Aug. 27 (Bloomberg) -- Canadian Imperial Bank of Commerce surged in Toronto trading after reporting debt writedowns that were less than analysts' forecast, indicating the worst may be over for the bank that's had more debt costs than any Canadian lender.

The bank recorded pretax writedowns of C$885 million ($845 million) in the third quarter on investments tied to U.S. mortgages, about half the amount expected by some analysts. The costs led to a 91 percent decline in net income, to C$71 million, or 11 cents a share, from C$835 million, or C$2.31 a share, a year earlier, the bank said today.

``There may be a little bit of `thank goodness it wasn't as bad as we thought it would be' in that number,'' said John Kinsey, who helps manage about C$1 billion for Caldwell Securities Ltd. in Toronto. ``I don't know if they're out of the woods yet; if there's a pothole in the road they seem to hit it every time.''

Canadian Imperial rose C$3.04, or 5.3 percent, to C$60.10 at 4:10 p.m. on the Toronto Stock Exchange, its biggest gain in more than a month. Shares of other Canadian banks, including National Bank of Canada, also rose.

Canadian Imperial's writedowns add to C$6.66 billion in debt-related costs since the third quarter of 2007. The bank has $2.84 billion in remaining U.S. mortgage investments backed by financial guarantors.

Relief

``This should relieve much of the near-term concerns regarding its balance sheet and shift valuation more towards its earnings outlook,'' said John Aiken, an analyst at Dundee Securities Corp. in Toronto, who was expecting as much as C$1.9 billion in writedowns. Aiken raised his rating to ``neutral'' from ``sell.''

Canadian Imperial earned C$1.65 a share before one-time items, said National Bank Financial analyst Robert Sedran, missing his per-share estimate of C$1.72 on that measure. Canadian Imperial is the third Canadian bank to miss analysts' estimates this quarter, following Bank of Montreal and Bank of Nova Scotia. The banks are based in Toronto.

Chief Executive Officer Gerald McCaughey, 52, has sought to reduce risk at the bank. In the past year, he sold off most of the U.S. investment-banking business, exited debt-related activities, replaced senior executives, and raised C$2.94 billion to repair the bank's balance sheet.

``CIBC has been the poster child throughout this credit crunch for writedowns among the Canadian banks and risky exposures to subprime,'' Edward Jones & Co. analyst Craig Fehr said in an interview.

Revenue Falls

Canadian Imperial's revenue fell 36 percent to C$1.91 billion. The bank set aside C$203 million for bad loans, a 25 percent increase from a year earlier.

Consumer-banking profit fell 4 percent to C$572 million from a year earlier on higher loan losses and a decline in revenue from mortgage and personal lending, the bank said.

The CIBC World Markets investment-banking unit had a loss of C$538 million, compared with profit of C$220 million a year earlier, as mergers and stock sales plunged and writedowns eroded earnings.

CIBC World Markets had hedged derivatives contracts tied to U.S. mortgages with a face value of $7.67 billion at the end of July, the bank said. The bank also had another $24.6 billion in U.S. debt investments backed by guarantors.

Bank of Nova Scotia, the No. 3 bank by assets, said yesterday that profit fell 1.9 percent to C$1.01 billion, while Bank of Montreal, the fourth-biggest bank, said profit fell 21 percent to C$521 million.

Royal Bank of Canada, the country's largest bank, Toronto- Dominion Bank, the second-biggest lender, and No. 6-ranked National Bank of Canada report results tomorrow.

(Canadian Imperial Bank of Commerce will hold an earnings conference call at 4:30 p.m. Toronto-time at +1-416-340-8010 or +1-866-540-8136 or at www.cibc.com.)

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

Last Updated: August 27, 2008 16:16 EDT