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CIBC Announces Third Quarter 2009 Results
TORONTO, Aug. 26 /CNW/ - CIBC (CM: TSX; NYSE) announced net income of
$434 million for the third quarter ended July 31, 2009, compared with net
income of $71 million for the same period last year. Diluted earnings per
share were $1.02, compared with $0.11 a year ago. Cash diluted earnings per
share were $1.04(1), compared with $0.13(1) a year ago.
CIBC's Tier 1 and total capital ratios at July 31, 2009 remain strong, at
12.0% and 16.5%, respectively.
"CIBC's third quarter performance was solid, driven by good performances
in our core retail and wholesale banking businesses, continued expense
discipline and a gain from run-off activities following several quarters of
losses," says Gerald T. McCaughey, President and Chief Executive Officer of
CIBC. "In addition, while growing our businesses, we further enhanced our
strong capital position which continues to be a clear strategic advantage for
CIBC."Results for the third quarter of 2009 were affected by the following items
of note aggregating to a negative impact of $0.32 per share:
- $155 million ($106 million after-tax, or $0.27 per share) of
mark-to-market (MTM) losses on credit derivatives in CIBC's corporate
loan hedging program as a result of the narrowing of credit spreads
during the quarter;
- $95 million ($65 million after-tax, or $0.17 per share) gain on
structured credit run-off activities;
- $83 million ($56 million after-tax, or $0.15 per share) of loan
losses within the leveraged loan and other run-off portfolios;
- $42 million ($29 million after-tax, or $0.07 per share) provision for
credit losses in the general allowance; and
- Other items of note as described on page 7 of CIBC's Third Quarter
2009 Management Discussion and Analysis aggregating to a positive
impact on earnings of $2 million ($3 million after-tax and no impact
on earnings per share).Net income of $434 million for the third quarter of 2009 compared to a
net loss of $51 million for the prior quarter. Diluted earnings per share and
cash diluted earnings per share of $1.02 and $1.04(1), respectively, for the
third quarter of 2009 compared to a diluted loss per share and a cash diluted
loss per share of $0.24 and $0.21(1), respectively, for the prior quarter. The
prior quarter included items of note that aggregated to a negative impact on
results of $1.65 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 12.0%, which is among the highest of major
commercial banks in North America, is well above its target of 8.5% and the
regulatory minimum of 7.0%. CIBC's capital strength provides CIBC with
capacity to meet the ongoing investment needs of its core businesses, while
also positioning the bank for future growth opportunities.Business strength
CIBC Retail Markets reported net income of $416 million.CIBC's Retail Markets business continues to effectively balance growth
with expense and risk discipline.
Revenue of $2.3 billion was down $32 million from the third quarter of
2008, which included a $28 million gain on the sale of shares in Visa Inc.
Volume growth was offset by lower spreads and the impact of weaker equity
markets.
Expenses of $1,324 million were down $53 million from the third quarter
of 2008. Lower performance-related compensation and effective cost management
were partially offset by the negative impact of a weaker Canadian dollar on
the translated U.S. dollar expenses of FirstCaribbean.
Loan losses of $423 million were up $199 million from the third quarter
of 2008, and included $63 million of higher allowances. Loan losses were
higher in cards and personal lending due to higher delinquencies and
bankruptcies related to the deteriorating economic environment.During the third quarter of 2009, CIBC Retail Markets continued to deliver
on its strategy of providing clients with greater access, choice and advice by
further strengthening its branch network and enhancing its competitive product
capabilities:
- Retail Markets opened or expanded 11 additional branches in high
growth locations, bringing the year-to-date total to 28 of the 40
planned branch openings in 2009;
- Retail Markets launched the new Renaissance High Interest Savings
Account to positive market response both through the Wood Gundy
brokerage network and also third party channels;
- Retail Markets relaunched its highly successful chequing account and
credit card promotional campaign to acquire new clients to the bank;
and
- Retail Markets was voted the "Best Consumer Internet Bank" in Canada
and the "Best Online Consumer Credit Site" in North America for the
second year in a row by Global Finance magazine.Wholesale Banking reported net income of $86 million for the third
quarter.
Revenue of $531 million was up $772 million from the prior quarter,
primarily due to gains on structured credit run-off activities compared with
losses on these activities in the prior quarter. In addition, revenue was
higher for Wholesale Banking's core capital markets and investment and
corporate banking businesses, reflecting the combination of progress on the
goals Wholesale Banking set for its businesses last year and improving
financial market conditions.
Expenses of $258 million were up $11 million from the prior quarter,
primarily due to higher employee compensation and benefits and higher
professional expenses, partially offset by lower performance-related
compensation.
Loan losses of $129 million were up $111 million from the prior quarter
primarily due to higher losses in the leveraged loan and other run-off
portfolios and the U.S. real estate finance businesses.During the quarter, Wholesale Banking participated in several notable
achievements:
- CIBC's wholesale banking business was named Investment Bank of the
Year - North America by ACQ, a U.K.-based acquisition finance
magazine, for its continued leadership in mergers and acquisitions;
- Wholesale Banking launched a set of tradable indices that give
investors greater access to futures contracts involving interest
rates, currencies and commodities. CIBC will be offering a range of
products linked to the indices including over-the-counter
derivatives, swaps, principal at risk notes and principal protected
notes;
- Wholesale Banking solidified its position as the leading equity
trader on the Canadian exchanges for volume and value for the
quarter, building on the leadership position it established during
the second quarter. On a fiscal year-to-date basis CIBC ranked No. 1
with 15.5% market share by value;
- CIBC's wholesale banking business acted as lead manager on an $8.0
billion new issue of Canada Housing Trust No. 1 and acted as lead
manager and joint bookrunner in a $946 million IPO of Genworth MI
Canada Inc.; and
- Wholesale Banking also acted as a senior co-manager in Teck Resources
Limited's US$4.2 billion multi-tranche issuance of senior secured
notes and acted as joint lead and joint bookrunner for a $1.0 billion
offering of medium term notes for Manulife Financial Corporation.
CIBC also made progress during the third quarter in reducing exposures
within its structured credit run-off business:
- CIBC commuted its U.S. residential mortgage market (USRMM) exposure
with a financial guarantor and CIBC's non-USRMM contracts with this
counterparty were transferred to a newly created and capitalized entity. This
commutation and restructuring activity resulted in a gain of $163 million
(US$152 million);
- CIBC terminated $2.8 billion (US$2.6 billion) of written credit
derivatives in its correlation portfolio for a gain of $8 million (US
$8 million);
- CIBC terminated $494 million (US$452 million) of written credit
derivatives with exposures to commercial mortgage-backed securities
for a gain of $49 million (US$45 million); and
- Normal amortization of $215 million (US$200 million) reduced the
notional amount of credit derivatives purchased from financial
guarantors.As at July 31, 2009, the fair value, net of valuation adjustments, of
purchased protection from financial guarantor counterparties was $1.8 billion
(US$1.7 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 third quarter were $1,699 million, down
from $1,725 million a year ago and below its quarterly run-rate target of
$1,776 million.
"We continue to manage our run rate expenses by adjusting our
infrastructure support activities to business changes and evolving market
conditions," says McCaughey. "We expect the largest contributor to further
productivity improvements to come from better revenue performance as market
conditions and the general economy stabilize and improve."
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 our communities through corporate
donations, sponsorships and the volunteer spirit of our employees," says
McCaughey.CIBC's achievements this quarter included:
- Awarding thirty scholarships to students from across Canada under the
CIBC Youthvision Scholarship™ program, marking the 10th
anniversary of the program and bringing CIBC's total commitment to
over $10 million since the program's inception in 1999;
- Supporting the launch of a new national public awareness campaign by
the Canadian Centre for Child Protection, the goal of which is to
remind parents of the major role they play in ensuring that their
children grow up smart, strong and safe;
- CIBC clients and employees throughout British Columbia and the Yukon
Territories raised more than $405,000 during the 2009 BC Children's
Hospital fundraising campaign. This brings the total amount raised
since 1995 to $4.2 million, building on $1.3 million in corporate
donations from CIBC; and
- The Tour CIBC Charles Bruneau, a four-day bicycle ride across Quebec
to help children with cancer, raised $1,025,000 in support of the
Fondation Centre de cancérologie Charles-Bruneau, widely surpassing
the $850,000 fundraising goal. Of this, CIBC employees and clients
contributed $250,000 to help fund cancer research and treatment for
children.In addition to these community endeavours, CIBC was selected by Corporate
Knights as a member of their Best 50 Corporate Citizens list for 2009, which
ranks Canadian companies on corporate sustainability initiatives and
responsible business practices. CIBC was also awarded the 2009 Philanthropy
Award for Outstanding Corporation by the Greater Toronto Chapter of the
Association of Fundraising Professionals, which recognizes contributions of
time, leadership and financial support.------------------------------
(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 third 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 third 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 August 26, 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.Contents
5 External reporting changes
6 Third quarter financial highlights
7 Overview
8 Significant events
9 Outlook
10 Run-off businesses and other selected activities
10 Run-off businesses
18 Other selected activities
20 Financial performance review
20 Net interest income
20 Non-interest income
20 Provision for credit losses
21 Non-interest expenses
21 Income taxes
21 Foreign exchange
22 Review of quarterly financial information
23 Non-GAAP measures
23 Business unit allocations
24 Business line overview
24 CIBC Retail Markets
26 Wholesale Banking
28 Corporate and Other
30 Financial condition
30 Review of consolidated balance sheet
30 Capital resources
31 Off-balance sheet arrangements
32 Management of risk
32 Risk overview
32 Credit risk
34 Market risk
35 Liquidity risk
36 Operational risk
36 Other risks
37 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 "Update on business priorities", "Overview -
Significant events", "Overview - Outlook for 2009", "Run-off businesses",
"Financial performance review - Income Taxes", "Management of Risk - Liquidity
risk" 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.EXTERNAL REPORTING CHANGES
Third Quarter
- Provision for credit losses related to general allowance has been
included within Corporate and Other. Prior period information has
been restated.
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
- We realigned the businesses within CIBC Retail Markets and Wholesale
Banking. Prior period information has been 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 has been 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 has not been restated.
- We retroactively reclassified intangible assets relating to
application software from "Land, buildings and equipment" to
"Software and other intangible assets" on our consolidated balance
sheet.
THIRD QUARTER FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
As at or for the As at or for the
three months ended nine months ended
-------------------------------- ---------------------
2009 2009 2008 2009 2008
Unaudited Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
--------------------------------------------------- ---------------------
Common share
information
Per share
- basic earnings
(loss) $ 1.02 $ (0.24) $ 0.11 $ 1.08 $ (7.05)
- cash basic
earnings
(loss)(1) 1.04 (0.21) 0.13 1.14 (6.99)
- diluted
earnings
(loss) 1.02 (0.24) 0.11 1.08 (7.05)
- cash diluted
earnings
(loss)(1) 1.04 (0.21) 0.13 1.14 (6.99)
- dividends 0.87 0.87 0.87 2.61 2.61
- book value 27.87 27.95 28.40 27.87 28.40
Share price
- high 67.20 54.90 76.75 67.20 99.81
- low 53.02 37.10 49.56 37.10 49.56
- closing 66.31 53.57 61.98 66.31 61.98
Shares outstanding
(thousands)
- average basic 381,584 381,410 380,877 381,300 366,686
- average diluted 382,556 381,779 382,172 381,921 368,352
- end of period 382,657 381,478 380,732 382,657 380,732
Market
capitalization
($ millions) $ 25,374 $ 20,436 $ 23,598 $ 25,374 $ 23,598
--------------------------------------------------- ---------------------
Value measures
Price to earnings
multiple (12 month
trailing) 31.0 43.7 n/m 31.0 n/m
Dividend yield
(based on closing
share price) 5.2% 6.7% 5.6% 5.3% 5.6%
Dividend payout
ratio 85.0% n/m n/m n/m n/m
Market value to
book value ratio 2.38 1.92 2.18 2.38 2.18
--------------------------------------------------- ---------------------
Financial results
($ millions)
Total revenue $ 2,857 $ 2,161 $ 1,905 $ 7,040 $ 1,510
Provision for
credit losses 547 394 203 1,225 551
Non-interest
expenses 1,699 1,639 1,725 4,991 5,274
Net income (loss) 434 (51) 71 530 (2,496)
--------------------------------------------------- ---------------------
Financial measures
Efficiency ratio 59.4% 75.9% 90.5% 70.9% n/m
Cash efficiency
ratio, taxable
equivalent basis
(TEB)(1) 59.0% 74.9% 88.0% 70.1% n/m
Return on equity 14.6% (3.5)% 1.6% 5.1% (30.3)%
Net interest margin 1.59% 1.48% 1.54% 1.50% 1.48%
Net interest margin
on average
interest-earning
assets 1.95% 1.85% 1.82% 1.85% 1.74%
Return on average
assets 0.51% (0.06)% 0.08% 0.20% (0.96)%
Return on average
interest-earning
assets 0.62% (0.07)% 0.10% 0.25% (1.14)%
Total shareholder
return 25.69% 17.03% (15.25)% 27.77% (36.79)%
--------------------------------------------------- ---------------------
On- and off-balance
sheet information
($ millions)
Cash, deposits with
banks and
securities $ 90,872 $ 94,523 $ 89,468 $ 90,872 $ 89,468
Loans and
acceptances 166,040 162,962 173,386 166,040 173,386
Total assets 335,917 347,363 329,040 335,917 329,040
Deposits 214,227 221,912 228,601 214,227 228,601
Common
shareholders'
equity 10,664 10,661 10,813 10,664 10,813
Average assets 340,661 353,819 343,396 354,585 345,618
Average
interest-earning
assets 277,919 282,414 290,598 286,535 293,373
Average common
shareholders'
equity 10,601 10,644 10,664 10,736 11,384
Assets under
administration 1,160,473 1,096,028 1,134,843 1,160,473 1,134,843
--------------------------------------------------- ---------------------
Balance sheet
quality measures
Common equity to
risk-weighted
assets 9.2% 8.9% 9.1% 9.2% 9.1%
Risk-weighted
assets
($ billions) $ 115.4 $ 119.6 $ 118.5 $ 115.4 $ 118.5
Tier 1 capital
ratio 12.0% 11.5% 9.8% 12.0% 9.8%
Total capital
ratio 16.5% 15.9% 14.4% 16.5% 14.4%
--------------------------------------------------- ---------------------
Other information
Retail / wholesale
ratio(2) 69%/31% 64%/36% 67%/33% 69%/31% 67%/33%
Full time
equivalent
employees 42,474 42,305 44,583 42,474 44,583
--------------------------------------------------- ---------------------
--------------------------------------------------- ---------------------
(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.
OVERVIEW
Net income for the quarter was $434 million, compared to net income of $71
million for the same quarter last year and net loss of $51 million for the
prior quarter.
Our results for the current quarter were affected by the following items:
- $155 million ($106 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 as a result of the narrowing of
credit spreads during the quarter;
- $95 million ($65 million after-tax) gains on the structured credit
run-off business;
- $83 million ($56 million after-tax) loan losses in our leveraged loan
and other run-off portfolios;
- $42 million ($29 million after-tax) provision for credit losses in
the general allowance;
- $27 million ($18 million after-tax) of a higher litigation provision
and other operational costs;
- $26 million ($18 million after-tax) decrease in credit valuation
adjustments (CVA) against other than financial guarantors derivatives
counterparties, on non-structured credit contracts;
- $25 million ($17 million after-tax) interest income on income tax
reassessments; and
- $22 million ($14 million after-tax) of valuation charges related to
certain available for sale (AFS) positions in exited and other
run-off businesses.
Compared with Q3, 2008Revenue was higher than the same quarter last year, primarily due to
gains in the structured credit run-off business compared to losses in the last
year quarter. The current quarter also benefited from volume growth in most
personal banking products, partially offset by spread compression on retail
products. The current quarter was also impacted by the MTM losses of credit
derivatives in our corporate loan hedging programs, compared to gains in the
last year quarter, lower wealth management related fee income and lower
treasury revenue. The last year quarter included losses and interest expense
related to leveraged leases.
Provision for credit losses was up primarily due to higher losses in the
cards and personal lending portfolios driven by higher delinquencies and
bankruptcies, higher losses in the leveraged loans, other run-off and U.S.
real estate finance businesses, and an increase in allowances, all related to
the deteriorating economic environment.
Non-interest expenses were down from the same quarter last year,
primarily due to lower salaries, benefits, commissions, and advertising
expenses, partially offset by higher performance-related expenses and a higher
litigation provision.
The structured credit losses in the last year quarter resulted in a
higher tax benefit in that quarter.
Compared with Q2, 2009
Revenue was higher in the current quarter, primarily due to gains in the
structured credit run-off business compared to losses in the prior quarter.
The current quarter also benefited from lower valuation charges related to
certain AFS and trading positions in run-off and exited businesses, lower
write-downs in merchant banking portfolios, the impact of three more days,
wider spreads on personal banking products and volume growth on retail
products. These factors were partially offset by lower AFS securities gains.
The prior quarter benefited from a foreign exchange gain on repatriation
activities.
Provision for credit losses was up primarily due to higher losses in the
cards and personal lending portfolios driven by higher delinquencies and
bankruptcies, higher losses in the leveraged loans, other run-off and U.S.
real estate finance businesses, and an increase in allowances, all related to
the difficult economic environment.
Non-interest expenses were higher than the prior quarter, primarily due
to the impact of three more days, a higher litigation provision, salaries,
benefits and commissions, and computer and office equipment, partially offset
by lower performance-related expenses, advertising and occupancy expenses.
The prior quarter included a tax expense related to the foreign exchange
gain on repatriation activities noted above and write-off of future tax assets
due to lower future statutory tax rates. The structured credit losses also
resulted in a higher tax benefit in the prior quarter.
Compared with the nine months ended July 31, 2008
Revenue in the current period was higher than the same period last year,
primarily due to the 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 period, and the prior year loss on the
sale of some of our U.S. businesses also contributed to the increase. The
current period also benefited from volume growth in most personal banking
products and higher interest income from corporate credit products and U.S.
real estate finance. These factors were partially offset by losses associated
with corporate loan hedging programs compared to gains in the prior year
period, lower wealth management related fee income, spread compression on
retail products, higher write-downs in the merchant banking portfolio, an
increase in valuation charges on certain trading and AFS positions in exited
and run-off businesses and lower treasury revenue.
Provision for credit losses was up primarily due to higher losses in the
cards and personal lending portfolios driven by higher delinquencies and
bankruptcies, higher losses in the leveraged loans, other run-off and U.S.
real estate finance businesses, and an increase in allowances, all related to
the deteriorating economic environment.
Non-interest expenses for the nine months ended July 31, 2009 were down
from the same period in 2008, primarily due to lower salaries, benefits and
commissions, computer and office equipment, professional fees, and advertising
expenses, partially offset by higher performance-related expenses.
Income tax expense was up compared to an income tax benefit in the same
period last year, primarily due to higher structured credit losses in the
prior year period.Our results for the prior periods were affected by the following items:
-------------------------------------------------------------------------
Q2, 2009
--------
- $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 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 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.
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.
Q3, 2008
--------
- $885 million ($596 million after-tax) loss on structured credit
run-off business;
- $16 million ($11 million after-tax) of higher than normal severance
accruals;
- $30 million ($20 million after-tax) positive impact of changes in
credit spreads on the MTM of credit derivatives in our corporate loan
hedging program;
- $28 million ($20 million after-tax and minority interest) gain on
sale of shares in Visa Inc.;
- Interest income on income tax reassessments of $27 million
($18 million after-tax); and
- Losses and interest expense related to leveraged leases of
$55 million ($33 million after-tax).
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 issuesOur structured credit business within Wholesale Banking had income,
before taxes, for the quarter of $95 million ($1,088 million loss, before
taxes for the nine months ended July 31, 2009). We continue to reduce our
exposures in this business, 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 second 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 recovery in global financial market sentiment, nascent rebounds in
Canadian housing and retailing in response to low interest rates, and a
potential pickup in export orders could see the Canadian economy return to
growth in the third calendar quarter, a quarter ahead of earlier expectations.
The pace of growth could still be too modest to reduce the unemployment rate
over the remainder of the fiscal year, and interest rates should stay low as
the Bank of Canada provides much needed stimulus.
CIBC Retail Markets is expected to benefit from continued healthy
household credit demand. Personal bankruptcies could remain elevated given
high unemployment levels, while small business bankruptcies are likely to rise
in a lagged response to the recessionary conditions faced earlier in the year.
For Wholesale Banking, provisions for credit losses are likely to
increase as a result of continued weakness in the business climate. Our
investment banking business is operating in an uncertain environment but a
sustained recovery in new issuance of equities and corporate bonds could
support improved corporate finance activities. In corporate credit products,
increased loan demand could be driven by a reduction in lending activity by
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 resultsOur 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 - gains (losses) before taxes
------------------------------------------------------------ ------------
For the
For the nine months
three months ended ended
---------------------- ------------
2009 2009 2009
$ millions Jul. 31 Apr. 30 Jul. 31
------------------------------------------------------------ ------------
Trading $ 83 $ (514) $ (1,189)
Held-to-maturity (HTM) 14 28 111
Available-for-sale (AFS) (2) 11 (10)
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
Total $ 95 $ (475) $ (1,088)
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------Results for the current quarter were primarily driven by gains from
restructuring of exposures to a financial guarantor and terminations of credit
derivatives. These gains were partially offset by deterioration in the credit
quality of financial guarantors, which resulted in increases in CVA. The
losses in prior quarters were primarily driven by deterioration in the credit
quality of financial guarantors and MTM losses for certain underlying assets.
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 July
31, 2009, the estimated remaining weighted average life (WAL) of the CLOs, and
TruPs was 4.6 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
increased by $512 million (US$383 million) and $113 million (US$66 million)
for the current quarter and for the nine months ended July 31, 2009,
respectively.
Change in exposures
The following table summarizes our positions within our structured credit
run-off business:-------------------------------------------------------------------------
2009 2008
US$ millions, as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Notional
Investments and loans $ 10,734 $ 10,304
Written credit derivatives(1) 23,104 30,931
-------------------------------------------------------------------------
Total gross exposures $ 33,838 $ 41,235
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Purchased credit derivatives $ 32,423 $ 37,039
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes notional amount for written credit derivatives and liquidity
and credit facilities.
Cerberus transactionIn the fourth quarter of 2008, we transacted with Cerberus Capital
Management LP (Cerberus) to obtain downside protection on our USRMM CDO
exposures while retaining upside participation if the underlying securities
recover. As at July 31, 2009, the outstanding principal and fair value of the
limited recourse note issued as part of the Cerberus transaction was $570
million (US$529 million) and $243 million (US$226 million) respectively. The
underlying CDO exposures had a fair value of $379 million (US$351 million) as
at July 31, 2009. We recorded a loss of $6 million (US$7 million) and a gain
of $264 million (US$214 million) on the limited recourse note in the current
quarter and for the nine months ended July 31, 2009 respectively.Commutation of USRMM contracts and restructuring with a financial
guarantorIn July 2009, we commuted USRMM contracts with a financial guarantor
(reported as counterparty "V") for cash consideration of $207 million (US$192
million) and securities valued at $34 million (US$32 million), for a total of
$241 million (US$224 million). In addition, our non-USRMM contracts with this
counterparty were transferred to a newly created and capitalized entity. This
commutation and restructuring activity resulted in a pre-tax gain of $163
million (US$152 million) and a significant reduction in the gross receivable
and CVA. The underlying USRMM exposures that became unhedged subsequent to the
commutation, are written credit derivatives with a notional $1,923 million
(US$1,785 million) and a fair value of $1,690 million (US$1,568 million) and a
security with a notional of $779 million (US$723 million) and a fair value of
$78 million (US$72 million).
As a result of the commutation, we are considered the primary beneficiary
of certain third-party structured CDOs and are therefore required to
consolidate them. The consolidation resulted in $621 million of mortgages and
asset-backed securities, $428 million of FVO deposits and related interest
rate derivatives with a negative MTM of $193 million, being recognized in the
consolidated balance sheet as at July 31, 2009. Only our direct investments
and exposures through written credit derivatives to these CDOs are included in
the total exposures table on page 12 and the accompanying discussions.
Other changes in exposures
In addition to the termination of the $5.3 billion (US$4.3 billion) of
written credit derivatives and $274 million (US$226 million) of normal
amortization of our purchased credit derivatives in the first and second
quarters, we undertook a number of transactions during the current quarter to
further reduce our exposures, noted below:- We terminated $2.8 billion (US$2.6 billion) of written credit
derivatives in the correlation book resulting in a pre-tax gain of
$8 million (US$8 million). Subsequent to this transaction,
US$2.6 billion of purchased credit derivatives that previously hedged
these positions became unmatched;
- We terminated $494 million (US$452 million) of written credit
derivatives with exposures to commercial mortgage backed securities
resulting in a pre-tax gain of $49 million (US$45 million).
Subsequent to this transaction, US$452 million of purchased credit
derivatives that previously hedged these positions became unmatched;
and
- Normal amortization reduced the notional of our purchased credit
derivatives with financial guarantors by $215 million
(US$200 million).Total exposures
The exposures held within our structured credit run-off business within
Wholesale Banking are summarized in the table below. The table below excludes
the Cerberus protection on our USRMM exposures.-------------------------------------------------------------------------
US$ millions, as at July 31, 2009
-------------------------------------------------------------------------
Exposures(1)
-------------------------------------------------------------------------
Investments & loans(2) Written credit
derivatives
and liquidity and
credit facilities(3)
---------------------------------- ----------------------
Fair Carrying Fair
Notional value value Notional value(5)
---------------------------------------------------------
Hedged
USRMM
-----
Other CDO $ 527 $ 35 $ 35 $ 489 $ 449
-------------------------------------------------------------------------
527 35 35 489 449
Non-USRMM
---------
CLO 210 186 186 7,834 760
CLO HTM(7) 5,726 4,869 5,155 - -
Corporate debt - - - 9,739 462
Corporate debt
(Unmatched)
CMBS - - - 2 2
CMBS
(Unmatched)
Others 241 59 59 1,646 676
Others HTM(8) 707 263 442 - -
Other
unmatched
purchased
credit
derivatives - - - - -
-------------------------------------------------------------------------
Total Hedged $ 7,411 $ 5,412 $ 5,877 $ 19,710 $ 2,349
-------------------------------------------------------------------------
Unhedged
USRMM(9)
--------
Super senior
CDO of
mezzanine
RMBS $ 1,174 $ 73 $ 73 $ 2,331 $ 2,109
Warehouse -
RMBS 281 1 1 - -
Various 342 1 1 343 317
-------------------------------------------------------------------------
1,797 75 75 2,674 2,426
Non-USRMM
---------
CLO 67 1 1 94 9
CLO HTM 209 187 199 - -
Corporate
debt 189 125 125 - -
Montreal
Accord
related
notes(3)(10) 410 199 199 278 n/a
Third party
sponsored
ABCP
conduits(3) 131 131 131 106 n/a
Warehouse -
non-RMBS 155 1 1 - -
Others(3) 192 183 183 242 39
Others HTM 173 148 148 - -
-------------------------------------------------------------------------
Total Unhedged $ 3,323 $ 1,050 $ 1,062 $ 3,394 $ 2,474
-------------------------------------------------------------------------
Total $ 10,734 $ 6,462 $ 6,939 $ 23,104 $ 4,823
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 10,304 $ 6,430 $ 6,952 $ 30,931 $ 5,924
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
US$ millions, as at July 31, 2009
-------------------------------------------------------------------------
Hedged by Unhedged
----------------------------------------------
Purchased credit derivatives and index hedges USRMM
----------------------------------------------------------
Financial guarantors Others
---------------------- --------------------
Fair Fair Net
Notional value(4)(5) Notional value(4)(5) exposure(6)
----------------------------------------------------------
Hedged
USRMM
-----
Other CDO $ 597 $ 527 $ 419 $ 412
-------------------------------------------------------------
597 527 419 412
Non-USRMM
---------
CLO 7,790 765 255 30
CLO HTM(7) 5,521 566 228 27
Corporate debt 2,559 159 7,184 314
Corporate debt
(Unmatched) 4,400 95
CMBS 2 2 - -
CMBS
(Unmatched) 775 642
Others 1,471 808 471 57
Others HTM(8) 709 455 - -
Other
unmatched
purchased
credit
derivatives - - 42 -
-------------------------------------------------------------
Total Hedged $ 23,824 $ 4,019 $ 8,599 $ 840
-------------------------------------------------------------
Unhedged
USRMM(9)
--------
Super senior
CDO of
mezzanine
RMBS $ - $ - $ - $ - $ 295
Warehouse -
RMBS - - - - 1
Various - - - - 27
-------------------------------------------------------------------------
- - - - $ 323
Non-USRMM
---------
CLO - - - -
CLO HTM - - - -
Corporate
debt - - - -
Montreal
Accord
related
notes(3)(10) - - - -
Third party
sponsored
ABCP
conduits(3) - - - -
Warehouse -
non-RMBS - - - -
Others(3) - - - -
Others HTM - - - -
-------------------------------------------------------------
Total Unhedged $ - $ - $ - $ -
-------------------------------------------------------------
Total $ 23,824 $ 4,019 $ 8,599 $ 840
-------------------------------------------------------------
-------------------------------------------------------------
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$2,134 million with fair
value of US$2,125 million in debt securities issued by Federal
National Mortgage Association (Fannie Mae) (notional US$1,107
million, fair value US$1,102 million), Federal Home Loan Mortgage
Corporation (Freddie Mac) (notional US$259 million, fair value
US$254 million), Government National Mortgage Association (Ginnie
Mae) (notional US$118 million, fair value US$119 million), Federal
Home Loan Banks (notional US$550 million, fair value US$550
million), and Federal Farm Credit Bank (notional US$100 million,
fair value US$100 million).
(2) Excludes equity and surplus notes that we obtained in consideration
for commutation of our USRMM contracts with financial guarantors
with notional $261 million and fair value $39 million, as at July
31, 2009.
(3) Liquidity and credit facilities to Montreal Accord related notes
amounted to US$278 million, third party non-bank sponsored ABCP
conduits amounted to US$106 million, and to unhedged other non-USRMM
amounted to US$37 million.
(4) Gross of CVA for purchased credit derivatives of US$2.3 billion.
(5) This is the gross fair value of the contracts, which were typically
zero, or close to zero, at the time they were entered into.
(6) After write-downs.
(7) Investments and loans include unfunded investment commitments with a
notional of US$275 million.
(8) Represents CDOs with TruPs collateral.
(9) As at July 31, 2009, the rating for the RMBS was non-investment
grade (based on market value).
(10) Includes estimated USRMM exposure of $110 million as at July 31,
2009.
n/a Not applicable.Purchased protection from financial guarantors (USRMM and non-USRMM)
The total CVA charge for financial guarantors was $148 million (US$125
million) for the current quarter ($1,441 million (US$1,145 million) for nine
months ended July 31, 2009). As at July 31, 2009, CVA on credit derivative
contracts with financial guarantors was $2.5 billion (US$2.3 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 $1.8 billion (US$1.7 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, in our other run-off portfolios, we also have loans and
tranched securities positions that are partly secured by direct guarantees
from financial guarantors or by bonds guaranteed by financial guarantors. As
at July 31, 2009, these positions were performing and the total amount
guaranteed by financial guarantors was approximately $82 million (US$76
million).
The following table presents the notional amounts and fair values of
purchased protection from financial guarantors by counterparty. The fair value
net of valuation adjustments is included in derivative instruments in other
assets on the consolidated balance sheet.-------------------------------------------------------------------------
US$ millions, as at July 31, 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(2) -(4) $ 70 $ 37 $ (26)
II CC(3) Caa2(3) -(4) 527 490 (342)
III(6) CC(2) Ba3(3) -(4) - - -
IV -(4) Caa3(2) -(4) - - -
V(5) -(4) -(4) -(4) - - -
VI A(2) Ba1 AA(2) - - -
VII AAA(2) Aa2(2) AA(2) - - -
VIII AAA(2) Aa3(2) AA+(2) - - -
IX BBB-(2) Ba1 -(4) - - -
-------------------------------------------------------------------------
Total
financial
guarantors $ 597 $ 527 $ (368)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31,
2008 $ 3,786 $ 3,086 $ (2,260)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
US$ millions, as at
July 31, 2009 Non-USRMM Total
------------------------------- ---------------------
Fair
Counter- Fair value
party Notional value(1) CVA Notional less CVA
-------------------------------------------------------------------------
I(5) $ 1,558 $ 804 $ (560) $ 1,628 $ 255
II 1,692 549 (384) 2,219 313
III(6) 1,464 211 (150) 1,464 61
IV 2,157 233 (196) 2,157 37
V(5) 2,640 285 (77) 2,640 208
VI 5,200 204 (66) 5,200 138
VII 4,866 669 (258) 4,866 411
VIII 1,427 235 (107) 1,427 128
IX 2,223 302 (142) 2,223 160
-------------------------------------------------------------------------
Total
financial
guarantors $ 23,227 $ 3,492 $ (1,940) $ 23,824 $ 1,711
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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) Counterparties I and V were restructured in February and July 2009,
respectively, with part of its businesses transferred to new
entities.
(6) Counterparty III was restructured in January 2009.
The referenced assets underlying the protection purchased from financial
guarantors are as follows:
-------------------------------------------------------------------------
US$ millions, USRMM
as at related Non-USRMM related
July 31, --------- -------------------------------------------------
2009 Notional Notional
------------- --------- -------------------------------------------------
Corporate
Counterparty CDO CLO debt CMBS Others Total
-------------------------------------------------------------------------
I $ 70 $ 584 $ - $ 777(1) $ 197 $ 1,558
II 527 873 - - 819 1,692
III - 1,341 - - 123 1,464
IV - 1,885 - - 272 2,157
V - 2,640 - - - 2,640
VI - - 5,200(1) - - 5,200
VII - 4,616 - - 250 4,866
VIII - 1,297 - - 130 1,427
IX - 75 1,759 - 389 2,223
-------------------------------------------------------------------------
Total
financial
guarantors $ 597 $ 13,311 $ 6,959 $ 777 $ 2,180 $ 23,227
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31,
2008 $ 3,786 $ 13,125 $ 6,959 $ 777 $ 2,461 $ 23,322
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes US$4.4 billion and US$775 million of unmatched purchase
protection related to corporate debt and CMBS respectively.
USRMMOur USRMM related positions of notional $643 million (US$597 million)
hedged by financial guarantors comprise super senior CDOs with underlyings
being approximately 35% sub-prime RMBS, 43% Alt-A RMBS, 15% asset-backed
securities (ABS) CDO and 7% non-USRMM. Sub-prime and Alt-A underlyings consist
of approximately 42% pre-2006 vintage as well as 58% 2006 and 2007 vintage
RMBS. Sub-prime exposures are defined as having Fair Isaac Corporation (FICO)
scores less than 660; and Alt-A underlyings are defined as those exposures
that have FICO scores of 720 or below, but greater than 660.
Non-USRMM
The following provides further data and description of the non-USRMM
referenced assets underlying the protection purchased from financial
guarantors:-------------------------------------------------------------------------
Fair
US$ value
millions, of pur- Total Notional/ Fair value/
as at chased tran- tranche tranche
July 31, protec- ches ----------------- -----------------
2009 Notional tion (1) High Low High Low
-------------------------------------------------------------------------
CLO
(includes
HTM) $13,311 $ 1,331 82 $ 375 $ 22 $ 56 $ 2
Corporate
debt 2,559 159 5 800 259 109 9
Corporate
debt
(Unmatched) 4,400 95 6 800 400 45 4
U.S. CMBS 2 2 - 1 1 1 1
U.S. CMBS
(Unmatched) 775 642 2 452 323 361 281
Others
TruPs
(inclu-
des HTM) 803 522 12 128 24 88 16
Non-US
RMBS 166 89 3 73 30 39 16
Other 1,211 652 9 263 5 226 -
-------------------------------------------------------------------------
Total $23,227 $ 3,492 119 $ 2,892 $ 1,064 $ 925 $ 329
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------
Weighted
US$ average
millions, life Subordination/
as at (WAL) attachment(4) Detachment(5)
July 31, in years ----------------- -----------------
2009 (2)(3) Average Range Average Range
-------------------------------------------------------
CLO
(includes
HTM) 4.6 31% 6-67% 99% 50-100%
Corporate
debt 4.3 24% 15-30% 48% 30-60%
Corporate
debt
(Unmatched) 2.5 16% 15-20% 39% 30-45%
U.S. CMBS 5.4 44% 43-46% 100% 100%
U.S. CMBS
(Unmatched) 5.4 44% 43-46% 100% 100%
Others
TruPs
(inclu-
des HTM) 15.0 49% 45-57% 100% 100%
Non-US
RMBS 2.9 53% 53% 100% 100%
Other 6.8 20% 0-53% 100% 100%
-------------------------------------------------------
-------------------------------------------------------
(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) Subordination/attachment points are the level of losses which can
be sustained on the collateral underlying the reference assets
without those losses impacting the tranches shown above.
(5) The detachment points are the level of losses on the collateral
underlying the reference assets at which point any further losses
cease to impact the tranches shown above.CLO
The CLO underlyings consist of 82 tranches. Approximately 99% of the
total notional amount of the CLO tranches was rated equivalent to AAA with the
remainder rated equivalent to AA, at July 31, 2009. Approximately 2% of the
underlying collateral was rated equivalent to BBB- or higher and 57% of the
underlying collateral was rated equivalent to between B- and B+, at July 31,
2009. The collateral comprise assets in a wide range of industries with the
highest concentration in the services (personal and food) industry (29%); the
broadcasting, publishing and telecommunication sector (17%); and the
manufacturing sector (14%). Only 3% is in the real estate sector.
Approximately 65% and 32% 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 11%, retail and wholesale 9%).
Approximately 66% of the total notional amount of US$6.9 billion of the
corporate debt underlyings were rated equivalent to BBB- or higher with the
remainder rated equivalent to BB+ or lower, at July 31, 2009.
CMBS
The two synthetic tranches reference CMBS portfolios which are backed by
pools of commercial real estate mortgages located primarily in the U.S.
Approximately 27% of the underlyings continue to be rated equivalent to BBB-
or higher with the remainder rated equivalent to BB+ or lower, at July 31,
2009.
Others
Others are CDOs with TruPs collateral, 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, railcar leases and film receivables.
Purchased protection from other counterparties
The following table provides the notional amounts and fair values (before
CVA of US$16 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 $ 419 $ 412 $ 101 $ 8
Banks - - 851 106
Canadian conduits - - 7,184 314
Others - - 2 -
-------------------------------------------------------------------------
Total $ 419 $ 412 $ 8,138 $ 428
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total
---------------------------------------
Notional Fair value
------------------- -------------------
2009 2009 2009 2009
US$ millions, as at Jul. 31 Apr. 30 Jul. 31 Apr. 30
-------------------------------------------------------------------------
Non-bank financial institutions $ 520 $ 561 $ 420 $ 441
Banks 851 810 106 121
Canadian conduits 7,184 6,740 314 416
Others 2 2 - -
-------------------------------------------------------------------------
Total $ 8,557 $ 8,113 $ 840 $ 978
-------------------------------------------------------------------------
-------------------------------------------------------------------------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 Corporate
July 31, 2009 CDO(1) CLO(2) debt Other(3)
-------------------------------------------------------------------------
Non-bank financial institutions $ 419 $ - $ - $ 101
Banks - 483 - 368
Canadian conduits - - 7,184 -
Others - - - 2
-------------------------------------------------------------------------
Total $ 419 $ 483 $ 7,184 $ 471
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The US$419 million represents super senior CDO with approximately 71%
sub-prime RMBS, 3% Alt-A RMBS, 13% ABS CDO, and 13% non-USRMM.
Sub-prime and Alt-A are all pre-2006 vintage.
(2) All underlyings are non-investment grade. 5% is North American
exposure and 95% is European exposure. Major industry concentration
is in the services industry (40%), the manufacturing sector (18%),
the broadcasting and communication industries (14%), and only 3% is
in the real estate sector.
(3) Approximately 64% of the underlyings are investment grade or
equivalent with the majority of the exposure located in the U.S. and
Europe. The industry concentration is primarily banking and finance,
manufacturing, broadcasting, publishing and telecommunication and
mining, oil and gas, with less than 3% in the real estate sector.Canadian conduits
We purchased credit derivative protection from Canadian conduits and
generated revenue by selling the same protection onto third parties. The
reference portfolios consist of diversified indices of corporate loans and
bonds. These conduits are in compliance with their collateral posting
arrangements and have posted collateral exceeding current market exposure.
Great North Trust, is sponsored by CIBC and the remaining conduit
counterparty, MAV I was party to the Montreal Accord.-------------------------------------------------------------------------
Mark-to- Collateral
US$ millions, market and
as at July (before guarantee
31, 2009 Underlying Notional(1) CVA) notionals(2)
-------------------------------------------------------------------------
Conduits
--------
Great North Trust Investment grade
corporate
credit index(3) $ 4,586 $ 247 $ 278(4)
MAV I 160 Investment
grade
corporates(5) 2,598 67 327
-------------------------------------------------------------------------
Total $ 7,184 $ 314 $ 605
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, banker's acceptances, and
funding commitments. The fair value of the collateral at July 31,
2009 was US$561 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. 80% of the entities are rated BBB- or higher. 98% 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) The value of funding commitments (with indemnities) from certain
third party investors in Great North Trust was $ nil as at July 31,
2009 (October 31, 2008:US$219 million).
(5) These transactions were transferred from Nemertes I and Nemertes II
trusts to MAV I and MAV II (before being unwound in March 2009) upon
the restructuring under the Montreal Accord. The underlying portfolio
consists of a static portfolio of 160 corporate reference entities of
which 91.3% were investment grade on the trade date. 83.1% of the
entities are currently rated BBB- or higher (investment grade). 54%
of the entities are U.S. entities. Financial guarantors represent
approximately 2.5% of the portfolio. 1.88% 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.Unhedged USRMM exposures
Our remaining unhedged exposure (excluding the Cerberus protection) to
the USRMM, after write-downs, was $348 million (US$323million) as at July 31,
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 $399 million
(US$370 million) are mostly tranches rated AAA as at July 31, 2009, and are
backed by diversified pools of European-based senior secured leveraged loans.
Corporate debt
Approximately 20%, 55% and 25% of the unhedged corporate debt exposures
with notional of $204 million (US$189 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 $110 million as at July 31, 2009. In the current quarter, $6 million of the
tracking notes were paid down at par. As at July 31, 2009, the remaining
notional amount on all the notes was $442 million (US$410 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 $214 million combined fair value of the
notes as at July 31, 2009, we recorded a gain of $39 million during the
current quarter ($5 million loss for the nine months ended July 31, 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 July 31, 2009, $255 million (US$237
million) of the facilities remained committed. Of this amount, $53 million
(US$51 million), which remained undrawn as at July 31, 2009, was provided to a
conduit, with U.S. auto loan assets, sponsored by a U.S. based auto
manufacturer.
The remaining $200 million (US$186 million) primarily relates to U.S.
CDOs, of which $141 million (US$131 million) was drawn as at July 31, 2009.
$39 million (US$36 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 $167 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 $468 million (US$434 million)
include $213 million (US$197 million) credit facilities (drawn US$160 million
and undrawn US$37 million) provided to SPEs with film rights receivables
(27%), lottery receivables (22%), and U.S. mortgage defeasance loans (51%).
The remaining $255 million (US$237 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 $186 million (US$173
million) relate to collateral received from the unwinding of MAV II and
primarily represent investment grade commercial paper.
Leveraged finance business
We provided leveraged finance to non-investment grade customers to
facilitate their buyout, acquisition and restructuring activities. We
generally underwrote leveraged financial loans and syndicated the majority of
the loans, earning a fee during the process.
In the prior fiscal year we sold our U.S. leveraged finance business as
part of our sale of some of our U.S. businesses to Oppenheimer and stopped
transacting new business in European leveraged finance (ELF).
As with the structured credit run-off business, the risk in the ELF
run-off business is monitored by a team focused on proactively managing all
accounts in the portfolio. As at July 31, 2009, we have drawn leveraged loans
of $907 million (October 31, 2008: $935 million) of which $113 million
(October 31, 2008: Nil) is considered impaired, and unfunded letters of
credits and commitments of $155 million (October 31, 2008: $210 million).
During the quarter we recognized provisions for credit losses of $65
million on the impaired loans. In addition, non-impaired loans and commitments
with a face value of $466 million were added to the watch list as a result of
deteriorating credit conditions.
Exposures of ELF loans (net of write-downs and allowance for credit
losses) by industry are as below:-------------------------------------------------------------------------
$ millions, as at July 31, 2009 Drawn Undrawn
-------------------------------------------------------------------------
Publishing and printing $ 45 $ -
Telecommunications 13 14
Manufacturing 282 51
Business services 19 16
Hardware and software 238 23
Transportation 16 8
Wholesale trade 229 43
-------------------------------------------------------------------------
Total $ 842 $ 155
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 remaining underlying
loan consists of five 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 $136
million (US$126 million). Of this total portfolio, $28 million (US$26 million)
is loan related and backed by $17 million (US$16 million) of cash collateral.
The remaining hedge fund exposures are subject to net asset value tests which
determine margin requirements keeping total assets available at 133% of
notional. The table below summarizes the notional value of our positions in
the portfolio:-------------------------------------------------------------------------
US$ millions, as at July 31, 2009 Notional
-------------------------------------------------------------------------
Loans $ 26
Hedge Funds 100
-------------------------------------------------------------------------
Total $ 126
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 $3 million for the quarter ($16 million for nine months
ended July 31, 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 July 31, 2009, our holdings of ABCP issued by our non-consolidated
sponsored conduits that offer ABCP to external investors was $453 million
(October 31, 2008: $729 million) and our committed backstop liquidity
facilities to these conduits was $4.6 billion (October 31, 2008: $8.7
billion). We also provided credit facilities (undrawn) of $40 million (October
31, 2008: $70 million) and banker's acceptances of $70 million (October 31,
2008: $76 million) to these conduits as at July 31, 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 July 31, 2009 Amount(1) (years)
-------------------------------------------------------------------------
Asset class
Canadian residential mortgages $ 1,454 1.8
Auto leases 907 0.9
Franchise loans 719 0.7
Auto loans 189 0.8
Credit cards 975 3.6(2)
Equipment leases/loans 163 1.1
Other 6 1.2
-------------------------------------------------------------------------
Total $ 4,413 1.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 8,440 1.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) 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.
(2) Based on the revolving period and amortization period contemplated in
the transaction.The short-term notes issued by the conduits are backed by the above
assets. The performance of the above assets has met the criteria required to
retain the credit ratings of the notes issued by the multi-seller conduits.
$151 million of the $1,454 million Canadian residential mortgages relates
to amounts securitized by the subsidiary of the finance arm of a U.S. auto
manufacturer.
Of the $907 million relating to auto leases, $290 million relates to
balances originated by Canadian fleet leasing companies and the remaining
relates to non-North American auto manufacturers.
Of the $189 million relating to auto loans, approximately $40 million
relates to balances originated by the finance arms of two U.S. auto
manufacturers 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
second quarter, MACRO Trust acquired auto lease receivables from one of our
multi-seller conduits. The consolidation of the conduit resulted in $111
million of dealer floorplan receivables, $372 million of auto leases, and $13
million of medium term notes backed by Canadian residential mortgages being
recognized in the consolidated balance sheet as at July 31, 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.
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 July 31, 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 July 31, 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 recorded provisions for credit losses of $42
million (US$39 million).
The following table provides a summary of our positions in this business
as at July 31, 2009:-------------------------------------------------------------------------
Unfunded Funded
US$ millions, as at July 31, 2009 commitments loans
-------------------------------------------------------------------------
Construction program $ 74 $ 384
Interim program 194 1,774
Commercial fixed rate mortgages - -
-------------------------------------------------------------------------
Total $ 268 $ 2,158
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 July 31, 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 $37 million from derivatives transactions with these
counterparties.-------------------------------------------------------------------------
Undrawn
credit
$ millions, as at July 31, 2009 Loans(2) commitments
-------------------------------------------------------------------------
Finance arms associated with
the U.S. auto manufacturers(1) $ 162 $ 1
Motor vehicle parts suppliers and wholesalers 85 305
Canadian automobile dealers 443 549
-------------------------------------------------------------------------
Total $ 690 $ 855
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct. 31, 2008 $ 819 $ 865
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) $109 million of the finance arms' exposure is economically hedged
with credit derivatives in our corporate loan hedging programs.
(2) Includes impaired loans of $3 million, $1 million net of allowances
as at July 31, 2009 (Impaired loans of $9 million, $6 million net of
allowances as at October 31, 2008).
FINANCIAL PERFORMANCE REVIEW
----------------------------------------------------- -------------------
For the three For the nine
months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Net interest income $ 1,369 $ 1,273 $ 1,327 $ 3,975 $ 3,830
Non-interest income
(loss) 1,488 888 578 3,065 (2,320)
----------------------------------------------------- -------------------
Total revenue 2,857 2,161 1,905 7,040 1,510
Provision for credit
losses 547 394 203 1,225 551
Non-interest expenses 1,699 1,639 1,725 4,991 5,274
----------------------------------------------------- -------------------
Income (loss) before
taxes and non-
controlling interests 611 128 (23) 824 (4,315)
Income tax expense
(benefit) 172 174 (101) 279 (1,834)
Non-controlling
interests 5 5 7 15 15
----------------------------------------------------- -------------------
Net income (loss) $ 434 $ (51) $ 71 $ 530 $ (2,496)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------Net interest income
Net interest income was up $42 million or 3% from the same quarter last
year, mainly due to volume growth in most personal banking products and higher
interest income from corporate credit products, partially offset by spread
compression on retail products and lower treasury revenue. The last year
quarter included interest expense related to leveraged leases.
Net interest income was up $96 million or 8% from the prior quarter,
primarily due to the impact of three more days, wider spreads on personal
banking products and volume growth on retail products. The current quarter
also included interest income on tax reassessments.
Net interest income for the nine months ended July 31, 2009 was up $145
million or 4% from the same period in 2008, mainly due to volume growth in
most personal banking products and higher interest income from corporate
credit products and U.S. real estate finance. These factors were offset in
part by lower treasury revenue and spread compression on retail products.
Non-interest income
Non-interest income was up $910 million from the same quarter last year,
primarily due to gains in the structured credit run-off business compared to
losses in the last year quarter. The current quarter also benefited from
higher AFS securities gains and a decrease in CVA on counterparties other than
financial guarantors. The last year quarter included a gain on sale of Visa
Inc. shares. These factors were partially offset by the negative impact of the
MTM of credit derivatives in our corporate loan hedging programs, compared to
a positive impact in the last year quarter, lower wealth management related
fee income, and valuation charges on certain AFS positions in our run-off
businesses.
Non-interest income was up $600 million from the prior quarter, primarily
due to gains in the structured credit run-off business compared to losses in
the prior quarter. The current quarter also benefited from lower valuation
charges related to certain AFS and trading positions in run-off and exited
businesses, lower write-downs in the merchant banking portfolios, decrease in
CVA on other than financial guarantors, and higher wealth management related
fee income. These factors were partially offset by lower AFS securities gains.
The prior quarter benefited from a foreign exchange gain on repatriation
activities.
Non-interest income for the nine months ended July 31, 2009 was up $5,385
million from the same period in 2008, primarily due to lower structured credit
losses, and higher AFS securities gains of $285 million. The foreign exchange
gain on repatriation activities compared to a foreign exchange loss in the
prior period, 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, higher
write-downs in the merchant banking portfolio, increased valuation charges on
certain trading and AFS positions in exited and run-off businesses, and higher
MTM losses relating to interest-rate hedges for the leveraged lease portfolio
that did not qualify for hedge accounting.
Provision for credit losses
Provision for credit losses was up $344 million from the same quarter
last year, $153 million or 39% from the prior quarter and $674 million or 122%
for the nine months ended July 31, 2009 compared with the same period last
year.
Provision for credit losses in consumer portfolios was up $137 million
from the same quarter last year, and $32 million from the prior quarter, while
the nine month year to date provision was up $346 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 $166 million from the same quarter last year and by $144 million from the
prior quarter, while the provision for the nine months ended July 31, 2009,
was up $188 million from the same period last year. The increase was primarily
due to higher losses in the run-off and U.S. real estate finance businesses.
In addition, the general allowance increased by $42 million in the
current quarter and $144 million for the nine months ended July 31, 2009
primarily related to credit cards and large corporate lending due to the
difficult economic environment.
Non-interest expenses
Non-interest expenses were down $26 million or 2% from the same quarter
last year, primarily due to lower salaries, benefits, commissions, and
advertising expenses, partially offset by higher performance-related expenses
and a higher litigation provision.
Non-interest expenses were up $60 million or 4% from the prior quarter,
primarily due to a higher litigation provision, salaries, benefits and
commissions, computer and office equipment, and professional fees, partially
offset by lower performance-related expenses, advertising and occupancy
expenses. The prior quarter benefited from three fewer days.
Non-interest expenses for the nine months ended July 31, 2009 were down
$283 million or 5% from the same period in 2008, primarily due to lower
salaries, benefits and commissions, computer and office equipment,
professional fees, and advertising expenses, partially offset by higher
performance-related expenses.
Income taxes
Income tax expense was $172 million, compared to a benefit of $101
million in the same quarter last year. The primary reason for this change was
the tax impact of the increased income in the current quarter.
Income tax expense was $172 million compared to an expense of $174
million in the prior quarter. Despite lower income, the prior 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 statutory tax rates.
Income tax expense was $279 million for the nine months ended July 31,
2009 compared to an income tax benefit of $1,834 million in the same period
last year. The primary reason for this change was the tax impact of the
increased income in the current period.
At the end of the quarter, our future income tax asset was $1,853
million, net of a US$57 million ($61 million) valuation allowance. Included in
the future income tax asset are $1,242 million related to Canadian non-capital
loss carryforwards that expire in 20 years, $68 million related to Canadian
capital loss carryforwards that have no expiry date, and $342 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.
On August 5, 2009 Canada Revenue Agency (CRA) issued draft reassessments
proposing to disallow the deduction of the 2005 Enron settlement payments of
approximately $3 billion. Once reassessed, we intend to commence legal
proceedings to defend our tax filing position. We believe that we will be
successful in sustaining at least the amount of the accounting tax benefit
recognized to date. Should we successfully defend our tax filing position in
its entirety, we would be able to recognize an additional accounting tax
benefit of $214 million and refund interest thereon. Should we fail to defend
our position in its entirety, additional tax expense of approximately $826
million plus interest thereon would be incurred.
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 July 31, 2009. If
substantively 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 10%
on average relative to the U.S. dollar from the same quarter last year,
resulting in a $12 million increase in the translated value of our U.S. dollar
earnings.
The Canadian dollar appreciated 11% on average relative to the U.S.
dollar from the prior quarter, resulting in a $15 million decrease in the
translated value of our U.S. dollar earnings.
The Canadian dollar depreciated 19% on average relative to the U.S.
dollar for the nine months ended July 31, 2009 from the same period in 2008,
resulting in a $48 million increase in the translated value of our U.S. dollar
earnings.Review of quarterly financial information
-------------------------------------------------------------------------
$ millions, except per 2009 2008
share amounts, for the --------------------------------------------
three months ended Jul. 31 Apr. 30 Jan. 31 Oct. 31
-------------------------------------------------------------------------
Revenue
CIBC Retail Markets $ 2,339 $ 2,251 $ 2,413 $ 2,361
Wholesale Banking 531 (241) (368) (318)
Corporate and Other (13) 151 (23) 161
-------------------------------------------------------------------------
Total revenue 2,857 2,161 2,022 2,204
Provision for credit losses 547 394 284 222
Non-interest expenses 1,699 1,639 1,653 1,927
-------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests 611 128 85 55
Income tax expense (benefit) 172 174 (67) (384)
Non-controlling interests 5 5 5 3
-------------------------------------------------------------------------
Net income (loss) $ 434 $ (51) $ 147 $ 436
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
- basic $ 1.02 $ (0.24) $ 0.29 $ 1.07
- diluted(1) $ 1.02 $ (0.24) $ 0.29 $ 1.06
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ millions, except per 2008 2007
share amounts, for the --------------------------------------------
three months ended Jul. 31 Apr. 30 Jan. 31 Oct. 31
-------------------------------------------------------------------------
Revenue
CIBC Retail Markets $ 2,371 $ 2,278 $ 2,409 $ 2,855
Wholesale Banking (598) (2,166) (2,957) 5
Corporate and Other 132 14 27 86
-------------------------------------------------------------------------
Total revenue 1,905 126 (521) 2,946
Provision for credit losses 203 176 172 132
Non-interest expenses 1,725 1,788 1,761 1,874
-------------------------------------------------------------------------
Income (loss) before taxes and
non-controlling interests (23) (1,838) (2,454) 940
Income tax expense (benefit) (101) (731) (1,002) 45
Non-controlling interests 7 4 4 11
-------------------------------------------------------------------------
Net income (loss) $ 71 $ (1,111) $ (1,456) $ 884
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
- basic $ 0.11 $ (3.00) $ (4.39) $ 2.55
- diluted(1) $ 0.11 $ (3.00) $ (4.39) $ 2.53
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 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 and personal lending
portfolios. 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. Wholesale Banking
provisions trended higher in recent quarters, reflective of the recessions in
the U.S. and Europe. There was an increase in general allowance in all
quarters of 2009.
Performance-related compensation has been lower since 2007. The net
reversal of litigation accruals also led to lower expenses in the fourth
quarter 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 quarter 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 net reversal of litigation accruals and
the gain recorded on the Visa restructuring. 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 nine
months ended months ended
----------------------------- -------------------
$ millions, except 2009 2009 2008 2009 2008
per share amounts Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Net interest income $ 1,369 $ 1,273 $ 1,327 $ 3,975 $ 3,830
Non-interest income 1,488 888 578 3,065 (2,320)
----------------------------------------------------- -------------------
Total revenue per
financial
statements A 2,857 2,161 1,905 7,040 1,510
TEB adjustment B 6 14 44 35 165
----------------------------------------------------- -------------------
Total revenue
(TEB)(1) C $ 2,863 $ 2,175 $ 1,949 $ 7,075 $ 1,675
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Non-interest
expenses per
financial
statements D $ 1,699 $ 1,639 $ 1,725 $ 4,991 $ 5,274
Less: amortization
of other
intangible assets 10 12 11 33 31
----------------------------------------------------- -------------------
Cash non-interest
expenses(1) E $ 1,689 $ 1,627 $ 1,714 $ 4,958 $ 5,243
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Income (loss)
before taxes and
non-controlling
interests per
financial
statements F $ 611 $ 128 $ (23) $ 824 $ (4,315)
TEB adjustment B 6 14 44 35 165
----------------------------------------------------- -------------------
Income (loss)
before taxes and
non-controlling
interests (TEB)(1) G $ 617 $ 142 $ 21 $ 859 $ (4,150)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Net (loss) income
applicable to
common shares K $ 390 $ (90) $ 41 $ 411 $ (2,586)
Add: after-tax
effect of
amortization of
other intangible
assets 7 9 8 25 24
----------------------------------------------------- -------------------
Cash net income
(loss) applicable
to common
shares(1) L $ 397 $ (81) $ 49 $ 436 $ (2,562)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Basic weighted-
average common
shares (thousands) M 381,584 381,410 380,877 381,300 366,686
Diluted weighted-
average common
shares (thousands) N 382,556 381,779 382,172 381,921 368,352
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Cash efficiency
ratio (TEB)(1) E/C 59.0% 74.9% 88.0% 70.1% n/m
Cash basic
earnings (loss)
per share(1) L/M $ 1.04 $ (0.21) $ 0.13 $ 1.14 $ (6.99)
Cash diluted
earnings (loss)
per share(1)(2) L/N $ 1.04 $ (0.21) $ 0.13 $ 1.14 $ (6.99)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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.Business unit allocations
Treasury activities impact the reported financial results of CIBC's
strategic business units (CIBC Retail Markets and Wholesale Banking).
Each business line is charged or credited with a market-based cost of
funds on assets and liabilities, respectively, and this impacts the revenue
performance of the business units. Once the interest and liquidity risk
inherent in our customer-driven assets and liabilities is transfer priced into
Treasury, it is managed within CIBC's risk framework and limits. The majority
of the revenue from these Treasury activities is then allocated to the "Other"
business line within CIBC Retail Markets and Wholesale Banking.
Treasury also allocates capital to the business units in a manner that is
intended to consistently measure and align economic costs with the underlying
benefits and risks associated with business unit activities. Earnings on
unallocated capital and the impact of securitization activities remain in
Corporate and Other.
In addition, non-interest expenses are attributed to the business unit to
which they relate. Indirect expenses are allocated to the business units based
on appropriate criteria.
We review our transfer pricing and treasury allocations methodologies on
an ongoing basis to ensure they reflect changing market environments and
industry practices. We made certain modifications to our allocation
methodologies during the quarter to better reflect product and business
funding costs and observed client behaviour in the current environment. The
modifications resulted in an increase in the revenue of CIBC Retail Markets
and a corresponding decrease in the revenue of Wholesale Banking, including
the structured credit run-off business, and Corporate and Other. Including
these modifications, total treasury allocations to Retail Markets in the
current quarter were in line with the prior quarter and the same quarter last
year, and total treasury allocations to Wholesale Banking, including the
structured credit run-off business, in the current quarter were lower compared
with the prior quarter and the same quarter last year. The modifications were
applied on a prospective basis and prior period information has not been
restated.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 nine
months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Revenue
Personal banking $ 1,518 $ 1,398 $ 1,478 $ 4,370 $ 4,295
Business banking 343 312 340 985 1,020
Wealth management 318 297 393 938 1,169
FirstCaribbean 169 204 165 553 413
Other (9) 40 (5) 157 161
----------------------------------------------------- -------------------
Total revenue (a) 2,339 2,251 2,371 7,003 7,058
Provision for
credit losses 423 366 224 1,105 633
Non-interest expenses (b) 1,324 1,304 1,377 3,933 4,110
----------------------------------------------------- -------------------
Income before taxes and
non-controlling
interests 592 581 770 1,965 2,315
Income tax expense 171 161 198 552 574
Non-controlling
interests 5 5 7 15 13
----------------------------------------------------- -------------------
Net income (c) $ 416 $ 415 $ 565 $ 1,398 $ 1,728
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Efficiency ratio (b/a) 56.6% 57.9% 58.1% 56.2% 58.2%
Amortization of other
intangible assets (d) $ 8 $ 9 $ 8 $ 25 $ 23
Cash efficiency ratio(2)
((b-d)/a) 56.3% 57.6% 57.8% 55.8% 57.9%
ROE(2) 33.2% 34.1% 45.0% 37.5% 46.9%
Charge for economic
capital(2) (e) $ (170) $ (166) $ (163) $ (504) $ (472)
Economic profit(2)
(c+e) $ 246 $ 249 $ 402 $ 894 $ 1,256
Full time equivalent
employees 29,331 29,241 30,060 29,331 30,060
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.Financial overview
Net income for the quarter was $416 million, a decrease of $149 million
or 26% from the same quarter last year. These results continue to reflect the
difficult economic conditions which resulted in an increase in the provision
for credit losses and lower wealth management revenues. These declines were
partially offset by volume growth across most products and expense management
activities.
Net income was in line with the prior quarter as higher revenue was
offset by an increase in the provision for credit losses, and higher non-
interest expenses.
Net income for the nine months ended July 31, 2009 was $1,398 million, a
decrease of $330 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 up $40 million, with volume growth in most
products, particularly in deposits and secured lending, partially offset by
narrower spreads. 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 spreads on retail lending products. The last
year quarter included a gain on sale of VISA Inc. shares.
Business banking revenue was up $3 million, as improved customer rate
changes were offset by the impact of a lower interest rate environment.
Wealth management revenue was down $75 million, primarily due to lower
fee income as a result of a market- driven decline in asset values.
FirstCaribbean revenue was up $4 million, primarily due to the impact of
a weaker Canadian dollar and higher treasury allocations partially offset by
narrower spreads on most products.
Revenue was up $88 million or 4% from the prior quarter.
Personal banking revenue was up $120 million, primarily due to three more
days in the quarter, wider lending spreads and volume growth in most products.
Business banking revenue was up $31 million, primarily due to improved
customer rates, the impact of three more days, and higher treasury revenue
allocations, partially offset by the impact of a lower interest rate
environment.
Wealth management revenue was up $21 million, mainly due to higher fee
income as a result of a market- driven increase in asset values.
FirstCaribbean revenue was down $35 million, primarily due to a stronger
Canadian dollar, narrower spreads and lower gains on redemption of
subordinated debt.
Other revenue was down $49 million, mainly due to lower treasury revenue
allocations.
Revenue for the nine months ended July 31, 2009 was down $55 million or
1% from the same period in 2008.
Personal banking revenue was up $75 million, primarily due to volume
growth in most products, partially offset by narrower spreads driven by lower
prepayment penalty fees, and the declining interest rate environment.
Business banking revenue was down $35 million, mainly due to lower
spreads, partially offset by volume growth.
Wealth management revenue was down $231 million, mainly due to lower fee
income as a result of a decline in asset values due to market conditions.
FirstCaribbean revenue was up $140 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 $199 million or 89% from the same
quarter last year and included a net increase to the allowance for loan losses
of $63 million. The increase was largely attributed to the cards and personal
lending portfolios driven by higher delinquencies and bankruptcies related to
the general economic environment.
Provision for credit losses was up $57 million or 16% from the prior
quarter mainly due to an increase in bankruptcies in cards and higher
commercial banking delinquencies.
Provision for credit losses for the nine months ended July 31, 2009 was
up $472 million or 75% from the same period in 2008 and included a net
increase to the allowance for loan losses of $95 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 $53 million or 4% from the same quarter
last year. The decreases were primarily due to lower performance-related
compensation and expense management activities, offset in part by a weaker
Canadian dollar impacting FirstCaribbean and a higher litigation provision.
Non-interest expenses were up $20 million or 2% from the prior quarter.
The increase was primarily due to higher performance-related compensation and
a higher litigation provision, offset in part by lower communication expense
and a stronger Canadian dollar impacting FirstCaribbean.
Non-interest expenses for the nine months ended July 31, 2009 were down
$177 million or 4% from the same period in 2008. The decreases were primarily
due to lower performance-related compensation and also expense management
activities, offset in part by a weaker Canadian dollar impacting
FirstCaribbean.
Income taxes
Income taxes were down $27 million or 14% from the same quarter last year
and were down $22 million or 4% for the nine months ended July 31, 2009 from
the same period in 2008, mainly due to a decrease in income.
Income taxes were up $10 million or 6% from the prior quarter, primarily
due to an increase 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 second quarter, we changed the name of our
wholesale banking business from CIBC World Markets to Wholesale Banking.
Results(1)
----------------------------------------------------- -------------------
For the three For the nine
months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Revenue (TEB)(2)
Capital markets $ 325 $ 318 $ 209 $ 950 $ 627
Corporate and
investment banking 221 200 110 577 400
Other (9) (745) (873) (1,570) (6,583)
----------------------------------------------------- -------------------
Total revenue (TEB)(2) 537 (227) (554) (43) (5,556)
TEB adjustment 6 14 44 35 165
----------------------------------------------------- -------------------
Total revenue 531 (241) (598) (78) (5,721)
Provision for credit
losses 129 18 11 136 19
Non-interest expenses 258 247 266 772 975
----------------------------------------------------- -------------------
Income (loss) before
taxes and
non-controlling
interests 144 (506) (875) (986) (6,715)
Income tax expense
(benefit) 58 (152) (334) (325) (2,388)
Non-controlling
interests - - - - 2
----------------------------------------------------- -------------------
Net income (loss) (a) $ 86 $ (354) $ (541) $ (661) $ (4,329)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
ROE(2) 13.0% (56.1)% (102.2)% (35.9)% (263.9)%
Charge for economic
capital(2) (b) $ (83) $ (92) $ (71) $ (269) $ (216)
Economic gain
(loss)(2) (a+b) $ 3 $ (446) $ (612) $ (930) $ (4,545)
Full time equivalent
employees 1,091 1,084 1,164 1,091 1,164
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.Financial overview
Net income for the current quarter was $86 million, compared to a net
loss of $541 million in the same quarter last year primarily due to income in
the structured credit run-off business compared to losses in the last year
quarter. The current quarter also included higher revenue in capital markets
and corporate and investment banking, partially offset by MTM losses on
corporate loan hedges. These factors were partially offset by a higher
provision for credit losses in the current quarter.
Net income was up $440 million from the prior quarter, mainly due to
income in the current quarter in the structured credit run-off business
compared to losses in the prior quarter. The prior quarter also included
write-downs in the legacy merchant banking portfolio and higher valuation
charges related to certain trading and AFS positions in exited and other
run-off businesses. These factors were partially offset by a higher provision
for credit losses in the current quarter.
Net loss for the nine months ended July 31, 2009 was down $3,668 million
from the same period in 2008, mainly due to lower structured credit losses.
The current period also included higher revenue in capital markets and
corporate and investment banking, partially offset by MTM losses on corporate
loan hedges. The last year period included losses on the sale of some of our
U.S. businesses. These factors were partly offset by higher write-downs in the
legacy merchant banking portfolio, a higher provision for credit losses and
higher trading and AFS related losses in our exited and other run-off
businesses.
Revenue
Revenue was up $1,129 million from the same quarter last year.
Capital markets revenue was up $116 million, primarily due to higher
revenue from equity, fixed income trading, foreign exchange business and
equity issuances.
Corporate and investment banking revenue was up $111 million, mainly due
to higher revenue from U.S. real estate finance, corporate credit products and
investment banking.
Other revenue was up $864 million, primarily due to lower structured
credit losses. The increase was partially offset by MTM losses on corporate
loan hedges.
Revenue was up $772 million from the prior quarter.
Capital markets revenue was up $7 million, mainly due to higher revenue
from foreign exchange business and fixed income trading, partially offset by
lower equity trading revenue.
Corporate and investment banking revenue was up $21 million, primarily
due to higher revenue from corporate credit products and the core merchant
banking portfolio.
Other revenue was up $736 million due to lower losses from structured
credit, other run-off businesses and the legacy merchant banking portfolio.
Revenue for the nine months ended July 31, 2009 was up $5,643 million
from the same period in 2008.
Capital markets revenue was up $323 million, primarily due to higher
revenue from equity and fixed income trading, foreign exchange business, and
higher revenue from equity issuances.
Corporate and investment banking revenue was up $177 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 $5,013 million, primarily due to lower structured
credit losses, partially offset by higher MTM losses on corporate loan hedges,
higher losses in other run-off businesses and higher write-downs in the legacy
merchant banking portfolio. The last year period included losses of the sale
of some of our U.S. businesses.
Provision for credit losses
Provision for credit losses was $118 million higher than the same quarter
last year and $111 million higher than the prior quarter. Provision for credit
losses for the nine months ended July 31, 2009 was also up $117 million from
the same period in 2008. The increase was primarily due to higher losses in
the leveraged loans, other run-off and U.S. real estate finance businesses.
Non-interest expenses
Non-interest expenses were down $8 million or 3% from the same quarter
last year, primarily due to lower infrastructure support costs and salaries,
partially offset by higher performance-related compensation.
Non-interest expenses were up $11 million or 4% from the prior quarter,
primarily due to higher employee compensation and benefits and professional
expenses, partially offset by lower performance-related compensation.
Non-interest expenses for the nine months ended July 31, 2009 were down
$203 million or 21% 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, partially offset by higher performance-related
compensation.
Income taxes
Income tax expense was $58 million compared to a recovery of $334 million
and $152 million in the same quarter last year and in the prior quarter
respectively. Income tax recovery for the nine months ended July 31, 2009 was
down $2,063 million from the same period last year. The changes were primarily
due to substantially lower structured credit losses.
Full time equivalent employees
The full time equivalent employees were down 73 from the same quarter
last year primarily due to 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, including the general allowance, not directly attributable to the
business lines. The general allowance applicable to FirstCaribbean is
determined locally and is included in CIBC Retail Markets. 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 three For the nine
months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Revenue $ (13) $ 151 $ 132 $ 115 $ 173
(Reversal of) provision
for credit losses (5) 10 (32) (16) (101)
Non-interest expenses 117 88 82 286 189
----------------------------------------------------- -------------------
(Loss) income
before taxes and
non-controlling
interests (125) 53 82 (155) 85
Income tax (benefit)
expense (57) 165 35 52 (20)
----------------------------------------------------- -------------------
Net (loss) income $ (68) $ (112) $ 47 $ (207) $ 105
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Full time equivalent
employees 12,052 11,980 13,359 12,052 13,359
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) For additional segmented information, see the notes to the interim
consolidated financial statements.Financial overview
Net loss in the current quarter was $68 million compared to net income of
$47 million in the same quarter last year, primarily due to lower unallocated
treasury revenue which includes securitization activities. Reversal of credit
losses was lower in the current quarter as a result of a higher provision for
credit losses in the general allowance.
Net loss was down $44 million from the prior quarter primarily due to
interest income on tax reassessments and lower provision for credit losses in
the general allowance. These factors were mostly offset by lower unallocated
treasury revenue which includes securitization activities and higher
unallocated support costs. The prior quarter was impacted by the adjustment of
future tax assets at future years' lower statutory rates.
Net loss was $207 million for the nine months ended July 31, 2009,
compared to net income of $105 million for the same period last year,
primarily due to lower unallocated treasury revenue which includes
securitization activities, a higher provision for credit losses in the general
allowance, and adjusting future tax assets at future years' lower statutory
rates. These losses were partially offset by the net gain on repatriation
activities.
Revenue
Revenue was down $145 million from the same quarter last year, primarily
due to lower unallocated treasury revenue which includes securitization
activities.
Revenue was down $164 million from the prior quarter primarily due to
lower unallocated treasury revenue which includes securitization activities
partially offset by interest income from tax reassessments. The prior quarter
included a foreign exchange gain on repatriation activities of $159 million.
Revenue for the nine months ended July 31, 2009 was down $58 million from
the same period in 2008 primarily due to lower unallocated treasury revenue
which includes securitization activities. These factors were partially offset
by a $111 million foreign exchange gain on repatriation activities compared to
a $65 million loss in the same period last year. The last year period also
included losses from the hedging of stock appreciation rights (SARs).
Provision for credit losses
Reversal of credit losses was down $27 million from the same quarter last
year, primarily due to a higher provision for credit losses in the general
allowance, partially offset by the reversal of credit losses as a result of
asset securitization.
Reversal of credit losses was $5 million, compared to a provision of $10
million from the prior quarter primarily due to a lower provision for credit
losses in the general allowance.
Reversal of credit losses for the nine months ended July 31, 2009 was
down $85 million from the same period last year, primarily due to a higher
provision for credit losses in the general allowance, partially offset by the
reversal of credit losses as a result of asset securitization.
Non-interest expenses
Non-interest expenses were up $35 million from the same quarter last
year, and up $29 million from the prior quarter, primarily due to higher
unallocated corporate support costs.
Non-interest expenses for the nine months ended July 31, 2009 were up $97
million from the same period in 2008, primarily due to higher unallocated
corporate support costs. The same period last year included higher recoveries
related to SARs.
Income tax
Income tax benefit was $57 million compared to an expense of $35 million
in the same quarter last year primarily due to lower income in the current
quarter.
Income tax benefit was $57 million, compared to an income tax expense of
$165 million in the prior quarter. The prior quarter included a $156 million
tax expense related to the foreign exchange gain on repatriation activities
and the write off of $36 million of future tax assets due to lower future
statutory tax rates.
Income tax expense for the nine months ended July 31, 2009 was up $72
million from the same period last year, primarily due to the $103 million tax
expense on the gain on repatriation activities compared to a $44 million tax
benefit on repatriation losses in the same period last year. The current
period also included the write off of future tax assets.
Full time equivalent employees
The full time equivalent employees were down 1,307 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.FINANCIAL CONDITION
Review of consolidated balance sheet
-------------------------------------------------------------------------
2009 2008
$ millions, as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Assets
Cash and deposits with banks $ 6,895 $ 8,959
Securities 83,977 79,171
Securities borrowed or purchased
under resale agreements 31,029 35,596
Loans 157,111 171,475
Derivative instruments 28,357 28,644
Other assets 28,548 30,085
-------------------------------------------------------------------------
Total assets $ 335,917 $ 353,930
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and shareholders' equity
Deposits $ 214,227 $ 232,952
Derivative instruments 31,455 32,742
Obligations related to securities lent or sold
short or under repurchase agreements 47,190 44,947
Other liabilities 22,764 22,015
Subordinated indebtedness 5,691 6,658
Preferred share liabilities 600 600
Non-controlling interests 170 185
Shareholders' equity 13,820 13,831
-------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 335,917 $ 353,930
-------------------------------------------------------------------------
-------------------------------------------------------------------------Assets
Total assets decreased for the nine-month period by $18 billion or 5%
from October 31, 2008.
Cash and deposits with banks decreased by $2.1 billion or 23%, mainly due
to normal treasury activities.
Securities increased by $4.8 billion or 6% and comprise AFS, trading,
fair value option (FVO) and HTM securities. During the nine-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 by
$4.6 billion or 13% primarily driven by funding requirements and business
decisions to reduce certain underlying exposures.
Loans decreased by $14.4 billion or 8% mainly due to a decline in
business and government loans and securitization of mortgages.
Other assets decreased by $1.5 billion or 5% mainly due to tax refunds
received offset by an increase in derivatives collateral receivable.
Liabilities
Total liabilities decreased for the nine-month period by $18 billion or
5% from October 31, 2008.
Deposits decreased by $18.7 billion or 8% largely due to a reduction in
business and government and bank deposits driven by our funding requirements
and market conditions, partially offset by volume growth in personal deposits.
Obligations related to securities lent or sold short or under repurchase
agreements increased by $2.2 billion or 5% mainly due to funding requirements.
Shareholders' equity
The change in shareholders' equity during the period includes current
period earnings and proceeds from issuance of preferred shares in the second
quarter, 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.
The following table summarizes our significant capital management
activities:------------------------------------------------------------ ------------
For the For the
three nine
months months
ended ended
2009 2009
$ millions Jul. 31 Jul. 31
------------------------------------------------------------ ------------
Issue of common shares $ 71 $ 99
Issue of preferred shares - 525
Redemption of subordinated indebtedness (750) (750)
Dividends
Preferred shares - classified as equity (44) (119)
Preferred shares - classified as liabilities (7) (23)
Common shares (332) (995)
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------For additional details, see Notes 6, 7 and 8 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 Jul. 31 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 13,845 $ 12,365
Tier 2 capital 5,175 5,764
Total regulatory capital 19,020 18,129
Risk-weighted assets 115,426 117,946
Tier 1 capital ratio 12.0% 10.5%
Total capital ratio 16.5% 15.4%
Assets-to-capital multiple 16.2x 17.9x
-------------------------------------------------------------------------
-------------------------------------------------------------------------The Tier 1 ratio was up 1.5% and the total capital ratio was up 1.1% from
year-end mainly due to the notes issued by CIBC Capital Trust and the issuance
of preferred shares. The ratios also benefited from lower risk- weighted
assets (RWAs), driven by several factors including the benefit of a
strengthening Canadian dollar, the purchase of residential mortgage insurance
and lower market risk, offset in part by higher RWAs against our financial
guarantor exposures.
The ratios were negatively impacted by the structured credit charges
during the year.
In addition, the Tier 1 ratio was 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. The redemption of our $750 million subordinated
indebtedness on June 1, 2009 also reduced the total capital ratio.
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.
During the quarter, we securitized credit card receivables of $54 million
to Cards II (the Trust), a qualifying special purpose entity, and purchased
the same amount of a new series of enhancement notes issued by the Trust. The
Trust notes are subordinated to the existing outstanding Series 2005-1, Series
2005-2, Series 2005-3, Series 2005-4, Series 2006-1 and Series 2006-2 notes
issued by the Trust. We also securitized residential mortgages of $114 million
during the quarter. More details of our own asset securitization are provided
on Note 5 to the interim consolidated financial statements.
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 Jul. 31
-------------------------------------------------------------------------
Undrawn Written
liquidity credit
Investment and credit derivatives
and loans(1) facilities (notional)(2)
-------------------------------------------------------------------------
CIBC-sponsored conduits $ 525 $ 4,179(3) $ -
CIBC structured CDO vehicles 745(4) 63 638
Third-party structured vehicles 6,837(4) 815 11,377
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2008
$ millions, as at Oct. 31
-------------------------------------------------------------------------
Undrawn Written
liquidity credit
Investment and credit derivatives
and loans(1) facilities (notional)(2)
-------------------------------------------------------------------------
CIBC-sponsored conduits $ 805 $ 7,984(3) $ -
CIBC structured CDO vehicles 772(4) 69 766
Third-party structured vehicles 8,167(4) 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.
$5.8 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 $4.7 billion (Oct. 31, 2008:
$5.6 billion). Notional amounts of $10.7 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
$0.7 billion (Oct. 31, 2008: $1.2 billion). Accumulated fair value
losses amount to $2.7 billion (Oct. 31, 2008: $1.3 billion) on
unhedged written credit derivatives.
(3) Net of $525 million (Oct. 31, 2008: $805 million) of investment and
loans in CIBC sponsored conduits.
(4) Fair value amount of $5.7 billion (Oct. 31, 2008: $6.1 billion) held
to maturity securities are included. The related carrying value of
these securities are $6.2 billion (Oct. 31, 2008: $6.8 billion).As described in the "Run-off Businesses" section, we consolidated certain
third-party structured CDOs after determining that we are the primary
beneficiary following the commutation of our protection from a financial
guarantor in the current quarter. The table above excludes our investments
(fair value of $77 million as at July 31, 2009) in, and written credit
derivatives (notional of $1.9 billion and negative fair value of $1.7 billion,
as at July 31, 2009) on, the notes of these CDOs.
During the second 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 $111 million of
dealer floorplan receivables, $372 million of auto leases, and $13 million of
medium term notes backed by Canadian residential mortgages being recognized in
the consolidated balance sheet as at July 31, 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. In addition, in the second 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 8 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.
- Retail Markets Risk Management - 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 - oversees the
management of credit risk in 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; regulatory
capital; 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 $457.7 billion as at July 31,
2009 (October 31, 2008: $458.7 billion). Overall exposure was relatively
unchanged, but a large increase in drawn sovereign exposures was offset by
decreases across most other categories. The increase in drawn exposure since
October 2008 in the sovereign category is largely increased exposure to
Canadian and U.S. governments and their agencies.Gross exposure at default, before credit risk mitigation
-------------------------------------------------------------------------
2009 2008
$ millions, as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Business and government portfolios-AIRB
approach(1)
Drawn $ 105,176 $ 83,686
Undrawn commitments 21,926 21,309
Repo-style transactions 80,611 82,975
Other off-balance sheet 33,384 41,163
OTC derivatives 16,536 18,763
-------------------------------------------------------------------------
$ 257,633 $ 247,896
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retail Portfolios-AIRB approach(1)
Drawn $ 123,609 $ 128,648
Undrawn commitments 45,730 44,003
Other off-balance sheet 328 105
-------------------------------------------------------------------------
$ 169,667 $ 172,756
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Standardized portfolios $ 12,770 $ 14,714
Securitization exposures 17,601 23,356
-------------------------------------------------------------------------
$ 457,671 $ 458,722
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Advanced internal ratings based (AIRB) approach.Included in the business and government portfolios-AIRB approach is EAD
of $2.6 billion in the probability of default band considered watch list as at
July 31, 2009 (October 31, 2008: $1.7 billion).
The increase in watch list exposures in the current quarter was largely
driven by the downgrade of certain customers in our ELF run-off portfolio. 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 July 31, 2009, the
credit valuation adjustment for all derivative counterparties was $2.6 billion
(October 31, 2008: $4.7 billion).Rating profile of derivative MTM receivables(1)
-------------------------------------------------------------------------
2009 2008
$ billions, as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Standard & Poor's rating
------------------------
equivalent
----------
AAA to BBB- $ 7.0 74.5% $ 8.3 80.9%
BB+ to B- 1.2 13.1 1.2 11.5
CCC+ to CCC- 1.0 10.9 0.7 6.6
Below CCC- 0.1 1.5 - 0.2
Unrated - - 0.1 0.8
-------------------------------------------------------------------------
Total $ 9.3 100.0% $ 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 Jul. 31 Oct. 31
-------------------------------------------------------------------------
Gross impaired loans
Consumer $ 738 $ 584
Business and government(1) 930 399
-------------------------------------------------------------------------
Total gross impaired loans $ 1,668 $ 983
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allowance for credit losses
Consumer $ 1,075 $ 888
Business and government(1) 824 558
-------------------------------------------------------------------------
Total allowance for credit losses $ 1,899 $ 1,446
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprises:
Specific allowance for loans(2) $ 949 $ 631
General allowance for loans(2) 950 815
-------------------------------------------------------------------------
Total allowance for credit losses $ 1,899 $ 1,446
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes scored small business portfolios which are managed on a pool
basis under Basel II.
(2) Excludes specific and general allowance for letters of credit and
undrawn credit facilities of $1 million and $80 million respectively
(October 31, 2008: nil and $77 million).Gross impaired loans were up $685 million or 70% from October 31, 2008.
Consumer gross impaired loans were up $154 million or 26%, largely attributed
to increased new classifications in residential mortgages and personal lending
in Canada. The majority of the increase occurred in the third quarter and was
largely attributed to our ELF run-off portfolio, as well as deterioration in
our U.S. real estate exposure.
The allowance for credit losses was up $453 million or 31% from October
31, 2008. Specific allowance was up $318 million or 50%, primarily due to
credit cards, publishing and broadcasting, real estate, and construction
sectors. General allowance was up $135 million or 17% due to credit cards and
large corporate lending.
For details on the provision for credit losses, see the "Financial
performance review" section.Market risk
Trading activitiesThe following table shows Value-at-Risk (VaR) by risk type for CIBC's
trading activities.
The VaR for the three months ended July 31, 2009 disclosed in the table
and backtesting chart below exclude our exposures in our run-off businesses as
described on pages 10 to 17 of the MD&A. Due to 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 21% from the last quarter, primarily due to
changes in our market risk exposure across trading books, and general
improvement in market conditions, especially in credit markets.
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
--------------------------------------------
2009
Jul. 31
--------------------------------------------
$ millions High Low As at Average
-------------------------------------------------------------------------
Interest rate risk $ 7.2 $ 1.7 $ 6.3 $ 3.9
Credit spread risk 1.4 0.6 0.7 0.9
Equity Risk 2.8 1.0 1.3 1.5
Foreign exchange risk 4.8 0.1 0.5 0.8
Commodity risk 1.2 0.5 0.5 0.7
Debt specific risk 5.2 1.2 1.2 2.6
Diversification effect(1) n/m n/m (4.1) (5.2)
---------------------
Total risk $ 7.0 $ 3.0 $ 6.4 $ 5.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at or for the three months ended
--------------------------------------------
2009 2008
Apr. 30 Jul. 31
--------------------------------------------
$ millions As at Average As at Average
-------------------------------------------------------------------------
Interest rate risk $ 2.8 $ 3.3 $ 5.5 $ 8.1
Credit spread risk 1.2 1.3 5.9 5.1
Equity Risk 1.8 3.3 5.5 5.2
Foreign exchange risk 0.4 0.6 0.2 0.5
Commodity risk 0.6 0.8 0.7 0.7
Debt specific risk 5.1 3.9 6.9 7.6
Diversification effect(1) (5.4) (6.6) (12.1) (14.2)
-------------------------------------------
Total risk $ 6.5 $ 6.6 $ 12.6 $ 13.0
-------------------------------------------------------------------------
---------------------------------------------------
For the nine
months ended
----------------------
2009 2008
Jul. 31 Jul. 31
----------------------
$ millions Average Average
---------------------------------------------------
Interest rate risk $ 4.0 $ 7.7
Credit spread risk 1.4 7.6
Equity Risk 3.2 5.2
Foreign exchange risk 0.9 0.6
Commodity risk 0.7 0.8
Debt specific risk 2.9 8.7
Diversification effect(1) (6.5) (16.3)
---------------------
Total risk $ 6.6 $ 14.3
---------------------------------------------------
(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 95% of the days in the quarter.
Trading losses did not exceed VaR during the quarter. Average daily trading
revenue (TEB)(1) was $3.9 million during the quarter.
The trading revenue (TEB)(1) for the current quarter excludes a gain of
$105 million related to changes in exposures and fair values of structured
credit assets, as well as trading losses of $1.5 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 riskNon-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
Jul. 31 Apr. 30
-----------------------------------------------
$ millions, as at $ US$ Other $ US$ Other
-------------------------------------------------------------------------
100 basis points increase
in interest rates
Net income $ 132 $ (9) $ 8 $ 158 $ (17) $ 6
Change in present value
of shareholders' equity 193 (16) (5) 203 (47) 3
100 basis points decrease
in interest rates
Net income $ 17 $ 8 $ (9) $ (11) $ 2 $ (5)
Change in present value
of shareholders' equity (195) 16 5 (160) 26 1
-------------------------------------------------------------------------
-------------------------------------------------
2008
Jul. 31
-----------------------
$ millions, as at $ US$ Other
-------------------------------------------------
100 basis points increase
in interest rates
Net income $ 42 $ 5 $ 3
Change in present value
of shareholders' equity 151 17 42
100 basis points decrease
in interest rates
Net income $ (89) $ (5) $ (3)
Change in present value
of shareholders' equity (218) (18) (41)
-------------------------------------------------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 July 31,
2009, Canadian dollar deposits from individuals totalled $98.5 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 the 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 Jul. 31 Oct. 31
-------------------------------------------------------------------------
Cash $ 1.3 $ 1.1
Deposits with banks 5.6 7.9
Securities issued by Canadian Governments(1) 22.0 5.5
Mortgage backed securities(1) 21.3 20.7
Other securities(2) 27.9 39.6
Securities borrowed or purchased under resale
agreements 31.0 35.6
-------------------------------------------------------------------------
$ 109.1 $ 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 July 31, 2009 totalled $46.6 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. During the current quarter, DBRS
Limited (DBRS) downgraded preferred share and Innovative Tier 1 note ratings
for all Canadian banks, including CIBC, after a review period following a
methodology change. Our rating outlook at DBRS remains negative. Also during
the quarter, S&P revised its outlook from negative to stable, and affirmed our
long- and short-term 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 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 MATTERS
Critical accounting policies and estimatesA 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 July 31, 2009 market price inputs inputs
-------------------------------------------------------------------------
Assets
Trading securities 64% 25% 11%
AFS securities 83 14 3
FVO financial instruments 6 93 1
Derivative instruments 2 87 11
-------------------------------------------------------------------------
Liabilities
Obligations related to
securities sold short 78% 22% -%
FVO financial instruments - 90 10
Derivative instruments 2 78 20
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 following 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 July 31, 2009 business CIBC CIBC
-------------------------------------------------------------------------
Assets
Trading securities $ 1,139 $ 1,505 11%
AFS securities 20 1,300 3
FVO financial instruments 200 207 1
Derivative instruments 2,771 3,072 11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
FVO financial instruments $ 675 675 10%
Derivative instruments 5,257 6,243 20
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Jul. 31 Oct. 31
-------------------------------------------------------------------------
Trading securities
Market risk $ 12 $ 43
Derivatives
Market risk 106 223
Credit risk 2,572 4,672
Administration costs 34 30
Other 2 6
-------------------------------------------------------------------------
$ 2,726 $ 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 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 CVA is 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 for the quarter of
approximately $34 million in our unhedged USRMM portfolio and $62 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 for the quarter
of approximately $38 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 for the quarter of approximately $187
million.
The net gain 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 July 31, 2009 was $607 million ($69 million of net loss for the nine
months ended July 31, 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 higher by $512 million and higher by $3 million respectively
(higher by $113 million and $14 million, on HTM and AFS securities
respectively, for the nine months ended July 31, 2009).Accounting Developments
Financial InstrumentsOn July 29, 2009, the Accounting Standards Board of the CICA (AcSB)
amended Section 3855, Financial Instruments-Recognition and Measurement for
interim and annual financial statements relating to fiscal years beginning on
or after November 1, 2008.
The revised standard expands the definition of Loans and Receivables to
include debt securities not quoted in an active market (but excludes loans and
debt securities which are traded or held for sale). The standard also amends
the impairment model for HTM financial assets such that charges to income for
other than temporary impairment are recognized for credit losses only rather
than on the basis of a write-down to fair value. We are assessing the impact
of the standard and will implement in the fourth quarter of 2009.
In June 2009, the AcSB issued amendments to CICA 3862 "Financial
Instruments - Disclosures" in order to conform with changes made to IFRS 7 -
Financial Instruments: Disclosures" by the IASB. The revised Section 3862
expands disclosures pertaining to the fair value measurements of financial
instruments and the management of liquidity risk. We will implement the
amended CICA 3862 in the fourth quarter.
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 AcSB 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 proceduresCIBC's management, with the participation of the Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness, as at July 31,
2009, of CIBC's disclosure controls and procedures (as defined in the rules of
the Securities and Exchange Commission 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 July 31, 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 Jul. 31 Oct. 31
------------------------------------------------------------ ------------
ASSETS
Cash and non-interest-bearing deposits
with banks $ 1,852 $ 1,558
------------------------------------------------------------ ------------
Interest-bearing deposits with banks 5,043 7,401
------------------------------------------------------------ ------------
Securities (Note 3)
Trading 14,391 37,244
Available-for-sale (AFS) 39,672 13,302
Designated at fair value (FVO) 23,509 21,861
Held-to-maturity (HTM) 6,405 6,764
------------------------------------------------------------ ------------
83,977 79,171
------------------------------------------------------------ ------------
Securities borrowed or purchased under
resale agreements 31,029 35,596
------------------------------------------------------------ ------------
Loans
Residential mortgages 83,550 90,695
Personal 33,471 32,124
Credit card 11,134 10,829
Business and government 30,855 39,273
Allowance for credit losses (Note 4) (1,899) (1,446)
------------------------------------------------------------ ------------
157,111 171,475
------------------------------------------------------------ ------------
Other
Derivative instruments 28,357 28,644
Customers' liability under acceptances 8,929 8,848
Land, buildings and equipment 1,580 1,623
Goodwill 1,992 2,100
Software and other intangible assets 650 812
Other assets (Note 10) 15,397 16,702
------------------------------------------------------------ ------------
56,905 58,729
------------------------------------------------------------ ------------
$ 335,917 $ 353,930
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Personal $ 106,274 $ 99,477
Business and government (Note 8) 101,254 117,772
Bank 6,699 15,703
------------------------------------------------------------ ------------
214,227 232,952
------------------------------------------------------------ ------------
Other
Derivative instruments 31,455 32,742
Acceptances 8,930 8,848
Obligations related to securities sold short 6,175 6,924
Obligations related to securities lent or
sold under repurchase agreements 41,015 38,023
Other liabilities 13,834 13,167
------------------------------------------------------------ ------------
101,409 99,704
------------------------------------------------------------ ------------
Subordinated indebtedness (Note 6) 5,691 6,658
------------------------------------------------------------ ------------
Preferred share liabilities 600 600
------------------------------------------------------------ ------------
Non-controlling interests 170 185
------------------------------------------------------------ ------------
Shareholders' equity
Preferred shares (Note 7) 3,156 2,631
Common shares (Note 7) 6,161 6,062
Treasury shares 1 1
Contributed surplus 101 96
Retained earnings 4,886 5,483
Accumulated other comprehensive (loss) (AOCI) (485) (442)
------------------------------------------------------------ ------------
13,820 13,831
------------------------------------------------------------ ------------
$ 335,917 $ 353,930
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
The accompanying notes are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
For the nine
For the three months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Interest income
Loans $ 1,712 $ 1,637 $ 2,212 $ 5,257 $ 7,104
Securities borrowed or
purchased under resale
agreements 36 86 326 293 1,274
Securities 419 480 671 1,561 2,032
Deposits with banks 5 18 104 77 526
----------------------------------------------------- -------------------
2,172 2,221 3,313 7,188 10,936
----------------------------------------------------- -------------------
Interest expense
Deposits 618 694 1,483 2,352 5,438
Other liabilities 131 194 430 675 1,445
Subordinated indebtedness 47 52 66 163 200
Preferred share liabilities 7 8 7 23 23
----------------------------------------------------- -------------------
803 948 1,986 3,213 7,106
----------------------------------------------------- -------------------
Net interest income 1,369 1,273 1,327 3,975 3,830
----------------------------------------------------- -------------------
Non-interest income
Underwriting and
advisory fees 132 112 68 346 332
Deposit and payment fees 199 188 197 580 583
Credit fees 87 72 58 219 174
Card fees 80 85 81 260 225
Investment management
and custodial fees 103 96 129 307 396
Mutual fund fees 166 158 208 483 624
Insurance fees, net
of claims 69 60 62 195 183
Commissions on securities
transactions 122 106 134 348 437
Trading revenue (Note 9) 328 (440) (794) (832) (6,322)
AFS securities gains
(losses), net 25 60 68 233 31
FVO revenue 25 53 (39) 122 (86)
Income from securitized
assets 113 137 161 369 451
Foreign exchange other
than trading 73 243 88 433 223
Other (34) (42) 157 2 429
----------------------------------------------------- -------------------
1,488 888 578 3,065 (2,320)
----------------------------------------------------- -------------------
Total revenue 2,857 2,161 1,905 7,040 1,510
----------------------------------------------------- -------------------
Provision for credit
losses (Note 4) 547 394 203 1,225 551
----------------------------------------------------- -------------------
Non-interest expenses
Employee compensation
and benefits (Note 11) 901 891 942 2,724 2,869
Occupancy costs 151 155 148 440 435
Computer, software and
office equipment 263 251 270 759 797
Communications 74 76 67 218 213
Advertising and business
development 35 45 51 127 162
Professional fees 53 42 58 135 170
Business and capital taxes 29 30 29 89 89
Other 193 149 160 499 539
----------------------------------------------------- -------------------
1,699 1,639 1,725 4,991 5,274
----------------------------------------------------- -------------------
Income (loss) before
income taxes and non-
controlling interests 611 128 (23) 824 (4,315)
Income tax expense
(benefit) 172 174 (101) 279 (1,834)
----------------------------------------------------- -------------------
439 (46) 78 545 (2,481)
Non-controlling interests 5 5 7 15 15
----------------------------------------------------- -------------------
Net income (loss) $ 434 $ (51) $ 71 $ 530 $ (2,496)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Earnings (loss) per
share (in dollars)
(Note 12) - Basic $ 1.02 $ (0.24) $ 0.11 $ 1.08 $ (7.05)
- Diluted $ 1.02 $ (0.24) $ 0.11 $ 1.08 $ (7.05)
Dividends per common
share (in dollars) $ 0.87 $ 0.87 $ 0.87 $ 2.61 $ 2.61
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
The accompanying notes are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine
For the three months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Preferred shares
Balance at beginning
of period $ 3,156 $ 2,631 $ 2,331 $ 2,631 $ 2,331
Issue of preferred
shares - 525 - 525 -
----------------------------------------------------- -------------------
Balance at end of
period $ 3,156 $ 3,156 $ 2,331 $ 3,156 $ 2,331
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Common shares
Balance at beginning
of period $ 6,090 $ 6,074 $ 6,056 $ 6,062 $ 3,133
Issue of common shares 71 16 4 99 2,960
Issuance costs, net of
related income taxes - - - - (33)
----------------------------------------------------- -------------------
Balance at end of
period $ 6,161 $ 6,090 $ 6,060 $ 6,161 $ 6,060
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Treasury shares
Balance at beginning
of period $ 1 $ - $ 8 $ 1 $ 4
Purchases (2,340) (2,059) (2,109) (6,354) (7,215)
Sales 2,340 2,060 2,101 6,354 7,211
----------------------------------------------------- -------------------
Balance at end of
period $ 1 $ 1 $ - $ 1 $ -
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Contributed surplus
Balance at beginning
of period $ 104 $ 100 $ 90 $ 96 $ 96
Stock option expense 3 3 2 10 7
Stock options exercised (1) - - (1) (1)
Net premium (discount)
on treasury shares (1) 1 - 1 (11)
Other (4) - (3) (5) (2)
----------------------------------------------------- -------------------
Balance at end of
period $ 101 $ 104 $ 89 $ 101 $ 89
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Retained earnings
Balance at beginning
of period, as
previously reported $ 4,826 $ 5,257 $ 5,699 $ 5,483 $ 9,017
Adjustment for change
in accounting policies - - - (6)(1) (66)(2)
----------------------------------------------------- -------------------
Balance at beginning
of period, as restated 4,826 5,257 5,699 5,477 8,951
Net income (loss) 434 (51) 71 530 (2,496)
Dividends
Preferred (44) (39) (30) (119) (90)
Common (332) (331) (331) (995) (954)
Other 2 (10) - (7) (2)
----------------------------------------------------- -------------------
Balance at end of
period $ 4,886 $ 4,826 $ 5,409 $ 4,886 $ 5,409
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
AOCI, net of tax
Balance at beginning
of period $ (360) $ (390) $ (807) $ (442) $ (1,092)
Other comprehensive
income (OCI) (125) 30 62 (43) 347
----------------------------------------------------- -------------------
Balance at end of
period $ (485) $ (360) $ (745) $ (485) $ (745)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Retained earnings
and AOCI $ 4,401 $ 4,466 $ 4,664 $ 4,401 $ 4,664
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Shareholders' equity
at end of period $ 13,820 $ 13,817 $ 13,144 $ 13,820 $ 13,144
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Represents the impact of changing the measurement date for employee
future benefits. See Note 11 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 nine
For the three months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Net income (loss) $ 434 $ (51) $ 71 $ 530 $ (2,496)
----------------------------------------------------- -------------------
OCI, net of tax
Foreign currency
translation
adjustments
Net (losses) gains on
investment in self-
sustaining foreign
operations (513) 109 260 (378) 1,235
Net gains (losses) on
hedges of foreign
currency translation
adjustments 383 (128) (203) 258 (924)
----------------------------------------------------- -------------------
(130) (19) 57 (120) 311
----------------------------------------------------- -------------------
Net change in AFS
securities
Net unrealized gains
on AFS securities 28 168 8 283 70
Transfer of net
(gains) losses to
net income (18) (119) (5) (199) 36
----------------------------------------------------- -------------------
10 49 3 84 106
----------------------------------------------------- -------------------
Net change in cash
flow hedges
Net losses on
derivatives designated
as cash flow hedges (8) (1) - (13) (41)
Net losses (gains) on
derivatives designated
as cash flow hedges
transferred to net
income 3 1 2 6 (29)
----------------------------------------------------- -------------------
(5) - 2 (7) (70)
----------------------------------------------------- -------------------
Total OCI (125) 30 62 (43) 347
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Comprehensive income
(loss) $ 309 $ (21) $ 133 $ 487 $ (2,149)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
-------------------------------------------------------------------------
INCOME TAX (EXPENSE) BENEFIT ALLOCATED TO EACH COMPONENT OF OCI
For the nine
For the three months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Foreign currency
translation adjustments
Changes on investment
in self-sustaining
foreign operations $ 34 $ 10 $ (1) $ 37 $ (4)
Changes on hedges of
foreign currency
translation
adjustments (119) 117 92 (17) 425
Net change in AFS
securities
Net unrealized
losses (gains) on
AFS securities 41 (102) (4) (117) (39)
Transfer of net gains
(losses) to net
income 8 55 3 93 (45)
Net change in cash flow
hedges
Changes on derivatives
designated as cash
flow hedges 3 1 - 7 21
Changes on derivatives
designated as cash
flow hedges
transferred to net
income (2) (1) (2) (4) 14
----------------------------------------------------- -------------------
$ (35) $ 80 $ 88 $ (1) $ 372
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
The accompanying notes are an integral part of these consolidated
financial statements.
-------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine
For the three months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
Unaudited, $ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Cash flows provided by
(used in) operating
activities
Net income (loss) $ 434 $ (51) $ 71 $ 530 $ (2,496)
Adjustments to
reconcile net income
(loss) to cash flows
provided by (used in)
operating activities:
Provision for credit
losses 547 394 203 1,225 551
Amortization(1) 98 100 61 301 184
Stock-based
compensation 13 - (3) 10 (20)
Future income taxes 78 (98) (235) (150) (1,053)
AFS securities (gains)
losses, net (25) (60) (68) (233) (31)
Losses (gains) on
disposal of land,
buildings and
equipment 1 3 - 3 (1)
Other non-cash
items, net (36) (131) (54) (175) (1)
Changes in operating
assets and
liabilities
Accrued interest
receivable 109 95 121 338 257
Accrued interest
payable (47) (40) (158) (179) (275)
Amounts receivable
on derivative
contracts 5,594 136 517 534 1,101
Amounts payable
on derivative
contracts (6,251) (1,062) (1,280) (1,968) (2,316)
Net change in
trading securities (914) 2,880 12,701 22,997(2) 16,584
Net change in FVO
securities 5,843 (7,554) (6,794) (1,648) (12,088)
Net change in other
FVO financial
instruments (4,598) 3,263 2,128 2,748 1,464
Current income taxes 705 1,499 133 2,291 (1,735)
Other, net 2,084 (3,029) 1,295 (1,181) (2,266)
----------------------------------------------------- -------------------
3,635 (3,655) 8,638 25,443 (2,141)
----------------------------------------------------- -------------------
Cash flows (used in)
provided by financing
activities
Deposits, net of
withdrawals (2,542) (7,151) (10,995) (18,997) (3,794)
Obligations related to
securities sold short (1,587) 818 (2,455) (1,823) (4,883)
Net obligations related
to securities lent or
sold under repurchase
agreements 6,326 (3,452) 122 2,992 (2,292)
(Redemption/repurchase)/
issuance of subordinated
indebtedness (818) (77) 1,150 (895) 1,150
Issue of preferred
shares - 525 - 525 (339)
Issue of common shares,
net 71 16 4 99 2,927
Net proceeds from
treasury shares
(purchased) sold - 1 (8) - (4)
Dividends (376) (370) (361) (1,114) (1,044)
Other, net (133) 617 (949) 571 (1,171)
----------------------------------------------------- -------------------
941 (9,073) (13,492) (18,642) (9,450)
----------------------------------------------------- -------------------
Cash flows (used in)
provided by investing
activities
Interest-bearing
deposits with banks 1,190 2,076 1,050 2,358 1,390
Loans, net of repayments (8,567) 4,661 (2,801) (5,693) (9,542)
Proceeds from
securitizations 3,834 6,525 3,145 17,969 6,328
Purchase of AFS/HTM
securities (20,515) (22,849) (6,248) (72,089) (11,458)
Proceeds from sale of
AFS securities 7,789 8,215 1,073 21,165 8,887
Proceeds from maturity
of AFS securities 9,918 14,376 1,409 25,449 7,638
Net securities borrowed
or purchased under
resale agreements 1,645 579 7,657 4,567 8,507
Purchase of land,
buildings and
equipment (40) (108) (32) (183) (96)
----------------------------------------------------- -------------------
(4,746) 13,475 5,253 (6,457) 11,654
----------------------------------------------------- -------------------
Effect of exchange rate
changes on cash and
non-interest-bearing
deposits with banks (46) (12) 5 (50) 26
----------------------------------------------------- -------------------
Net increase (decrease)
in cash and non-
interest-bearing
deposits with banks
during period (216) 735 404 294 89
Cash and non-interest-
bearing deposits with
banks at beginning
of period 2,068 1,333 1,142 1,558 1,457
----------------------------------------------------- -------------------
Cash and non-interest-
bearing deposits with
banks at end of period $ 1,852 $ 2,068 $ 1,546 $ 1,852 $ 1,546
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Cash interest paid $ 850 $ 988 $ 2,144 $ 3,392 $ 7,381
Cash income taxes
(recovered) paid $ (610) $ (1,227) $ 2 $ (1,862) $ 955
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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. Changes in accounting policies
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.
Financial instruments
On July 29, 2009, the Accounting Standards Board of the CICA (AcSB)
amended Section 3855, Financial Instruments-Recognition and Measurement
for interim and annual financial statements relating to fiscal years
beginning on or after November 1, 2008.
The revised standard expands the definition of Loans and Receivables to
include debt securities not quoted in an active market (but excludes
loans and debt securities which are traded or held for sale). The
standard also amends the impairment model for HTM financial assets such
that charges to income for other than temporary impairment are recognized
for credit losses only rather than on the basis of a write-down to fair
value. We are assessing the impact of the standard and will implement in
the fourth quarter of 2009.
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 CVA 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 $34 million for the quarter ended July 31, 2009 in
our unhedged USRMM portfolio and $62 million for the quarter ended
July 31, 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 $38 million for the quarter ended July 31, 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 $187 million for
the quarter ended July 31, 2009.
The net gain 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 July 31, 2009 was $607 million ($69 million of net loss for
the nine months ended July 31, 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 $23,736 million and $6,861 million respectively as at
July 31, 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 $91 million for the quarter ended July 31, 2009 ($307 million for the
nine months ended July 31, 2009).
The impact of changes in credit spreads on FVO designated loans was a
gross gain of $26 million for the quarter ended July 31, 2009 (a gross
loss of $42 million for the nine months ended July 31, 2009), and a
$14 million gain for the quarter ended July 31, 2009 ($2 million loss for
the nine months ended July 31, 2009) net of credit hedges.
The impact of CIBC's credit risk on outstanding FVO designated
liabilities was a $4 million loss for the quarter ended July 31, 2009
($7 million loss for the nine months ended July 31, 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:
-------------------------------------------------------------------------
2009 2008
$ millions, as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Previously
Reclassified
Fair Carrying Fair Carrying
value value value value
--------------------- ---------------------
Trading assets reclassified
to HTM $ 5,616 $ 6,132 $ 6,135 $ 6,764
Trading assets reclassified
to AFS 929 929 1,078 1,078
-------------------------------------------------------------------------
Total financial assets
reclassified $ 6,545 $ 7,061 $ 7,213 $ 7,842
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the For the
three months ended nine months ended
--------------------- ---------------------
2009 2009 2009
$ millions Jul. 31 Apr. 30 Jul. 31
-------------------------------------------------------------------------
Income (loss) recognized
on securities reclassified
---------------------------
Gross income recognized in
income statement $ 50 $ 71 $ 245
Impairment write-downs (23) (55) (78)
Funding related interest
expenses (40) (36) (120)
-------------------------------------------------------------------------
Net (loss) income recognized,
before taxes (13) (20) 47
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Impact if reclassification had
not been made
------------------------------
On trading assets reclassified
to HTM (512) 77 (113)
On trading assets reclassified
to AFS (3) (37) (14)
-------------------------------------------------------------------------
(Increase) reduction in
income, before taxes $ (515) $ 40 $ (127)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
4. Loans
Allowance for credit losses
-------------------------------------------------------------------------
For the three months ended
------------------------------
2009 2009 2008
Jul. 31 Apr. 30 Jul. 31
--------------------------------------------------
Specific General Total Total Total
$ millions allowance allowance allowance allowance allowance
-------------------------------------------------------------------------
Balance at beginning
of period $ 780 $ 988 $ 1,768 $ 1,627 $ 1,468
Provision for credit
losses 505 42 547 394 203
Write-offs (336) - (336) (269) (211)
Recoveries 29 - 29 22 27
Other (28) - (28) (6) (3)
-------------------------------------------------------------------------
Balance at end of
period $ 950 $ 1,030 $ 1,980 $ 1,768 $ 1,484
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Comprises:
Loans $ 949 $ 950 $ 1,899 $ 1,693 $ 1,398
Undrawn credit
facilities - 80 80 75 86
Letters of credit 1 - 1 - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------
For the nine
months ended
--------------------
2009 2008
Jul. 31 Jul. 31
--------------------
Total Total
$ millions allowance allowance
-------------------------------------------
Balance at beginning
of period $ 1,523 $ 1,443
Provision for credit
losses 1,225 551
Write-offs (833) (600)
Recoveries 95 84
Other (30) 6
-------------------------------------------
Balance at end of
period $ 1,980 $ 1,484
-------------------------------------------
-------------------------------------------
Comprises:
Loans $ 1,899 $ 1,398
Undrawn credit
facilities $ 80 86
Letters of credit 1 -
-------------------------------------------
-------------------------------------------
Impaired loans
-------------------------------------------------------------------------
$ millions, 2009 2008
as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Gross Specific Net Gross Specific Net
amount allowance total amount allowance total
-------------------------------------------------------------------------
Residential
mortgages $ 403 $ 35 $ 368 $ 287 $ 36 $ 251
Personal(1) 335 246 89 297 207 90
Credit card(1) - 265 (265) - 188 (188)
Business and
government 930 403 527 399 200 199
-------------------------------------------------------------------------
Total impaired
loans(2) $ 1,668 $ 949 $ 719 $ 983 $ 631 $ 352
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Specific allowances for large numbers of homogeneous balances of
relatively small amounts are established by reference to historical
ratios of write-offs to balances in arrears and to balances
outstanding; this may result in negative net impaired loans.
(2) Average balance of gross impaired loans totalled $1,215 million
(2008: $915 million).
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 July 31, 2009 were $721 million (October 31, 2008:
$634 million), of which $316 million (October 31, 2008: $171 million)
represent insured prime mortgages and the remaining $405 million
(October 31, 2008: $463 million) represent uninsured Near Prime/Alt A
mortgages. We also hold another $97 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 27 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.
Cards
During the quarter, we securitized credit card receivables of $54 million
to Cards II (the Trust), a QSPE, and purchased the same amount of a new
series of enhancement notes issued by the Trust. The notes are
subordinated to the existing outstanding Series 2005-1, Series 2005-2,
Series 2005-3, Series 2005-4, Series 2006-1 and Series 2006-2 notes
issued by the Trust.
-------------------------------------------------------------------------
For the three months ended
---------------------------------------------------
2009 2009 2009 2008
$ millions Jul. 31 Jul. 31 Apr. 30 Jul. 31
-------------------------------------------------------------------------
Residential Residential Residential
Mortgages Cards Mortgages Mortgages
-------------------------------------------------------------------------
Securitized $ 114 $ 54 $ 14,405 $ 10,993
Sold 3,786 54 6,567 3,164
Net cash proceeds 3,780 54 6,525 3,145
Retained interests 169 - 350 77
Gain (loss) on sale,
net of transaction
costs 40 (1) 47 34
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained interest
assumptions (%)
Weighted-average
remaining life
(in years) 3.6 0.20 3.6 3.2
Prepayment/payment
rate 12.0 - 17.0 37.92 12.0 - 20.0 11.0 - 33.0
Discount rate 1.5 - 8.8 2.77 1.7 - 8.8 3.3 - 6.9
Expected credit
losses 0.0 - 0.2 6.88 0.0 - 0.2 0.0 - 0.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
------------------------------------------------------------
For the nine months ended
--------------------------------------
2009 2009 2008
$ millions Jul. 31 Jul. 31 Jul. 31
------------------------------------------------------------
Residential Residential
Mortgages Cards Mortgages
------------------------------------------------------------
Securitized $ 22,383 $ 54 $ 19,964
Sold 17,954 54 6,373
Net cash proceeds 17,915 54 6,328
Retained interests 905 - 145
Gain (loss) on sale,
net of transaction
costs 81 (1) 57
------------------------------------------------------------
------------------------------------------------------------
Retained interest
assumptions (%)
Weighted-average
remaining life
(in years) 3.5 0.20 3.5
Prepayment/payment
rate 12.0 - 24.0 37.92 11.0 - 36.0
Discount rate 1.4 - 8.8 2.77 2.9 - 6.9
Expected credit
losses 0.0 - 0.2 6.88 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 $1,353 million as at
July 31, 2009 (October 31, 2008: $109 million).
During the third quarter, we consolidated certain CDOs after determining
that we are the primary beneficiary subsequent to a reconsideration
event, upon restructuring of our protection from a financial guarantor.
The consolidation of the CDOs resulted in $621 million of mortgages and
asset-backed securities, $428 million of FVO deposits and related
interest rate derivatives with a negative MTM of $193 million, being
recognized in the consolidated balance sheet as at July 31, 2009.
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 $111 million of dealer floorplan
receivables, $372 million of auto leases, and other assets being
recognized in the consolidated balance sheet as at July 31, 2009.
The table below provides further details on the assets that support the
obligations of the consolidated VIEs:
-------------------------------------------------------------------------
2009 2008
$ millions, as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Cash $ 76 $ -
Trading securities 621 34
AFS securities 76 60
Residential mortgages 97 15
Other assets 483 -
-------------------------------------------------------------------------
$ 1,353 $ 109
-------------------------------------------------------------------------
-------------------------------------------------------------------------
VIEs in which we have a significant interest, but do not consolidate
As at July 31, 2009, we have significant interests in VIEs involved in
the securitization of third party assets, 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 acted as structuring and
placement agents.
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 July 31,
2009, our direct investment in commercial paper issued by our sponsored
conduits was $453 million (October 31, 2008: $729 million). We were not
considered to be the primary beneficiary of any of these conduits. At
July 31, 2009, our maximum exposure to loss relating to CIBC sponsored
conduits was $4.5 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 $18.8 billion
(October 31, 2008: $25.8 billion).
-------------------------------------------------------------------------
2009 2008
$ billions, as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Maximum Maximum
Total exposure Total exposure
assets to loss assets to loss
-------------------------------------------------------------------------
CIBC-sponsored conduits $ 4.8 $ 4.5 $ 10.1 $ 8.7
CIBC structured CDO vehicles 0.9 - 1.1 -
Third-party structured vehicles 5.2 0.8 7.2 1.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In addition, in the second 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. For additional details see Note 8.
6. Subordinated indebtedness
On June 1, 2009, we redeemed all $750 million of our 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.
7. 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.
During the third quarter, we issued 0.1 million new common shares for a
total consideration of $6 million, pursuant to stock options plans. We
also issued 1.0 million new common shares for a total consideration of
$65 million, pursuant to the Shareholder Investment Plan.
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 Jul. 31 Oct. 31
-------------------------------------------------------------------------
Tier 1 capital $ 13,845 $ 12,365
Total regulatory capital 19,020 18,129
Risk-weighted assets 115,426 117,946
Tier 1 capital ratio 12.0% 10.5%
Total capital ratio 16.5% 15.4%
Assets-to-capital multiple 16.2x 17.9x
-------------------------------------------------------------------------
-------------------------------------------------------------------------
8. 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 July 31, 2009, $1,598 million represents regulatory Tier 1
capital and is net of $2 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 July 31, 2009:
-------------------------------------------------------------------------
2009
$ millions Jul. 31
-------------------------------------------------------------------------
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.
9. Financial guarantors
We have derivative contracts with financial guarantors to hedge our
exposure on various reference assets, including collateralized debt
obligations and other positions related to the USRMM. During the quarter,
we recorded a net charge of $148 million ($1,441 million for the nine
months ended July 31, 2009) on the hedging contracts provided by
financial guarantors in trading revenue. Their related valuation
adjustments were $2.5 billion as at July 31, 2009 (October 31, 2008:
$4.6 billion). The fair value of derivative contracts with financial
guarantors, net of valuation adjustments, was $1.8 billion as at July 31,
2009 (October 31, 2008: $2.3 billion).
In July 2009, we commuted USRMM contracts with a financial guarantor for
cash consideration of $207 million and securities valued at $34 million,
for a total of $241 million. In addition, our non-USRMM contracts with
this counterparty were transferred to a newly created and capitalized
entity. This commutation and restructuring activity resulted in a
reduction of the gross receivable by $2.4 billion and CVA by
$2.3 billion, for a pre-tax gain of $163 million.
We believe that we have made appropriate fair value adjustments to date.
The establishment of fair value adjustments involves estimates that are
based on accounting processes and judgments by management. We evaluate
the adequacy of the fair value adjustments on an ongoing basis. Market
and economic conditions relating to these counterparties may change in
the future, which could result in significant future losses.
10. Income taxes
Future income tax asset
As at July 31, 2009, our future income tax asset was $1,853 million
(October 31, 2008: $1,822 million), net of a $61 million valuation
allowance (October 31, 2008: $62 million). Included in the future income
tax asset are $1,242 million as at July 31, 2009 (October 31, 2008:
$1,260 million) related to Canadian non-capital loss carryforwards that
expire in 20 years, $68 million as at July 31, 2009 (October 31, 2008:
$75 million) related to Canadian capital loss carryforwards that have no
expiry date, and $342 million as at July 31, 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.
Enron
On August 5, 2009 Canada Revenue Agency (CRA) issued draft reassessments
proposing to disallow the deduction of the 2005 Enron settlement payments
of approximately $3 billion. Once reassessed, we intend to commence legal
proceedings to defend our tax filing position and we believe that we will
be successful in sustaining at least the amount of the accounting tax
benefit recognized to date. Should we successfully defend our tax filing
position in its entirety, we would be able to recognize an additional
accounting tax benefit of $214 million and refund interest thereon.
Should we fail to defend our position in its entirety, additional tax
expense of approximately $826 million plus interest thereon would be
incurred.
11. 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 $40 million (for the
nine months ended July 31, 2009: $59 million) in the consolidated
statement of operations and gains of $15 million (for the nine months
ended July 31, 2009: $21 million) in other comprehensive income.
Employee future benefit expenses
----------------------------------------------------- -------------------
For the nine
For the three months ended months ended
----------------------------- -------------------
2009 2009 2008 2009 2008
$ millions Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Defined benefit plans(1)
Pension benefit plans $ 18 $ 20 $ 37 $ 58 $ 113
Other benefit plans 8 9 10 27 31
----------------------------------------------------- -------------------
$ 26 $ 29 $ 47 $ 85 $ 144
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Defined contribution
plans
CIBC's pension plans $ 3 $ 3 $ 2 $ 9 $ 10
Government pension
plans(2) 18 18 19 56 63
----------------------------------------------------- -------------------
$ 21 $ 21 $ 21 $ 65 $ 73
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(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.
12. Earnings/(loss) per share (EPS)
----------------------------------------------------- -------------------
For the nine
For the three months ended months ended
----------------------------- -------------------
$ millions, except 2009 2009 2008 2009 2008
per share amounts Jul. 31 Apr. 30 Jul. 31 Jul. 31 Jul. 31
----------------------------------------------------- -------------------
Basic EPS
Net income (loss) $ 434 $ (51) $ 71 $ 530 $ (2,496)
Preferred share
dividends and premiums (44) (39) (30) (119) (90)
----------------------------------------------------- -------------------
Net income (loss)
applicable to common
shares $ 390 $ (90) $ 41 $ 411 $ (2,586)
----------------------------------------------------- -------------------
Weighted-average common
shares outstanding
(thousands) 381,584 381,410 380,877 381,300 366,686
----------------------------------------------------- -------------------
Basic EPS $ 1.02 $ (0.24) $ 0.11 $ 1.08 $ (7.05)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
Diluted EPS
Net income (loss)
applicable to common
shares $ 390 $ (90) $ 41 $ 411 $ (2,586)
----------------------------------------------------- -------------------
Weighted-average common
shares outstanding
(thousands) 381,584 381,410 380,877 381,300 366,686
Add: stock options
potentially
exercisable(1)
(thousands) 972 369 1,295 621 1,666
----------------------------------------------------- -------------------
Weighted-average diluted
common shares
outstanding(2)
(thousands) 382,556 381,779 382,172 381,921 368,352
----------------------------------------------------- -------------------
Diluted EPS(3) $ 1.02 $ (0.24) $ 0.11 $ 1.08 $ (7.05)
----------------------------------------------------- -------------------
----------------------------------------------------- -------------------
(1) Excludes average options outstanding of 2,269,430 with a weighted-
average exercise price of $77.88; average options outstanding of
4,845,876 with a weighted-average exercise price of $64.67; and
average options outstanding of 2,302,495 with a weighted-average
exercise price of $78.44 for the three months ended July 31, 2009,
April 30, 2009, and July 31, 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.
13. Guarantees
-------------------------------------------------------------------------
2009 2008
$ millions, as at Jul. 31 Oct. 31
-------------------------------------------------------------------------
Maximum Maximum
potential potential
future Carrying future Carrying
payment(1) amount payment(1) amount
-------------------------------------------------------------------------
Securities lending with
indemnification(2) $ 28,513 $ - $ 36,152 $ -
Standby and performance
letters of credit 5,384 19 6,249 14
Credit derivatives
Written options 20,847 4,350 32,717 6,877
Swap contracts written
protection 3,474 330 3,892 256
Other derivative written
options -(3) 3,451 -(3) 4,334
Other indemnification
agreements -(3) - -(3) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The total collateral available relating to these guarantees was
$31.3 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.
14. 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 quarter, we made certain modifications to our transfer pricing
and treasury allocations methodologies to more appropriately reflect
funding costs and observed client behaviour in our business lines in the
current environment. The modifications resulted in an increase in the
revenue of CIBC Retail Markets with a corresponding decrease in the
revenue of Wholesale Banking and Corporate and Other. The modifications
were applied prospectively and prior period information has not been
restated. We have also included the provision for credit losses related
to general allowance within Corporate and Other and prior period
information has been restated to reflect this change.
During the first quarter we moved the impact of securitization from CIBC
Retail Markets to Corporate and Other with restatement of prior period
information. In addition, we moved the sublease income and related
operating costs of our New York premises from Wholesale Banking to
Corporate and Other and prior period information was not restated.
-------------------------------------------------------------------------
CIBC
$ millions, for the three Retail Wholesale Corporate CIBC
months ended Markets Banking and Other Total
-------------------------------------------------------------------------
Jul. 31, 2009
Net interest income
(expense) $ 1,455 $ 75 $ (161) $ 1,369
Non-interest income
(expense) 884 456 148 1,488
-------------------------------------------------------------------------
Total revenue 2,339 531 (13) 2,857
Provision for credit losses 423 129 (5) 547
Amortization(2) 26 2 70 98
Other non-interest expenses 1,298 256 47 1,601
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 592 144 (125) 611
Income tax expense (benefit) 171 58 (57) 172
Non-controlling interests 5 - - 5
-------------------------------------------------------------------------
Net income (loss) $ 416 $ 86 $ (68) $ 434
-------------------------------------------------------------------------
Average assets(3) $ 287,725 $ 80,759 $ (27,823) $ 340,661
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Apr. 30, 2009
Net interest income
(expense) $ 1,232 $ 124 $ (83) $ 1,273
Non-interest income
(expense) 1,018 (365) 235 888
Intersegment revenue(1) 1 - (1) -
-------------------------------------------------------------------------
Total revenue 2,251 (241) 151 2,161
Provision for credit losses 366 18 10 394
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 581 (506) 53 128
Income tax expense (benefit) 161 (152) 165 174
Non-controlling interests 5 - - 5
-------------------------------------------------------------------------
Net income (loss) $ 415 $ (354) $ (112) $ (51)
-------------------------------------------------------------------------
Average assets(3) $ 286,748 $ 90,106 $ (23,035) $ 353,819
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jul. 31, 2008
Net interest income
(expense) $ 1,378 $ (67) $ 16 $ 1,327
Non-interest income
(expense) 992 (531) 117 578
Intersegment revenue(1) 1 - (1) -
-------------------------------------------------------------------------
Total revenue 2,371 (598) 132 1,905
Provision for credit losses 224 11 (32) 203
Amortization(2) 27 4 30 61
Other non-interest expenses 1,350 262 52 1,664
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 770 (875) 82 (23)
Income tax expense (benefit) 198 (334) 35 (101)
Non-controlling interests 7 - - 7
-------------------------------------------------------------------------
Net income (loss) $ 565 $ (541) $ 47 $ 71
-------------------------------------------------------------------------
Average assets(3) $ 261,624 $ 97,452 $ (15,680) $ 343,396
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CIBC
$ millions, for the nine Retail Wholesale Corporate CIBC
months ended Markets Banking and Other Total
-------------------------------------------------------------------------
Jul. 31, 2009
Net interest income
(expense) $ 3,975 $ 277 $ (277) $ 3,975
Non-interest income
(expense) 3,026 (355) 394 3,065
Intersegment revenue(1) 2 - (2) -
-------------------------------------------------------------------------
Total revenue 7,003 (78) 115 7,040
Provision for credit losses 1,105 136 (16) 1,225
Amortization(2) 92 5 204 301
Other non-interest expenses 3,841 767 82 4,690
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 1,965 (986) (155) 824
Income tax expense (benefit) 552 (325) 52 279
Non-controlling interests 15 - - 15
-------------------------------------------------------------------------
Net income (loss) $ 1,398 $ (661) $ (207) $ 530
-------------------------------------------------------------------------
Average assets(3) $ 289,329 $ 89,421 $ (24,165) $ 354,585
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jul. 31, 2008
Net interest income
(expense) $ 4,152 $ (214) $ (108) $ 3,830
Non-interest income
(expense) 2,902 (5,507) 285 (2,320)
Intersegment revenue(1) 4 - (4) -
-------------------------------------------------------------------------
Total revenue 7,058 (5,721) 173 1,510
Provision for credit losses 633 19 (101) 551
Amortization(2) 83 12 89 184
Other non-interest expenses 4,027 963 100 5,090
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interests 2,315 (6,715) 85 (4,315)
Income tax expense (benefit) 574 (2,388) (20) (1,834)
Non-controlling interests 13 2 - 15
-------------------------------------------------------------------------
Net income (loss) $ 1,728 $ (4,329) $ 105 $ (2,496)
-------------------------------------------------------------------------
Average assets(3) $ 259,639 $ 103,275 $ (17,296) $ 345,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.
(4) Certain prior period information has been restated to conform to the
presentation in the current quarter.%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
