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Canadian Imperial Third-Quarter Profit Tops Estimates as Loan Losses Fall

Canadian Imperial Bank of Commerce rose the most in three months after quarterly profit topped analysts’ estimates on declining loan losses.

Canada’s fifth-biggest bank by assets rose C$3.27, or 4.9 percent, to C$70.08 at the 4 p.m. close of trading on the Toronto Stock Exchange, the most since May 26. Net income rose 47 percent to C$640 million ($603 million), or C$1.53 a share, from C$434 million, or C$1.02, a year earlier. Revenue was little changed at C$2.85 billion.

“CIBC’s earnings may bring some relief to investors and breathe some life back into valuations and expectations for the remaining banks that are yet to report,” Barclays Capital analyst John Aiken said today in a note. CIBC exceeded his forecast on lower provisions and a declining tax rate.

Canadian Imperial set aside less money for bad loans as the country’s economy recovered nearly all the jobs it lost during the recession that ended last year. The bank had C$221 million in provisions for loan losses, down 60 percent from C$547 million a year ago when provisions reached a nine-year high.

Excluding one-time items, CIBC said it earned C$1.66 a share, higher than the C$1.53-a-share average estimate of 13 analysts polled by Bloomberg News.

Bank of Montreal, the first Canadian lender to report results, yesterday posted a 20 percent increase in profit that missed analysts’ estimates. Bank of Montreal said profit for the period ended July 31 rose to C$669 million, or C$1.13 a share.

Better Credit

“There seems to be a trend: earnings seem to have been helped in both instances by lower loan-loss provisions,” said John Kinsey, who helps manage about C$1 billion at Caldwell Securities Ltd. in Toronto. “The revenue from domestic retail also seems to be strong.”

CIBC’s consumer banking profit rose 44 percent to C$599 million, from C$416 million a year earlier, on higher revenue and lower loan losses from Canadian consumer banking, credit cards and personal loans. Profit from that unit was the highest since the first quarter of 2008.

Mortgage loans were “softer” in July and “there’s no reason to think at this stage of that improving,” Sonia Baxendale, head of consumer banking, said in a conference call with analysts.

CIBC’s investment-banking unit profit fell to C$25 million, from C$90 million, after recording a C$138 million pretax loss from a structured credit business it’s unwinding. Trading income plunged 63 percent to C$131 million from a year earlier.

Dividend Increase

Chief Executive Officer Gerald McCaughey told analysts on the call that the bank may consider raising the quarterly dividend provided the payout ratio falls within its target range of 40 percent to 50 percent of earnings. CIBC’s payout ratio was 56.7 percent in the third quarter.

“Nobody’s going to raise their dividend before the first quarter,” Kinsey said. “It just wouldn’t look very good if they started doing this when we’re still trying to get out of a recession.”

Royal Bank of Canada, the country’s largest lender, and National Bank of Canada, the country’s sixth-biggest bank, report earnings tomorrow. Bank of Nova Scotia, the third-biggest bank, reports Aug. 31, followed by Toronto-Dominion Bank, the second-largest, on Sept. 2.

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

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