By Lynne Olver
TORONTO (Reuters) - Canadian Imperial Bank of Commerce
The results were broadly in line with market expectations, and the bank's stock added 1.9 percent to close at C$46.18, one of the few financial stocks to rise on the Toronto Stock Exchange.
However, some analysts said changes to the way the bank accounted for some securities masked their deteriorating values, and Moody's cited risk management concerns for keeping its negative outlook on the bank's credit ratings.
Gerry McCaughey, the bank's president and chief executive, told a conference call that CIBC had shown "gradual improvement" in results in its last three quarters.
With its strong capital position and its business concentration in Canada, the bank should make "further progress" in 2009, McCaughey said.
Early on Thursday, CIBC, the country's fifth-largest bank, said net income was C$436 million, or C$1.06 a share, in the three months ended October 31. That was down from net income of C$884 million, or C$2.53 a share, a year earlier.
Unlike its bigger rivals, CIBC did not provide advance notice of expected writedowns. It said on Thursday a long list of items, including writedowns, cut earnings by 48 Canadian cents a share.
That put the results in line with the average analyst profit expectation of C$1.57 a share, before items, according to Reuters Estimates.
The bank said tax gains, including a big benefit related to Enron litigation settlements, boosted earnings by C$463 million. It wrote down the value of positions with bond insurers by C$1.27 billion, and recorded a gain of C$895 million on the reduction of a funding note commitment. There were other mark-to-market securities gains and losses, as well as a big accruals for severance.
It said the C$122 million severance accrual came from bringing "support functions" into line with its slimmed-down and refocused CIBC World Markets unit.
CIBC was fortunate to have positive tax adjustments that offset most of the damage from further writedowns, Dundee Securities analyst John Aiken said in a research note. But he cut his recommendation on CIBC to "sell", citing too many risks in its balance sheet.
The bank said it transferred securities with a notional value of C$6.4 billion to the "held to maturity" category, thus avoiding an earnings hit of C$629 million for unrealized losses.
Andre-Philippe Hardy, an analyst at RBC Capital Markets, put CIBC's writedowns for structured credit holdings at C$1.75 billion in the quarter. Both writedowns and earnings were higher than he had estimated.
That said, helpful changes to accounting standards "mask a decline in the market value of assets during the quarter," Hardy said.
Moody's rating agency said that with its latest structured-credit losses, CIBC had lost about C$8.2 billion on these instruments in 2008.
More time will be needed to evaluate steps the bank has taken to fix weaknesses in its risk management discipline, Moody's said in a commentary.
Investors have been closely monitoring capital strength in recent months, and CIBC said its Tier 1 capital ratio of 10.5 percent exceeds regulatory requirements and its own target of 8.5 percent. This gives it "the strongest capital position among the major commercial banks in North America," it said.
CIBC's provision for credit losses, at C$222 million, was up C$90 million from a year earlier. The bank cited higher losses in credit cards and corporate loan portfolios for the jump.
It has a large credit card portfolio and "as the economy changes, one would expect some change in your loss rates," said Sonia Baxendale, head of CIBC's retail banking unit.
(Editing by Rob Wilson)
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