------------------------------------------------
Interest rate risk $ 5.6 $ 1.8 $ 2.8 $ 3.3
Credit spread risk 1.8 0.9 1.2 1.3
Equity Risk 6.1 1.7 1.8 3.3
Foreign exchange risk 1.1 0.2 0.4 0.6
Commodity risk 2.7 0.5 0.6 0.8
Debt specific risk 6.1 2.2 5.1 3.9
Diversification effect(1) n/m n/m (5.4) (6.6)
---------------------
Total risk $ 8.2 $ 5.7 $ 6.5 $ 6.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at or for the three months ended
-------------------------------------------
Jan. 31, 2009 Apr. 30, 2008
-------------------------------------------
$ millions As at Average As at Average
-------------------------------------------------------------------------
Interest rate risk $ 4.5 $ 4.8 $ 7.5 $ 7.6
Credit spread risk 1.6 2.1 3.6 5.0
Equity Risk 4.0 4.8 5.0 5.3
Foreign exchange risk 0.5 1.3 0.5 0.6
Commodity risk 0.8 0.6 0.6 0.8
Debt specific risk 2.4 2.3 7.8 8.0
Diversification effect(1) (7.1) (7.8) (13.0) (13.3)
-------------------------------------------
Total risk $ 6.7 $ 8.1 $ 12.0 $ 14.0
-------------------------------------------------------------------------
---------------------------------------------------
For the six
months ended
---------------------
Apr. 30, Apr. 30,
2009 2008
---------------------
$ millions Average Average
---------------------
Interest rate risk $ 4.0 $ 7.5
Credit spread risk 1.7 8.9
Equity Risk 4.1 5.2
Foreign exchange risk 0.9 0.7
Commodity risk 0.7 0.8
Debt specific risk 3.1 9.2
Diversification effect(1) (7.1) (16.0)
---------------------
Total risk $ 7.4 $ 16.3
---------------------------------------------------
(1) Aggregate VaR is less than the sum of the VaR of the different market
risk types due to risk offsets resulting from portfolio
diversification effect.
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.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 98% of the days in the quarter.
Trading losses did not exceed VaR during the quarter. Average daily trading
revenue (TEB)(1) was $4.1 million during the quarter.
The trading revenue (TEB)(1) for the current quarter excludes a $34.6
million loss related to the consolidation of variable interest entities as
well as trading losses from the run-off businesses, including $558 million
related to reductions in fair value of structured credit assets and
counterparty credit-related valuation adjustments and $50 million related to
loss from other positions in the run-off books.Backtesting of trading revenue (TEB)(1) vs. VaR
------------------------------------------------------------
(image appears here)
(1) For additional information, see the "Non-GAAP measures" section.Non-trading activities
Interest rate risk
Non-trading interest rate risk consists primarily of risk inherent in
Asset Liability Management (ALM) activities and the activities of domestic and
foreign subsidiaries. Interest rate risk results from differences in the
maturities or repricing dates of assets and liabilities, both on- and off-
balance sheet, as well as from embedded optionality in retail products. A
variety of cash instruments and derivatives, principally interest rate swaps,
futures and options, are used to manage and control these risks.
The following table shows the potential impact over the next 12 months of
an immediate 100 basis point increase or decrease in interest rates, adjusted
for estimated prepayments as well as adjusted to accommodate the downward
shock in the current interest rate environment.Interest rate sensitivity - non-trading (after-tax)
-------------------------------------------------------------------------
2009 2009
Apr. 30 Jan. 31
----------------------------------------------
$ millions, as at $ US$ Other $ US$ Other
-------------------------------------------------------------------------
100 basis points increase
in interest rates
Net income $ 158 $ (17) $ 6 $ 115 $ (21) $ 8
Change in present value of
shareholders' equity 203 (47) 3 203 (48) (3)
100 basis points decrease
in interest rates
Net income $ (11) $ 2 $ (5) $ (53) $ 20 $ (9)
Change in present value
of shareholders' equity (160) 26 1 (226) 47 1
-------------------------------------------------------------------------
-------------------------------------------------
2008
Apr. 30
----------------------
$ millions, as at $ US$ Other
-------------------------------------------------
100 basis points increase
in interest rates
Net income $ 51 $ (6) $ (1)
Change in present value of
shareholders' equity 171 16 33
100 basis points decrease
in interest rates
Net income $ (62) $ 6 $ 1
Change in present value
of shareholders' equity (264) (16) (35)
-------------------------------------------------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.
We obtain funding through both wholesale and retail sources. Core
personal deposits remain a primary source of retail funding. As at April 30,
2009, Canadian dollar deposits from individuals totalled $95.5 billion
(October 31, 2008: $90.5 billion).
Strategies for managing liquidity risk include maintaining diversified
sources of wholesale term funding within prudential limits across a range of
maturities, asset securitization initiatives, adequate capitalization, and
segregated pools of high-quality liquid assets that can be sold or pledged as
security to provide a ready source of cash. Collectively, these strategies
result in lower dependency on short-term wholesale funding.
New facilities introduced in 2008 by various governments and global
central banks including Bank of Canada and the Federal Reserve Bank provide
liquidity to financial systems. These exceptional liquidity initiatives
include expansion of eligible types of collateral, provision of term liquidity
through Purchase and Resale Agreement facilities, and the pooling and sale to
CMHC of National Housing Act mortgage-backed securities which are composed of
insured residential mortgage pools. From time to time, we utilize these term
funding facilities, pledging a combination of private and public sector assets
against these obligations.
Balance sheet liquid assets are summarized in the following table:-------------------------------------------------------------------------
2009 2008
$ billions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Cash $ 1.0 $ 1.1
Deposits with banks 7.1 7.9
Securities issued by Canadian
Governments(1) 18.0 5.5
Mortgage backed securities(1) 27.1 20.7
Other securities(2) 28.0 39.6
Securities borrowed or purchased
under resale agreements 32.7 35.6
-------------------------------------------------------------------------
$ 113.9 $ 110.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) These represent securities with residual term to contractual maturity
of more than one year.
(2) Comprises AFS securities and securities designated at fair value
(FVO) 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,
including those for covered bonds and securities borrowed or financed through
repurchase agreements, as at April 30, 2009 totalled $45.2 billion (October
31, 2008: $44.6 billion).
Access to wholesale funding sources and the cost of funds are dependent
on various factors including credit ratings. Due to a methodology change, DBRS
placed the preferred share and Tier 1 innovative instrument ratings of all
Canadian banks, including CIBC, under review with negative implications. In a
positive development, subsequent to April 30, 2009, Fitch has affirmed our
ratings and removed us from Rating Watch Negative; our ratings have been
assigned a Negative Rating Outlook. There were no material changes to any of
our other ratings.
Our funding and liquidity levels remained stable and sound over the
period and we do not anticipate any events, commitments or demands which will
materially impact our liquidity risk position.
Contractual obligations
Contractual obligations give rise to commitments of future payments
affecting our short- and long-term liquidity and capital resource needs. These
obligations include financial liabilities, credit and liquidity commitments,
and other contractual obligations.
Details of our contractual obligations are provided on pages 81 to 82 of
the 2008 Annual Accountability Report. There were no significant changes to
contractual obligations that were not in the ordinary course of our business.
Operational risk
In December 2008, we received formal acceptance of the Advanced
Measurement Approach (AMA) for operational risk from OSFI.
Other risks
We also have policies and processes to measure, monitor and control other
risks, including reputation and legal, regulatory, strategic, and
environmental risks.
For additional details, see pages 82 to 83 of the 2008 Annual
Accountability Report.ACCOUNTING AND CONTROL MATTERSCritical accounting policies and estimates
A summary of significant accounting policies is presented in Note 1 to
the 2008 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 84 to 88 of the 2008 Annual Accountability Report.
Valuation of financial instruments
The table below presents the valuation methods used to determine the
sources of fair value of those financial instruments which are held at fair
value on the consolidated balance sheet and the percentage of each category of
financial instruments which are fair valued using these valuation techniques:-------------------------------------------------------------------------
Valuation Valuation
technique - technique -
market non-market
Quoted observable observable
As at April 30, 2009 market price inputs inputs
-------------------------------------------------------------------------
Assets
Trading securities 76% 17% 7%
AFS securities 86 10 4
FVO financial instruments 6 93 1
Derivative instruments 3 86 11
-------------------------------------------------------------------------
Liabilities
Obligations related to
securities sold short 86% 14% -%
FVO financial instruments - 97 3
Derivative instruments 2 77 21
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Valuation Valuation
technique - technique -
market non-market
Quoted observable observable
As at October 31, 2008 market price inputs inputs
-------------------------------------------------------------------------
Assets
Trading securities 87% 10% 3%
AFS securities 54 39 7
FVO financial instruments 3 96 1
Derivative instruments 4 82 14
-------------------------------------------------------------------------
Liabilities
Obligations related to
securities sold short 74% 26% -%
FVO financial instruments - 88 12
Derivative instruments 4 73 23
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The table below presents amounts, in each category of financial
instruments, which are fair valued using valuation techniques based on non-
market observable inputs, for the total bank and the structured credit
business:
-------------------------------------------------------------------------
Structured
credit
run-off Total Total
$ millions, as at April 30, 2009 business CIBC CIBC
-------------------------------------------------------------------------
Assets
Trading securities $ 524 $ 1,007 7%
AFS securities 14 1,415 4
FVO financial instruments 191 200 1
Derivative instruments 3,626 3,784 11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
FVO financial instruments 334 334 3
Derivative instruments 6,965 7,932 21
-------------------------------------------------------------------------
-------------------------------------------------------------------------We apply judgment in establishing valuation adjustments that take into
account various factors that may have an impact on the valuation. Such factors
include, but are not limited to, the bid-offer spread, illiquidity due to lack
of market depth, parameter uncertainty and other market risk, model risk,
credit risk and future administration costs.
The following table summarizes our valuation adjustments:-------------------------------------------------------------------------
2009 2008
$ millions, as at Apr. 30 Oct.31
-------------------------------------------------------------------------
Trading securities
Market risk $ 14 $ 43
Derivatives
Market risk 128 223
Credit risk 5,297 4,672
Administration costs 38 30
Other 3 6
-------------------------------------------------------------------------
$ 5,480 $ 4,974
-------------------------------------------------------------------------
-------------------------------------------------------------------------Much of our structured credit run-off business requires the application
of valuation techniques using non-market observable inputs. In an inactive
market, indicative broker quotes, proxy valuation from comparable financial
instruments, and other internal models using our own assumptions of how market
participants would price a market transaction on the measurement date (all of
which we consider to be non-market observable), are primarily used for the
valuation of these positions.
We also consider whether a credit valuation adjustment is required to
recognize the risk that any given counterparty to which we are exposed, may
not ultimately be able to fulfill its obligations.
Our credit valuation adjustments are driven off market observed credit
spreads for each counterparty, or a proxy for a comparable credit quality
where no observed credit spreads exist, or where observed credit spreads are
considered not to be representative of an active market. These credit spreads
are applied in relation to the weighted average life of the underlying
instruments protected by these counterparties, while considering the
probabilities of default derived from these spreads. Furthermore our approach
takes into account the correlation between the performance of the underlying
assets and the counterparties.
Where appropriate, on certain financial guarantors, we determined the CVA
based on estimated recoverable amounts.
Our unhedged structured credit exposures (USRMM and non-USRMM) are
sensitive to changes in MTM, generally as derived from indicative broker
quotes or internal models as described above. A 10% adverse change in mark-to-
market of the underlyings would result in a loss of approximately $3 million
in our unhedged USRMM portfolio and $66 million in our non-USRMM portfolio,
excluding unhedged HTM positions and before the impact of the Cerberus
transaction.
A 10% reduction in the mark-to-market of our on-balance sheet hedged
structured credit positions other than those classified as HTM and a 10%
increase in the fair value (before CVA) of all credit derivatives in our
hedged structured credit positions would result in a net loss of approximately
$252 million before the impact of the Cerberus protection. The fair value of
the Cerberus protection is expected to reasonably offset any changes in fair
value of protected USRMM positions.
The impact of a 10% reduction in receivable net of CVA from financial
guarantors would result in a net loss of approximately $247 million.
The total net loss recognized in the consolidated statement of operations
on the financial instruments, for which fair value was estimated using a
valuation technique requiring unobservable market parameters, for the quarter
ended April 30, 2009 was $338 million ($1,148 million for the six months ended
April 30, 2009).
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.
We have policies that set standards governing the independent
verification of prices of traded instruments at a minimum on a monthly basis.
Where lack of adequate price discovery in the market results in a non-
compliance for a particular position, management is required to assess the
need for an appropriate valuation adjustment to address such valuation
uncertainties.
Reclassification of financial assets
In October 2008, certain trading financial assets, for which there was no
active market and which management intends to hold to maturity or for the
foreseeable future, were reclassified as HTM and AFS respectively, with effect
from August 1, 2008 at fair value as at that date. In the first quarter, we
also reclassified $144 million of trading financial assets to AFS.
If the above reclassifications had not been made, income during the
quarter, related to the securities reclassified to HTM and AFS securities
would have been lower by $77 million and higher by $37 million respectively
(lower by $399 million and higher by $11 million, on HTM and AFS securities
respectively, for the six months ended April 30, 2009).
Accounting Developments
Intangibles
Effective November 1, 2008, we adopted CICA 3064, "Goodwill and
Intangible Assets", which replaced CICA 3062, "Goodwill and Other Intangible
Assets", and CICA 3450, "Research and Development Costs". The new standard
establishes standards for recognition, measurement, presentation and
disclosure of goodwill and intangible assets.
The adoption of this guidance did not result in a change in the
recognition of our goodwill and intangible assets. However, we have
retroactively reclassified intangible assets relating to application software
with net book value of $374 million as at January 31, 2009 (October 31, 2008:
$385 million) from Land, Buildings and Equipment to Software and Other
Intangible Assets on our consolidated balance sheet.
Transition to International Financial Reporting Standards (IFRS)
In February 2008, the Accounting Standards Board of the CICA affirmed its
intention to replace Canadian GAAP with IFRS. CIBC will adopt IFRS commencing
November 1, 2011 with comparatives for the year commencing November 1, 2010.
CIBC's IFRS transition project is in progress with a formal governance
structure and transition plan in place. At this point it remains too early to
comment on the anticipated financial impact to the balance sheet and ongoing
results of operation resulting from the transition to IFRS as changes to the
accounting standards are expected prior to transition.
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,
2009, of CIBC's disclosure controls and procedures (as defined in the rules of
the Securities and Exchange Commission (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, 2009, that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting.INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
2009 2008
Unaudited, $ millions, as at Apr. 30 Oct. 31
------------------------------------------------------------ ------------
ASSETS
Cash and non-interest-bearing deposits with
banks $ 2,068 $ 1,558
------------------------------------------------------------ ------------
Interest-bearing deposits with banks 6,233 7,401
------------------------------------------------------------ ------------
Securities (Note 3)
Trading 13,477 37,244
Available-for-sale (AFS) 36,446 13,302
Designated at fair value (FVO) 29,352 21,861
Held-to-maturity (HTM) 6,947 6,764
------------------------------------------------------------ ------------
86,222 79,171
------------------------------------------------------------ ------------
Securities borrowed or purchased under
resale agreements 32,674 35,596
------------------------------------------------------------ ------------
Loans
Residential mortgages 75,926 90,695
Personal 33,211 32,124
Credit card 10,618 10,829
Business and government 35,450 39,273
Allowance for credit losses (Note 4) (1,693) (1,446)
------------------------------------------------------------ ------------
153,512 171,475
------------------------------------------------------------ ------------
Other
Derivative instruments 34,048 28,644
Customers' liability under acceptances 9,450 8,848
Land, buildings and equipment 1,653 1,623
Goodwill 2,099 2,100
Software and other intangible assets 695 812
Other assets (Note 9) 18,709 16,702
------------------------------------------------------------ ------------
66,654 58,729
------------------------------------------------------------ ------------
$ 347,363 $ 353,930
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Personal $ 103,788 $ 99,477
Business and government (Note 7) 109,080 117,772
Bank 9,044 15,703
------------------------------------------------------------ ------------
221,912 232,952
------------------------------------------------------------ ------------
Other
Derivative instruments 38,094 32,742
Acceptances 9,529 8,848
Obligations related to securities sold short 7,368 6,924
Obligations related to securities lent or sold
under repurchase agreements 34,689 38,023
Other liabilities 14,567 13,167
------------------------------------------------------------ ------------
104,247 99,704
------------------------------------------------------------ ------------
Subordinated indebtedness 6,612 6,658
------------------------------------------------------------ ------------
Preferred share liabilities 600 600
------------------------------------------------------------ ------------
Non-controlling interests 175 185
------------------------------------------------------------ ------------
Shareholders' equity
Preferred shares (Note 6) 3,156 2,631
Common shares (Note 6) 6,090 6,062
Treasury shares 1 1
Contributed surplus 104 96
Retained earnings 4,826 5,483
Accumulated other comprehensive (loss) (AOCI) (360) (442)
------------------------------------------------------------ ------------
13,817 13,831
------------------------------------------------------------ ------------
$ 347,363 $ 353,930
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
The accompanying notes are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
For the six
For the three months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Interest income
Loans $ 1,637 $ 1,908 $ 2,310 $ 3,545 $ 4,892
Securities borrowed or
purchased under resale
agreements 86 171 419 257 948
Securities 480 662 697 1,142 1,361
Deposits with banks 18 54 192 72 422
----------------------------------------------------- -------------------
2,221 2,795 3,618 5,016 7,623
----------------------------------------------------- -------------------
Interest expense
Deposits 694 1,040 1,747 1,734 3,955
Other liabilities 194 350 452 544 1,015
Subordinated indebtedness 52 64 62 116 134
Preferred share liabilities 8 8 8 16 16
----------------------------------------------------- -------------------
948 1,462 2,269 2,410 5,120
----------------------------------------------------- -------------------
Net interest income 1,273 1,333 1,349 2,606 2,503
----------------------------------------------------- -------------------
Non-interest income
Underwriting and
advisory fees 112 102 88 214 264
Deposit and payment fees 188 193 191 381 386
Credit fees 72 60 56 132 116
Card fees 85 95 67 180 144
Investment management and
custodial fees 96 108 131 204 267
Mutual fund fees 158 159 204 317 416
Insurance fees, net of
claims 60 66 63 126 121
Commissions on securities
transactions 106 120 133 226 303
Trading revenue (Note 8) (440) (720) (2,401) (1,160) (5,528)
AFS securities gains
(losses), net 60 148 12 208 (37)
FVO revenue 53 44 (18) 97 (47)
Income from securitized
assets 137 119 146 256 290
Foreign exchange other
than trading 243 117 3 360 135
Other (42) 78 102 36 272
----------------------------------------------------- -------------------
888 689 (1,223) 1,577 (2,898)
----------------------------------------------------- -------------------
Total revenue 2,161 2,022 126 4,183 (395)
----------------------------------------------------- -------------------
Provision for credit
losses (Note 4) 394 284 176 678 348
----------------------------------------------------- -------------------
Non-interest expenses
Employee compensation and
benefits (Note 10) 891 932 933 1,823 1,927
Occupancy costs 155 134 142 289 287
Computer, software and
office equipment 251 245 265 496 527
Communications 76 68 72 144 146
Advertising and business
development 45 47 58 92 111
Professional fees 42 40 61 82 112
Business and capital taxes 30 30 35 60 60
Other 149 157 222 306 379
----------------------------------------------------- -------------------
1,639 1,653 1,788 3,292 3,549
----------------------------------------------------- -------------------
Income (loss) before income
taxes and non-controlling
interests 128 85 (1,838) 213 (4,292)
Income tax expense (benefit) 174 (67) (731) 107 (1,733)
----------------------------------------------------- -------------------
(46) 152 (1,107) 106 (2,559)
Non-controlling interests 5 5 4 10 8
----------------------------------------------------- -------------------
Net (loss) income $ (51) $ 147 $ (1,111) $ 96 $ (2,567)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(Loss) earnings per
share (in dollars)
(Note 11) - Basic $ (0.24) $ 0.29 $ (3.00) $ 0.05 $ (7.31)
- Diluted $ (0.24) $ 0.29 $ (3.00) $ 0.05 $ (7.31)
Dividends per common
share (in dollars) $ 0.87 $ 0.87 $ 0.87 $ 1.74 $ 1.74
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
The accompanying notes 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
------------------------------ -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Preferred shares
Balance at beginning
of period $ 2,631 $ 2,631 $ 2,331 $ 2,631 $ 2,331
Issue of preferred
shares 525 - - 525 -
----------------------------------------------------- -------------------
Balance at end of
period $ 3,156 $ 2,631 $ 2,331 $ 3,156 $2,331
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Common shares
Balance at beginning
of period $ 6,074 $ 6,062 $ 6,049 $ 6,062 $ 3,133
Issue of common shares 16 12 8 28 2,956
Issuance costs, net of
related income taxes - - (1) - (33)
----------------------------------------------------- -------------------
Balance at end of
period $ 6,090 $ 6,074 $ 6,056 $ 6,090 $ 6,056
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Treasury shares
Balance at beginning
of period $ - $ 1 $ 12 $ 1 $ 4
Purchases (2,059) (1,955) (2,147) (4,014) (5,106)
Sales 2,060 1,954 2,143 4,014 5,110
----------------------------------------------------- -------------------
Balance at end of
period $ 1 $ - $ 8 $ 1 $ 8
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Contributed surplus
Balance at beginning
of period $ 100 $ 96 $ 86 $ 96 $ 96
Stock option expense 3 4 2 7 5
Stock options exercised - - - - (1)
Net premium (discount)
on treasury shares 1 1 3 2 (11)
Other - (1) (1) (1) 1
----------------------------------------------------- -------------------
Balance at end of
period $ 104 $ 100 $ 90 $ 104 $ 90
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Retained earnings
Balance at beginning
of period, as
previously reported $ 5,257 $ 5,483 $ 7,174 $ 5,483 $ 9,017
Adjustment for change
in accounting policies - (6)(1) - (6)(1) (66)(2)
----------------------------------------------------- -------------------
Balance at beginning of
period, as restated 5,257 5,477 7,174 5,477 8,951
Net income (loss) (51) 147 (1,111) 96 (2,567)
Dividends
Preferred (39) (36) (30) (75) (60)
Common (331) (332) (332) (663) (623)
Other (10) 1 (2) (9) (2)
----------------------------------------------------- -------------------
Balance at end of
period $ 4,826 $ 5,257 $ 5,699 $ 4,826 $ 5,699
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
AOCI, net of tax
Balance at beginning
of period $ (390) $ (442) $ (849) $ (442) $ (1,092)
Other comprehensive
income (OCI) 30 52 42 82 285
----------------------------------------------------- -------------------
Balance at end of
period $ (360) $ (390) $ (807) $ (360) $ (807)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Retained earnings
and AOCI $ 4,466 $ 4,867 $ 4,892 $ 4,466 $ 4,892
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Shareholders' equity
at end of period $ 13,817 $ 13,672 $ 13,377 $ 13,817 $ 13,377
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Represents the impact of changing the measurement date for employee
future benefits. See Note 10 for additional details.
(2) Represents the impact of adopting the amended Canadian Institute of
Chartered Accountants Emerging Issues Committee Abstract 46,
"Leveraged Leases".
The accompanying notes are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the
For the three months ended six months ended
------------------------------ -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Net income (loss) $ (51) $ 147 $ (1,111) $ 96 $ (2,567)
----------------------------------------------------- -------------------
OCI, net of tax
Foreign currency
translation
adjustments
Net gains (losses) on
investment in self-
sustaining foreign
operations 109 26 2 135 975
Net (losses) gains on
hedges of foreign
currency translation
adjustments (128) 3 25 (125) (721)
----------------------------------------------------- -------------------
(19) 29 27 10 254
----------------------------------------------------- -------------------
Net change in AFS
securities
Net unrealized gains
(losses) on AFS
securities 168 87 83 255 62
Transfer of net (gains)
losses to net income (119) (62) (65) (181) 41
----------------------------------------------------- -------------------
49 25 18 74 103
----------------------------------------------------- -------------------
Net change in cash flow
hedges
Net (losses) gains on
derivatives designated
as cash flow hedges (1) (4) (5) (5) (41)
Net losses (gains) on
derivatives designated
as cash flow hedges
transferred to net
income 1 2 2 3 (31)
----------------------------------------------------- -------------------
- (2) (3) (2) (72)
----------------------------------------------------- -------------------
Total OCI 30 52 42 82 285
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Comprehensive income
(loss) $ (21) $ 199 $ (1,069) $ 178 $ (2,282)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
-------------------------------------------------------------------------
INCOME TAX (EXPENSE) BENEFIT ALLOCATED TO EACH COMPONENT OF OCI
For the
For the three months ended six months ended
------------------------------ -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Foreign currency
translation adjustments
Changes on investment
in self-sustaining
foreign operations $ 10 $ (7) $ - $ 3 $ (3)
Changes on hedges of
foreign currency
translation
adjustments 117 (15) (41) 102 333
Net change in AFS
securities
Net unrealized
(gains) losses on
AFS securities (102) (56) (50) (158) (35)
Transfer of net gains
(losses) to net
income 55 30 41 85 (48)
Net change in cash flow
hedges
Changes on derivatives
designated as cash
flow hedges 1 3 1 4 21
Changes on derivatives
designated as cash
flow hedges
transferred to net
income (1) (1) (2) (2) 16
----------------------------------------------------- -------------------
$ 80 $ (46) $ (51) $ 34 $ 284
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
The accompanying notes are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the
For the three months ended six months ended
------------------------------ -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Cash flows provided by
(used in) operating
activities
Net income (loss) $ (51) $ 147 $ (1,111) $ 96 $ (2,567)
Adjustments to
reconcile net income
(loss) to cash flows
provided by (used in)
operating activities:
Provision for credit
losses 394 284 176 678 348
Amortization(1) 100 103 61 203 123
Stock-based
compensation - (3) 2 (3) (17)
Future income taxes (98) (130) (765) (228) (818)
AFS securities
(gains) losses, net (60) (148) (12) (208) 37
(Gains) losses on
disposal of land,
buildings and
equipment 3 (1) (1) 2 (1)
Other non-cash
items, net (131) (8) (13) (139) 53
Changes in operating
assets and
liabilities
Accrued interest
receivable 95 134 32 229 136
Accrued interest
payable (40) (92) (93) (132) (117)
Amounts receivable
on derivative
contracts 136 (5,196) (79) (5,060) 584
Amounts payable on
derivative contracts (1,062) 5,345 (82) 4,283 (1,036)
Net change in
trading securities 2,880 21,031(2) 3,469 23,911 3,883
Net change in FVO
securities (7,554) 63 (1,321) (7,491) (5,294)
Net change in
other FVO
financial
instruments 3,263 4,083 (83) 7,346 (664)
Current income taxes 1,499 87 (74) 1,586 (1,868)
Other, net (3,029) (236) 218 (3,265) (3,561)
----------------------------------------------------- -------------------
(3,655) 25,463 324 21,808 (10,779)
----------------------------------------------------- -------------------
Cash flows (used in)
provided by financing
activities
Deposits, net of
withdrawals (7,151) (9,304) (1,643) (16,455) 7,201
Obligations related to
securities sold short 818 (1,054) 648 (236) (2,428)
Net obligations related
to securities lent or
sold under repurchase
agreements (3,452) 118 (2,825) (3,334) (2,414)
Redemption/repurchase
of subordinated
indebtedness (77) - (89) (77) (339)
Issue of preferred
shares 525 - - 525 -
Issue of common shares,
net 16 12 7 28 2,923
Net proceeds from
treasury shares
(purchased) sold 1 (1) (4) - 4
Dividends (370) (368) (362) (738) (683)
Other, net 617 87 223 704 (222)
----------------------------------------------------- -------------------
(9,073) (10,510) (4,045) (19,583) 4,042
----------------------------------------------------- -------------------
Cash flows (used in)
provided by investing
activities
Interest-bearing
deposits with banks 2,076 (908) 4,570 1,168 340
Loans, net of repayments 4,661 (1,787) (4,694) 2,874 (6,741)
Proceeds from
securitizations 6,525 7,610 933 14,135 3,183
Purchase of AFS/HTM
securities (22,849) (28,725) (3,286) (51,574) (5,210)
Proceeds from sale of
AFS/HTM securities 8,215 5,161 1,944 13,376 7,814
Proceeds from maturity
of AFS/HTM securities 14,376 1,155 1,288 15,531 6,229
Net securities borrowed
or purchased under
resale agreements 579 2,343 2,455 2,922 850
Purchase of land,
buildings and
equipment (108) (35) (21) (143) (64)
----------------------------------------------------- -------------------
13,475 (15,186) 3,189 (1,711) 6,401
----------------------------------------------------- -------------------
Effect of exchange rate
changes on cash and
non-interest-bearing
deposits with banks (12) 8 1 (4) 21
----------------------------------------------------- -------------------
Net increase (decrease)
in cash and non-
interest-bearing
deposits with banks
during period 735 (225) (531) 510 (315)
Cash and non-interest-
bearing deposits with
banks at beginning of
period 1,333 1,558 1,673 1,558 1,457
----------------------------------------------------- -------------------
Cash and non-interest-
bearing deposits with
banks at end of period $ 2,068 $ 1,333 $ 1,142 $ 2,068 $ 1,142
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Cash interest paid $ 988 $ 1,554 $ 2,362 $ 2,542 $ 5,237
Cash income taxes
(recovered) paid $ (1,227) $ (25) $ 107 $ (1,252) $ 953
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Includes amortization of buildings, furniture, equipment leasehold
improvements, software and other intangible assets.
(2) Includes securities initially bought as trading securities and
subsequently reclassified to HTM and AFS securities.
The accompanying notes 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, 2008, 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, 2008, as set out on
pages 94 to 155 of the 2008 Annual Accountability Report.
1. Change in accounting policy
Intangible assets
Effective November 1, 2008, we adopted Canadian Institute of Chartered
Accountants (CICA) handbook section 3064, "Goodwill and Intangible
Assets", which replaced CICA handbook sections 3062, "Goodwill and Other
Intangible Assets", and 3450, "Research and Development Costs". The new
standard establishes standards for recognition, measurement, presentation
and disclosure of goodwill and intangible assets.
The adoption of this guidance did not result in a change in the
recognition of our goodwill and intangible assets. However, we have
retroactively reclassified intangible assets relating to application
software with net book value of $374 million as at January 31, 2009
(October 31, 2008: $385 million) from "Land, buildings and equipment" to
"Software and other intangible assets" on our consolidated balance sheet.
2. Fair value of financial instruments
Our approach for fair valuation of financial instruments is presented in
Note 2 to the 2008 consolidated financial statements.
Methodology and sensitivity
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. In an inactive market,
indicative broker quotes, proxy valuation from comparable financial
instruments, and other internal models using our own assumptions of how
market participants would price a market transaction on the measurement
date (all of which we consider to be non-market observable), are
primarily used for the valuation of these positions.
We also consider whether a credit valuation adjustment (CVA) is required
to recognize the risk that any given counterparty to which we are
exposed, may not ultimately be able to fulfill its obligations.
Our credit valuation adjustments are driven off market observed credit
spreads for each counterparty, or a proxy for a comparable credit quality
where no observed credit spreads exist, or where observed credit spreads
are considered not to be representative of an active market.
Where appropriate, on certain financial guarantors, we determined the CVA
based on estimated recoverable amounts.
Our unhedged structured credit exposures (USRMM and non-USRMM) are
sensitive to changes in mark-to-market, generally as derived from
indicative broker quotes or internal models as described above. A 10%
adverse change in mark-to-market of the underlyings would result in a
loss of approximately $3 million for the quarter ended April 30, 2009 in
our unhedged USRMM portfolio and $66 million for the quarter ended April
30, 2009 in our non-USRMM portfolio, excluding unhedged HTM positions and
before the impact of the transaction with Cerberus Capital Management LP
(Cerberus).
A 10% reduction in the mark-to-market of our on-balance sheet hedged
structured credit positions other than those classified as HTM and a 10%
increase in the fair value (before CVA) of all credit derivatives in our
hedged structured credit positions would result in a net loss of
approximately $252 million for the quarter ended April 30, 2009
before the impact of the Cerberus protection. The fair value of the
Cerberus protection is expected to reasonably offset any changes in the
fair value of protected USRMM positions.
The impact of a 10% reduction in receivable net of CVA from financial
guarantors would result in a net loss of approximately $247 million for
the quarter ended April 30, 2009.
The total net loss recognized in the consolidated statement of operations
on the financial instruments, for which fair value was estimated using a
valuation technique requiring unobservable market parameters, for the
quarter ended April 30, 2009 was $338 million ($1,148 million for the six
months ended April 30, 2009).
Fair value option
Financial instruments designated at fair value are those that (i) would
otherwise be recognized in income at amortized cost, causing significant
measurement inconsistencies with hedging derivatives and securities sold
short carried at fair value; or (ii) are managed on a fair value basis in
accordance with a documented trading strategy and reported to key
management personnel on that basis.
The fair values of the FVO designated assets and liabilities (excluding
hedges) were $29,575 million and $11,763 million respectively as at April
30, 2009 ($22,867 million and $6,388 million as at October 31, 2008). The
FVO designated items and related hedges resulted in net income of $120
million for the quarter ended April 30, 2009 ($216 million for the six
months ended April 30, 2009).
The impact of changes in credit spreads on FVO designated loans was a
gross loss of $20 million for the quarter ended April 30, 2009 ($68
million for the six months ended April 30, 2009), and a $0.4 million loss
for the quarter ended April 30, 2009 ($16 million for the six months
ended April 30, 2009) net of credit hedges.
The impact of CIBC's credit risk on outstanding FVO designated
liabilities was a $12 million loss for the quarter ended April 30, 2009
($14 million for the six months ended April 30, 2009).
3. Securities
Reclassification of financial instruments
In October 2008, amendments made to the CICA handbook sections 3855
"Financial Instruments - Recognition and Measurement" and 3862 "Financial
Instruments - Disclosures" permitted certain trading financial assets to
be reclassified to HTM and AFS in rare circumstances. In the current
quarter, we have not reclassified any securities.
The following tables show the carrying values, fair values, and income or
loss impact of the assets reclassified to date:
-------------------------------------------------------------------------
$ millions, as at April 30, 2009 October 31, 2008
-------------------------------------------------------------------------
Previously
Reclassified
Fair Carrying Fair Carrying
value value value value
--------------------- ---------------------
Trading assets reclassified
to HTM $ 5,631 $ 6,659 $ 6,135 $ 6,764
Trading assets reclassified
to AFS 1,122 1,122 1,078 1,078
-------------------------------------------------------------------------
Total financial assets
reclassified $ 6,753 $ 7,781 $ 7,213 $ 7,842
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the For the
three months ended six months ended
--------------------- ---------------------
Apr. 30, Jan. 31, Apr. 30,
$ millions 2009 2009 2009
-------------------------------------------------------------------------
Income (loss) recognized
on securities reclassified
Gross income recognized in
income statement $ 71 $ 124 $ 195
Impairment write-downs (55) - (55)
Funding related interest
expenses (36) (44) (80)
-------------------------------------------------------------------------
Net (loss) income recognized, before
taxes (20) 80 60
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Impact if reclassification had
not been made
On trading assets reclassified
to HTM 77 322 399
On trading assets reclassified
to AFS (37) 26 (11)
-------------------------------------------------------------------------
Reduction (increase) in
income, before taxes $ 40 $ 348 $ 388
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4. Allowance for credit losses
-------------------------------------------------------------------------
For the three months ended
-------------------------------------------------------------------------
Apr. 30, Jan. 31, Apr. 30,
2009 2009 2008
-------------------------------------------------------------------------
Specific General Total Total Total
$ millions allowance allowance allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning of
period $ 701 $ 926 $ 1,627 $ 1,523 $ 1,469
Provision for credit
losses 329 65 394 284 176
Write-offs (269) - (269) (228) (202)
Recoveries 22 - 22 44 26
Transfer from general
to specific(1) 3 (3) - - -
Other (6) - (6) 4 (1)
-------------------------------------------------------------------------
Balance at end of
period $ 780 $ 988 $ 1,768 $ 1,627 $ 1,468
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprises:
Loans $ 780 $ 913 $ 1,693 $ 1,551 $ 1,384
Undrawn credit
facilities - 75 75 76 84
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------
For the six months ended
-------------------------------------------
Apr. 30, Apr. 30,
2009 2008
-------------------------------------------
Total Total
$ millions allowance allowance
-------------------------------------------
Balance at beginning of
period $ 1,523 $ 1,443
Provision for credit
losses 678 348
Write-offs (497) (389)
Recoveries 66 57
Transfer from general
to specific(1) - -
Other (2) 9
-------------------------------------------
Balance at end of
period $ 1,768 $ 1,468
-------------------------------------------
-------------------------------------------
Comprises:
Loans $ 1,693 $ 1,384
Undrawn credit
facilities 75 84
-------------------------------------------
-------------------------------------------
(1) Related to student loan portfolio.
5. Securitizations and variable interest entities
Securitizations (residential mortgages)
We securitize insured fixed- and variable-rate residential mortgages
through the creation of mortgage-backed securities under the Canada
Mortgage Bond Program and the more recent Government of Canada NHA MBS
Auction process. We also securitize mortgage assets to a qualifying
special purpose entity (QSPE) that holds Canadian mortgages. Total assets
in the QSPE as at April 30, 2009 were $757 million (October 31, 2008:
$634 million), of which $321 million (October 31, 2008: $171 million)
represent insured prime mortgages and the remaining $436 million
(October 31, 2008: $463 million) represent uninsured Near Prime/Alt A
mortgages. We also hold another $63 million (October 31, 2008:
$15 million) in inventory that is available for securitization. The Near
Prime/Alt A mortgages do not meet traditional lending criteria in order
to qualify for prime-based lending because of either limited credit
history or specific isolated event driven credit issues, but otherwise
have a strong credit profile with an average loss rate over the past five
years of 20 bps and an average loan-to-value ratio of 75%.
Upon sale of securitized assets, a net gain or loss is recognized in
"Income from securitized assets". We retain responsibility for servicing
the mortgages and recognize revenue as these services are provided.
-------------------------------------------------------------------------
For the three months ended
--------------------------------------
2009 2009 2008
$ millions Apr. 30 Jan. 31 Apr. 30
-------------------------------------------------------------------------
Securitized $ 14,405 $ 7,864 $ 2,663
Sold 6,567 7,601 937
Net cash proceeds 6,525 7,610 933
Retained interests 350 386 20
Gain on sale, net of transaction
costs 47 (6) 9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained interest assumptions (%)
Weighted-average remaining life
(in years) 3.6 3.4 4.0
Prepayment/payment rate 12.0 - 20.0 13.0 - 24.0 11.0 - 35.0
Discount rate 1.7 - 8.8 1.4 - 7.5 2.9 - 3.6
Expected credit losses 0.0 - 0.2 0.0 - 0.2 0.0 - 0.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
------------------------------------------------------------
For the six months ended
--------------------------
2009 2008
$ millions Apr. 30 Apr. 30
------------------------------------------------------------
Securitized $ 22,269 $ 8,971
Sold 14,168 3,209
Net cash proceeds 14,135 3,183
Retained interests 736 68
Gain on sale, net of transaction
costs 41 23
------------------------------------------------------------
------------------------------------------------------------
Retained interest assumptions (%)
Weighted-average remaining life
(in years) 3.5 3.8
Prepayment/payment rate 12.0 - 24.0 11.0 - 36.0
Discount rate 1.4 - 8.8 2.9 - 4.6
Expected credit losses 0.0 - 0.2 0.0 - 0.1
------------------------------------------------------------
------------------------------------------------------------
Variable interest entities (VIEs)
VIEs that are consolidated
As discussed in Note 6 to our 2008 consolidated financial statements, we
were considered the primary beneficiary of certain VIEs and consolidated
total assets and liabilities of approximately $1,200 million as at
April 30, 2009 (October 31, 2008: $109 million).
During the first and second quarters, we acquired all of the commercial
paper issued by MACRO Trust, a CIBC-sponsored conduit. This resulted in
the consolidation of the conduit with $508 million of dealer floorplan
receivables, $481 million of auto leases, and other assets being
recognized in the consolidated balance sheet as at April 30, 2009.
The table below provides further details on the assets that support the
obligations of the consolidated VIEs:
-------------------------------------------------------------------------
2009 2008
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Cash $ 65 $ -
Trading securities - 34
AFS securities 80 60
Residential mortgages 63 15
Other assets 992 -
-------------------------------------------------------------------------
$ 1,200 $ 109
-------------------------------------------------------------------------
-------------------------------------------------------------------------
VIEs in which we have a significant interest, but do not consolidate
We have significant interests in VIEs where we are not considered the
primary beneficiary and thus do not consolidate. We may provide these
VIEs liquidity facilities, hold their notes, or act as counterparty to
derivative contracts. These VIEs include several multi-seller
conduits in Canada, which we sponsor, and CDOs for which we act as
structuring and placement agents and for which we may manage collateral
on behalf of investors.
Securities issued by entities established by Canada Housing and Mortgage
Corporation, 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) are among our holdings that are not considered significant
interests in the entities.
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, 2009, our direct investment in commercial paper issued by our
sponsored conduits was $8 million (October 31, 2008: $729 million). We
were not considered to be the primary beneficiary of any of these
conduits. At April 30, 2009, our maximum exposure to loss relating to
CIBC sponsored conduits was $5.6 billion (October 31, 2008:
$8.7 billion).
Maximum exposure to loss are amounts net of hedges. The maximum exposure
comprises the fair value for investments, the notional amounts for
liquidity and credit facilities, the notional amounts less accumulated
fair value losses for written credit derivatives on VIE reference assets,
and the positive fair value for all other derivative contracts with VIEs.
Excluded hedged positions amount to $24.1 billion (October 31, 2008:
$25.8 billion).
$ billions, as at April 30, 2009 October 31, 2008
-------------------------------------------------------------------------
Maximum Maximum
Total exposure Total exposure
assets to loss assets to loss
-------------------------------------------------------------------------
CIBC-sponsored
conduits $ 6.0 $ 5.6 $ 10.1 $ 8.7
CIBC structured CDO vehicles 1.1 - 1.1 -
Third-party structured vehicles 6.1 0.9 7.2 1.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the quarter, CIBC Capital Trust, a trust wholly owned by CIBC,
issued $1.3 billion CIBC Tier 1 Notes - Series A, due June 30, 2108 and
$300 million of CIBC Tier 1 Notes - Series B, due June 30, 2108 which
qualifies as Tier 1 regulatory capital. The Trust is a VIE which is not
consolidated as we are not considered the primary beneficiary.
6. Share capital
Common shares
During the first quarter, we issued 0.3 million new common shares for a
total consideration of $12 million, pursuant to stock options plans.
During the second quarter, we issued 0.4 million new common shares for a
total consideration of $16 million, pursuant to stock options plans.
Preferred shares
On February 4, 2009, we issued 13 million 6.5% non-cumulative Rate Reset
Class A Preferred Shares, Series 35 with a par value of $25.00 each, for
net proceeds of $319 million.
On March 6, 2009, we issued 8 million 6.5% non-cumulative Rate Reset
Class A Preferred Shares, Series 37 with a par value of $25.00 each, for
net proceeds of $196 million.
Regulatory capital and ratios
Our capital ratios and assets-to-capital multiple are presented in the
following table:
-------------------------------------------------------------------------
2009 2008
$ millions, as at Apr. 30 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $13,732 $12,365
Total regulatory capital 19,031 18,129
Risk-weighted assets 119,561 117,946
Tier 1 capital ratio 11.5% 10.5%
Total capital ratio 15.9% 15.4%
Assets-to-capital multiple 16.6x 17.9x
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Capital Trust Securities
On March 13, 2009, CIBC Capital Trust (the Trust), a trust wholly owned
by CIBC and established under the laws of the Province of Ontario, issued
$1,300 million of CIBC Tier 1 Notes - Series A, due June 30, 2108 and
$300 million of CIBC Tier 1 Notes - Series B, due June 30, 2108
(collectively, the Notes). The proceeds were used by the Trust to
purchase senior deposit notes from CIBC. The Trust is a VIE not
consolidated by CIBC; the Notes issued by the Trust are therefore not
reported on the consolidated balance sheet. The senior deposit notes
issued to the Trust are reported as deposits - business and government in
the consolidated balance sheet.
The Notes are structured to achieve Tier 1 regulatory capital treatment
and, as such, have features of equity capital including the deferral of
cash interest under certain circumstances (Deferral Events). In the case
of a Deferral Event, holders of the Notes will be required to invest
interest paid on the Notes in perpetual preferred shares of CIBC. Should
the Trust fail to pay the semi-annual interest payments on the Notes in
full, we will not declare dividends of any kind on any of our preferred
or common shares for a specified period of time.
In addition, the Notes will be automatically exchanged for perpetual
preferred shares of CIBC upon the occurrence of any one of the following
events: (i) proceedings are commenced for our winding-up; (ii) the Office
of the Superintendent of Financial Institutions (OSFI) takes control of
us or our assets; (iii) we or OSFI are of the opinion that our Tier 1
capital ratio is less than 5% or our Total Capital ratio is less than 8%;
or (iv) OSFI directs us pursuant to the Bank Act to increase our capital
or provide additional liquidity and we elect such automatic exchange or
we fail to comply with such direction. Upon such automatic exchange,
holders of the Notes will cease to have any claim or entitlement to
interest or principal against the Trust.
CIBC Tier 1 Notes - Series A will pay interest, at a rate of 9.976%,
semi-annually until June 30, 2019. On June 30, 2019, and on each five-
year anniversary thereafter, the interest rate on the CIBC Tier 1 Notes -
Series A will reset to the 5-year Government of Canada bond yield at such
time plus 10.425%. CIBC Tier 1 Notes - Series B will pay interest, at a
rate of 10.25%, semi-annually until June 30, 2039. On June 30, 2039, and
on each five-year anniversary thereafter, the interest rate on the CIBC
Tier 1 Notes - Series B will reset to the 5-year Government of Canada
bond yield at such time plus 9.878%.
According to OSFI guidelines, innovative capital instruments can comprise
up to 15% of net Tier 1 capital with an additional 5% eligible for Tier 2
capital. As at April 30, 2009, $1,589 million represents regulatory Tier
1 capital and is net of $7 million of Tier 1 Notes - Series A and
$4 million of Tier 1 Notes - Series B held for trading purposes.
The table below presents the significant terms and conditions of the
Notes as at April 30, 2009:
-------------------------------------------------------------------------
2009
$ millions Apr. 30
-------------------------------------------------------------------------
Earliest
redemption dates
------------------
At
greater
of
Canada
Interest Yield
Issue payment Price(1) Principal
Issue Date dates Yield and par At Par Amount
-------------------------------------------------------------------------
CIBC Capital
Trust
$1,300 Tier 1
Notes -
Series A March 13, June 30, 9.976% June 30, June 30, $1,300
2009 December 31 2014 2019
$ 300 Tier 1
Notes -
Series B March 13, June 30, 10.25% June 30, June 30, $300
2009 December 31 2014 2039
-------------------------------------------------------------------------
(1) Canada Yield Price: a price calculated at the time of redemption
(other than an interest rate reset date applicable to the series) to
provide a yield to maturity equal to the yield on a Government of
Canada bond of appropriate maturity plus (i) for the CIBC Tier 1
Notes - Series A, (a) 1.735% if the redemption date is any time prior
to June 30, 2019, or (b) 3.475% if the redemption date is anytime on
or after June 30, 2019, and (ii), for the CIBC Tier 1 Notes - Series
B, (a) 1.645% if the redemption date is any time prior to June 30,
2039, or (b) 3.29% if the redemption date is any time on or after
June 30, 2039.
Subject to the approval of OSFI, the Trust may, in whole or in part, on
the redemption dates specified above, and on any date thereafter, redeem
the CIBC Tier 1 Notes Series A or Series B without the consent of the
holders. Also, subject to the approval of OSFI, the Trust may redeem all,
but not part of, the CIBC Tier 1 Notes Series A or Series B prior to the
earliest redemption date specified above without the consent of the
holders, upon the occurrence of certain specified tax or regulatory
events.
8. 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 $657 million ($1,293 million for the six months
ended April 30, 2009) on the hedging contracts provided by financial
guarantors in trading revenue. Their related valuation adjustments were
$5.1 billion as at April 30, 2009 (October 31, 2008: $4.6 billion). The
fair value of derivative contracts with financial guarantors net of
valuation adjustments was $2.5 billion as at April 30, 2009 (October 31,
2008: $2.3 billion).
During the quarter, we cancelled non-USRMM exposures with a notional of
$181 million and unwound related purchased credit derivatives of a
similar amount with a financial guarantor with no impact to our results
for the quarter. In the first quarter, we commuted USRMM contracts with a
financial guarantor for $120 million with negligible impact to our
results.
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.
9. Income taxes
As at April 30, 2009, our future income tax asset was $1,989 million
(October 31, 2008: $1,822 million), net of a $62 million valuation
allowance (October 31, 2008: $62 million). Included in the future income
tax asset are $1,226 million as at April 30, 2009 (October 31, 2008:
$1,260 million) related to Canadian non-capital loss carryforwards that
expire in 20 years, $75 million as at April 30, 2009 (October 31, 2008:
$75 million) related to Canadian capital loss carryforwards that have no
expiry date, and $477 million as at April 30, 2009 (October 31, 2008:
$296 million) related to our U.S operations. 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.
10. Employee compensation and benefits
Share based compensation
The impact due to changes in CIBC's share price in respect of cash-
settled share based compensation under the Restricted Share Awards and
Performance Share Units plans is hedged through the use of derivatives.
The gains and losses on these derivatives are recognized in employee
compensation and benefits, within the consolidated statement of
operations. During the quarter we recorded gains of $20 million (for the
three months ended January 31, 2009: losses of $1 million; for the six
months ended April 30, 2009: gains of $19 million) in the consolidated
statement of operations and gains of $10 million (for the three months
ended January 31, 2009: losses of $4 million, for the six months ended
April 30, 2009: gains of $6 million) in other comprehensive income.
Employee future benefit expenses
----------------------------------------------------- -------------------
For the
For the three months ended six months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Defined benefit plans(1)
Pension benefit plans $ 20 $ 20 $ 38 $ 40 $ 76
Other benefit plans 9 10 13 19 21
----------------------------------------------------- -------------------
$ 29 $ 30 $ 51 $ 59 $ 97
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Defined contribution
plans
CIBC's pension plans $ 3 $ 3 $ 4 $ 6 $ 8
Government pension
plans(2) 18 20 23 38 44
----------------------------------------------------- -------------------
$ 21 $ 23 $ 27 $ 44 $ 52
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Effective November 1, 2008, we elected to change our measurement date
for accrued benefit obligations and the fair value of plan assets
related to our employee defined benefit plans from September 30 to
October 31. This change aligns our measurement date with our fiscal
year end and had no impact on our consolidated statement of
operations for the quarter.
(2) Includes Canada Pension Plan, Quebec Pension Plan, and U.S. Federal
Insurance Contributions Act.
11. Loss/earnings per share (EPS)
----------------------------------------------------- -------------------
For the
For the three months ended six months ended
----------------------------- -------------------
$ millions, except per 2009 2009 2008 2009 2008
share amounts Apr. 30 Jan. 31 Apr. 30 Apr. 30 Apr. 30
----------------------------------------------------- -------------------
Basic EPS
Net (loss) income $ (51) $ 147 $ (1,111) $ 96 $ (2,567)
Preferred share
dividends and premiums (39) (36) (30) (75) (60)
----------------------------------------------------- -------------------
Net (loss) income
applicable to common
shares $ (90) $ 111 $ (1,141) $ 21 $ (2,627)
----------------------------------------------------- -------------------
Weighted-average common
shares outstanding
(thousands) 381,410 380,911 380,754 381,156 359,512
----------------------------------------------------- -------------------
Basic EPS $ (0.24) $ 0.29 $ (3.00) $ 0.05 $ (7.31)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Diluted EPS
Net (loss) income
applicable to common
shares $ (90) $ 111 $ (1,141) $ 21 $ (2,627)
----------------------------------------------------- -------------------
Weighted-average common
shares outstanding
(thousands) 381,410 380,911 380,754 381,156 359,512
Add: stock options
potentially
exercisable(1)
(thousands) 369 513 1,623 443 1,854
----------------------------------------------------- -------------------
Weighted-average diluted
common shares
outstanding(2)
(thousands) 381,779 381,424 382,377 381,599 361,366
----------------------------------------------------- -------------------
Diluted EPS(3) $ (0.24) $ 0.29 $ (3.00) $ 0.05 $ (7.31)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Excludes average options outstanding of 4,845,876 with a weighted-
average exercise price of $64.67; average options outstanding of
4,506,016 with a weighted-average exercise price of $65.94; and
average options outstanding of 2,128,531 with a weighted-average
exercise price of $79.50 for the three months ended April 30, 2009,
January 31, 2009, and April 30, 2008, 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.
12. Guarantees
-------------------------------------------------------------------------
2009 2008
$ 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) $ 35,241 $ - $ 36,152 $ -
Standby and performance
letters of credit 5,879 16 6,249 14
Credit derivatives
Written options 26,535 6,073 32,717 6,877
Swap contracts written
protection 3,906 269 3,892 256
Other derivative written
options -(3) 4,560 -(3) 4,334
Other indemnification
agreements -(3) - -(3) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The total collateral available relating to these guarantees was
$38.3 billion (October 31, 2008: $39.3 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) See narrative on page 143 of the 2008 consolidated financial
statements for further information.
13. Segmented information
CIBC has two strategic business lines: CIBC Retail Markets and Wholesale
Banking. These business lines are supported by five functional groups -
Technology and Operations; Corporate Development; Finance (including
Treasury); Administration; and Risk Management. The activities of these
functional groups are included within Corporate and Other, with their
revenue, expenses and balance sheet resources generally being allocated
to the business lines.
During the first quarter we moved the impact of securitization from CIBC
Retail Markets to Corporate and Other. Prior period information was
restated. In addition, we moved the sublease income and related operating
costs of our New York premises from Wholesale Banking to Corporate and
Other. Prior period information was not restated.
-------------------------------------------------------------------------
CIBC
$ millions, for the three Retail Wholesale Corporate CIBC
months ended Markets Banking and Other Total
-------------------------------------------------------------------------
Apr. 30, 2009
Net interest income
(expense) $ 1,233 $ 124 $ (84) $ 1,273
Non-interest income
(expense) 1,018 (365) 235 888
Intersegment revenue(1) 1 - (1) -
-------------------------------------------------------------------------
Total revenue 2,252 (241) 150 2,161
Provision for credit losses 403 46 (55) 394
Amortization(2) 31 1 68 100
Other non-interest expenses 1,273 246 20 1,539
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 545 (534) 117 128
Income tax expense (benefit) 150 (161) 185 174
Non-controlling interests 5 - - 5
-------------------------------------------------------------------------
Net income (loss) $ 390 $ (373) $ (68) $ (51)
-------------------------------------------------------------------------
Average assets(3) $ 285,986 $ 89,971 $ (22,138) $ 353,819
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jan. 31, 2009
Net interest income
(expense) $ 1,291 $ 78 $ (36) $ 1,333
Non-interest income
(expense) 1,124 (446) 11 689
Intersegment revenue(1) 1 - (1) -
-------------------------------------------------------------------------
Total revenue 2,416 (368) (26) 2,022
Provision for credit losses 327 19 (62) 284
Amortization(2) 35 2 66 103
Other non-interest expenses 1,270 265 15 1,550
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 784 (654) (45) 85
Income tax expense (benefit) 217 (241) (43) (67)
Non-controlling interests 5 - - 5
-------------------------------------------------------------------------
Net income (loss) $ 562 $ (413) $ (2) $ 147
-------------------------------------------------------------------------
Average assets(3) $ 292,724 $ 97,316 $ (20,791) $ 369,249
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2008
Net interest income
(expense) $ 1,397 $ 17 $ (65) $ 1,349
Non-interest income
(expense) 885 (2,183) 75 (1,223)
Intersegment revenue(1) 2 - (2) -
-------------------------------------------------------------------------
Total revenue 2,284 (2,166) 8 126
Provision for credit losses 209 2 (35) 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 695 (2,526) (7) (1,838)
Income tax expense (benefit) 177 (891) (17) (731)
Non-controlling interests 2 2 - 4
-------------------------------------------------------------------------
Net income (loss) $ 516 $ (1,637) $ 10 $ (1,111)
-------------------------------------------------------------------------
Average assets(3) $ 261,369 $ 104,210 $ (16,574) $ 349,005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CIBC
$ millions, for the six Retail Wholesale Corporate CIBC
months ended Markets Banking and Other Total
-------------------------------------------------------------------------
Apr. 30, 2009
Net interest income
(expense) $ 2,524 $ 202 $ (120) $ 2,606
Non-interest income
(expense) 2,142 (811) 246 1,577
Intersegment revenue(1) 2 - (2) -
-------------------------------------------------------------------------
Total revenue 4,668 (609) 124 4,183
Provision for credit losses 730 65 (117) 678
Amortization(2) 66 3 134 203
Other non-interest expenses 2,543 511 35 3,089
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 1,329 (1,188) 72 213
Income tax expense (benefit) 367 (402) 142 107
Non-controlling interests 10 - - 10
-------------------------------------------------------------------------
Net income (loss) $ 952 $ (786) $ (70) $ 96
-------------------------------------------------------------------------
Average assets(3) $ 289,411 $ 93,705 $ (21,454) $ 361,662
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2008
Net interest income
(expense) $ 2,781 $ (147) $ (131) $ 2,503
Non-interest income
(expense) 1,910 (4,976) 168 (2,898)
Intersegment revenue(1) 3 - (3) -
-------------------------------------------------------------------------
Total revenue 4,694 (5,123) 34 (395)
Provision for credit losses 398 19 (69) 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 1,563 (5,851) (4) (4,292)
Income tax expense (benefit) 381 (2,057) (57) (1,733)
Non-controlling interests 6 2 - 8
-------------------------------------------------------------------------
Net income (loss) $ 1,176 $ (3,796) $ 53 $ (2,567)
-------------------------------------------------------------------------
Average assets(3) $ 258,280 $ 106,167 $ (17,705) $ 346,742
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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, software and finite-lived 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.%SEDAR: 00002543EF
For further information:
For further information: Investor and analyst inquiries should be directed to John Ferren, Vice-President, Investor Relations, at (416) 980-2088; Media inquiries should be directed to Rob McLeod, Senior Director, Communications and Public Affairs, at (416) 980-3714, or to Mary Lou Frazer, Senior Director, Investor & Financial Communications, at (416) 980-4111
