Canadian Imperial Bank of Commerce said Wednesday its second-quarter profit fell 13 per cent from a year ago, largely because it has set aside $75-million for a possible settlement with U.S. authorities over a market-timing case involving the bank.
The Toronto-based bank's profit in the three months ended April 30 dropped to $440-million or $1.20 a share from $507-million or $1.33 a year ago.
CIBC said the $75-million provision for “matters involving CIBC's dealings with certain hedge funds in the U.S. that engaged in the market timing of mutual funds” amounted to 21 cents a share. Factoring out the provision, per-share earnings would have been $1.41 a share. The consensus estimate of analysts polled by Thomson First Call was for a profit of $1.43 a share.
The bank also raised its quarterly dividend to 68 cents a share from 65 cents a share.
Return on equity for the quarter was 16.2 per cent, compared with 18.4 per cent a year earlier.
CIBC stock, which has risen 3.5 per cent since the start of 2005, fell $1.68 or 2.25 per cent to $73.10 in Toronto Wednesday.
CIBC had set aside $50-million in the first quarter of 2004 to cover potential losses linked to a U.S. Securities and Exchange Commission and New York State Attorney-General investigation that alleges the bank provided financing and other brokerage services to hedge funds that engaged in market timing of mutual funds.
“It is difficult to predict the ultimate outcome of the market timing investigation,” the bank said. “However, based upon ongoing discussions with the SEC and NYAG, this quarter, we increased this accrual by $75-million.” It added that more money may be required in the future.
During the quarter, the bank's provisions for credit losses fell to $159-million from $207-million a year ago.
Profit at CIBC's investment banking unit, CIBC World Markets, slumped 55 per cent to $115-million amid lower capital market fees. CIBC's wealth management arm saw its earnings fall 19 per cent to $78-million because of the increased provision linked to the U.S. mutual fund probe.
The bank's retail-markets profit rose 32 per cent to $263-million from a year ago on higher growth in personal consumer banking and stronger insurance sales.
CIBC said it expects lending and deposit volumes will continue to grow in the coming months, given the outlook for low and stable interest rates. “Capital markets volumes have declined somewhat from earlier in the year and the current outlook is for these lower volumes to continue through the third quarter.”
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