CIBC Forecasts $3.8 Billion Profit From Main Businesses by 2018by
CIBC capital markets unit to lead earnings growth at 58%
Wealth unit seeks U.S. takeovers, private banking to expand
Canadian Imperial Bank of Commerce, the country’s fifth-largest lender, said it expects C$4.9 billion ($3.8 billion) in annual profit from its three main operating businesses by 2018, a 29 percent jump from 2014.
“By focusing more on how to build that modern, convenient bank, we’d be able to save some money, return that to our shareholders, but also invest some money to accelerate our growth rate,” Chief Executive Officer Victor Dodig, 50, said Wednesday in an interview following an investor event in Toronto. "That is in spite of a low growth, low economic environment."
Dodig, who took over as CEO last year, is seeking to make CIBC a more nimble, technology-driven bank that places more emphasis on revenue growth. The lender told investors it’s aiming for annual earnings growth of 5 percent to 10 percent, up from its 5 percent the past four years, while paying out about half its earnings in dividends.
CIBC is forecasting C$3 billion in adjusted profit by 2018 from retail and business banking, the company’s largest operating unit, David Williamson, the group’s head, said at the event. That would be a 25 percent increase from the C$2.4 billion earned by the domestic business last year, according to financial disclosures. CIBC plans to reduce the size of its branches, while adding new products like global money transfers, Williamson said in an interview.
The bank’s wholesale business, renamed CIBC Capital Markets, is forecasting a 31 percent profit increase to C$1.2 billion by 2018, according to group head Harry Culham. The unit earned C$913 million in adjusted profit in 2014.
“There are opportunities for us to continue to grow in the current businesses that we have," Culham said, adding that he’s aiming for internal expansion of about 3 percent a year.
Wealth management is targeting earnings of C$700 million by 2018, up 44 percent from last year’s total. The unit is focusing on internal expansion and acquisitions for its Atlantic Trust Private Wealth Management and American Century Investments businesses in the U.S., and selling more products to Canadians, the bank said.
“Our biggest growth will be from our existing client base,” Steve Geist, group head for wealth management, said in an interview. “The biggest asset this organization has is the fact that we have a relationship with 10 million clients, a huge portion of them could benefit from either more mutual funds or a wealth relationship."
CIBC’s earnings targets and strategy “appear ambitious but achievable to us,” Stefan Nedialkov, a Citigroup Inc. analyst, said in a note to clients, calling it an “upbeat investor day.”
Dodig said he’d consider U.S. wealth-management takeovers of as much as C$4 billion, up from his earlier guidance of C$3 billion. The higher range is due partly to the decline of the Canadian dollar relative to the U.S. greenback, he said.
“We’re not going to lunge at anything," said Dodi, who added that CIBC would be more receptive to a larger deal than smaller transactions. "We’re not interested in mainstream retail banking, we’re not interested in Wall Street banking, we’re interested in the middle market, where we can serve private businesses, help our clients grow into the U.S. and give them a private banking offer and wealth management."
CIBC also said it will take a restructuring charge of C$175 million to C$200 million in the fourth quarter as it seeks to achieve greater efficiencies through technology. The bank may take more restructuring costs periodically and anticipates about C$600 million in annual savings by 2019, Chief Financial Officer Kevin Glass said during the Toronto event.
“This is all part of our program of simplifying the bank," said Dodig, who wouldn’t say how many jobs are being cut. "We can’t get to where we want to be without reshaping CIBC, and that’s really what’s at the heart of it."
CIBC shares are down 0.2 percent this year, compared with the 7 percent decline of the eight-company Standard & Poor’s/TSX Commercial Banks Index.