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CIBC First-Quarter Profit Tops Estimates on Consumer Lending

Canadian Imperial Bank of Commerce, the country’s fifth-biggest lender, said first-quarter profit topped analysts’ estimates, led by consumer lending and wealth management. The company may sell its FirstLine Mortgages broker.

Net income for the quarter ended Jan. 31 rose 9.4 percent to C$835 million ($839 million), or C$1.93 a share, compared with C$763 million, or C$1.80, a year earlier, the Toronto-based bank said today in a statement. Revenue rose 2 percent to C$3.16 billion.

CIBC, the last Canadian lender to report quarterly results, joins the country’s five other big banks in posting profit that met or beat analysts’ expectations. Royal Bank of Canada (RY), Toronto-Dominion Bank (TD) and Bank of Nova Scotia (BNS) reported record profit from domestic consumer and business lending.

“I was impressed with how well the banks have done in terms of being in a relatively poor environment,” David Cockfield, who helps oversee C$200 million including banks at Northland Wealth Management in Toronto. “It’s a nice place to park money.”

CIBC said adjusted earnings were C$1.97 a share, beating the C$1.93 average estimate of 16 analysts surveyed by Bloomberg News. Earnings benefited from a lift in trading revenue and a lower-than-expected tax rate, according to Barclays Capital Inc. analyst John Aiken.

‘Dim View’

“Although CIBC’s earnings notionally came in ahead of expectations, the market took a dim view of its quality,” Aiken said today in a note. “Weaker retail banking earnings disappointed against what had been reported by its peers.”

CIBC declined 16 cents to C$76.11 at 4 p.m. in Toronto, the only Canadian bank to fall.

CIBC had slower earnings growth from Canadian consumer lending than larger rivals Royal Bank, Toronto-Dominion and Scotiabank, which benefited as mortgages, loans and deposits grew. CIBC’s deposits fell 2 percent from a year ago, and the lender set aside C$338 million for bad loans, 20 percent more than the year-earlier period.

Chief Executive Officer Gerald McCaughey said today in a conference call that a goal set in 2010 to reach C$3 billion of annual profit in three years from consumer lending and wealth management remains “intact” though “somewhat stressed” and depends on further wealth management acquisitions.

Canadian consumer lending and business-banking earnings rose 5 percent to C$567 million on higher revenue from business lending. CIBC said today it will spend C$50 million this year on projects to better serve retail and business-banking clients.

‘Exploring Options’

The bank, which said in January it’s shifting away from using mortgage brokers in favor of selling home loans through branches, said it’s “exploring options” including a sale of its FirstLine brand.

“Over the past number of years, we have invested in our branch-based mortgage business, including a substantial build of our mortgage advisers,” David Williamson, head of retail and business banking, said in the statement.

CIBC bought FirstLine Trust in 1995, and expanded its mortgage origination business to C$10 billion from C$500 million in 10 years, according to its website.

“CIBC has made no secret of the fact that it is not happy with returns from this channel,” Darko Mihelic, an analyst at Cormark Securities Inc., said of FirstLine in a Feb. 17 note. He estimates FirstLine holds about C$50 billion in mortgages.

Mutual Funds

Wealth-management profit, which includes mutual fund sales, rose 52 percent to C$100 million from C$66 million after adding earnings from the purchase of a 41 percent stake in American Century Investments from JPMorgan Chase & Co. in August.

The CIBC World Markets business earned C$133 million, compared with C$140 million a year earlier. Underwriting and advisory fees fell by a third to C$107 million. Trading revenue rose 9.9 percent to C$167 million, led by trading of interest rates and foreign exchange.

The corporate unit, which includes Caribbean banking, had profit of C$35 million, double that of a year earlier, the bank said.

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

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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