Canadian Imperial Bank of Commerce’s personal and commercial banking unit was resilient in its fourth quarter, with profit rising 8.8 per cent from the same period last year to $655 million, but it could have been even better if it hadn’t set aside more money for loan losses.
Funds that the country’s fifth-largest lender by assets earmarked for covering anticipated credit losses increased to $190 million during the three months ended Oct. 31 from $171 million in 2014, according to company filings disclosed Thursday.
Gross impaired loans in oil and gas, specifically, more than tripled to $125 million from $34 million in the third period, which was largely attributed to two companies and is the product of the current rout in oil prices.
Investors have been bracing, and short sellers salivating, for Canadian banks to show signs of weakness.
Not to worry, assured CIBC’s chief risk officer Laura Dottori-Attanasio. “Overall, our portfolio is performing as expected given distressed oil prices,” she told analysts. Plus, 78 per cent of the $17.3 billion that’s directly exposed is rated as investment grade.
CIBC hikes dividend as profit declines 2.8% on restructuring chargesCanada's banks pulling off another miracle earnings season, but for how long?Toronto-Dominion profit beats expectations on gains in retail banking, trading
John Aiken, an analyst at Barclays Capital, called the jump in impairments from the energy patch “the one blight in the quarter.”
CIBC’s reported net income fell 4.1 per cent to $778 million, while its adjusted profits rose 4.5 per cent to $952 million, beating Bay Street’s average estimates.
It also posted a forewarned restructuring charge of $161 million after taxes related to employee severances, as the bank focuses on improving its digital channels, streamlining its internal processes, deepening its relationship with clients and becoming more efficient.
“We invested considerable amount of time and effort as a team to change the way we think and to change the way we operate,” said chief executive Victor Dodig, who talked about being a more nimble financial institution that’s focused on the core business, knows its clients and can respond to their needs.
For the fifth quarter in a row, the bank hiked its dividend by three cents, and it’s now $1.15 per share. It recorded a rise in its adjusted dividend payout ratio to 47.4 per cent of earnings, returning more capital to investors.
The market was not as enthused. Shares of CIBC in Toronto Thursday fell 2.2 per cent to $98.58, pushing the bank back into negative territory for the calendar year.
Even as profits in the industry have ballooned, the S&P/TSX Commercial Bank Index has declined 5.2 per cent so far in 2015.
Toronto-Dominion Bank, the country’s largest lender, also reported results on Thursday, and its stock dropped 1.34 per cent to $54.30.
Reported net income at TD climbed to $1.84 billion during the fourth quarter from $1.75 billion the previous year. Profit, excluding some items, was $1.14 per share, narrowly beating estimates of $1.13.
The bank recorded a forewarned charge for restructuring of $243 million after taxes, adding to the $228-million charge it booked earlier in the year. TD said in a release that this latest cost-cutting phase focused on the U.S. and some functions in Canada.
“The name of the name is to try to moderate our rate of expense growth, and I think you certainly saw us to that in 2015” as sales growth remains challenging, said chief financial officer Colleen Johnston, who will become the group head of direct channels, technology, marketing and real estate effective January 2.
Like CIBC, TD experienced some deterioration in its loan portfolio in the energy sector, with gross impaired loans growing to $99 million from $35 million in the previous quarter.
Of the big Canadian banks, “TD’s exposure to oil and gas is, by far, the lowest,” said Edward Jones analyst James Shanahan.
The majority of TD’s provisions of $509 million, up from $437 million, were focused in its U.S. retail business, including $34 million in extra losses from flooding in South Carolina, largely related to loans in residential real estate.
Chief risk officer Mark Chauvin told analysts that in the last four or five months, TD has begun to see “a gradual increase” in the delinquency rates for credit cards and indirect auto loans primary in the non-prime segment, which account for just one per cent of the bank’s total book, in Alberta, Saskatchewan and Newfoundland.
“In many respects, we look at that as an early indicator,” he said. “We expected to see losses of this level so after a couple quarters of saying we hadn’t seen them yet, we’re now starting to see them.”
TD announced a share repurchase plan of up to 9.5 million shares, but didn’t raise its quarterly dividend.
“We had hoped for a change in dividend policy and a small increase,” said Darko Mihelic, analyst at RBC Capital Markets. “We believe expectations will build for a large dividend increase announced in Q1.”