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CIBC Q1 profit drops to $798 million; quarter includes provision for settlement

TORONTO – CIBC (TSX:CM) says its net income slipped to $798 million in the first quarter largely on a one-time charge, the first — and so far only — major Canadian bank to report a year-to-year decline in net income for the quarter.

On an adjusted basis, however, CIBC’s profit beat analyst estimates compiled by Thomson Reuters. Adjusted earnings rose to $868 million or $2.15 per share, seven cents above the consensus estimate.

Among the negative items that reduced CIBC’s net income in the quarter was a $148-million loss from the settlement of a contract dispute linked to the collapse of Lehman Bros. in 2008. That item reduced CIBC’s first-quarter profit by 27 cents per share.

CIBC’s profit was also reduced by one cent per share related to amortization of intangible assets, partially offset by a gain of four cents per share from the sale of a wealth management business that operates in Hong Kong and Singapore.

Overall, however, the bank reported a profit of $1.91 per share, just two cents below the profit in the first quarter of fiscal 2012, when net income attributable to shareholders was $832 million.

CIBC’s core retail and business banking division saw its net income rise to $611 million, up eight per cent from $567 million a year earlier. That was offset by a small dip at its wealth management division and a major decline in wholesale banking, primarily related to the Lehman settlement.

“We’ve had a strong start to the year,” said president and chief executive Gerry McCaughey in a conference call.

“We’re confident that our lower-risk, customer-focused strategy positions CIBC to deliver consistent, sustainable returns for our shareholders.”

CIBC shares were down $1.09, or 1.3 per cent, to $82.79 near midday on the Toronto Stock Exchange.

Overall, CIBC’s revenue was $3.18 billion, up marginally from $3.16 billion in the first quarter of 2012.

CIBC also went against many analyst expectations by not raising its dividend above the current 94 cents per share. The other three banks that have reported first-quarter results so far — Bank of Montreal, Royal and TD — have all hiked their dividends and reported higher Q1 profit that beat estimates.

McCaughey defended the bank’s decision to holding steady on the dividend when asked by an analyst on the earnings conference call.

“I wouldn’t read too much into our not raising the dividend this quarter,” he said.

“On the capital front, we’re also in the middle of a (stock) buyback program that’s going at an accelerated pace. As I said before, to the extent that you have a buyback, it does allow you to raise your dividend more rapidly and stay within your payout ratio.”

He said the bank is still considering “the exact mix” of its buyback program, which would determine what happens to dividend increases in the coming quarters.

Provisions for credit losses were reduced to $265 million from $338 million a year earlier and $328 million in the fourth quarter of 2012, ended Oct. 31.

CIBCs wealth management division was down $10 million or 10 per cent from the same time in 2012 to $90 million. However, the comparable profit last year included a $37-million gain related to an investment. Excluding that, wealth management’s net income was up $25 million or 38 per cent from a year before.

The wholesale banking division saw its net income fall by $42 million or 32 per cent from a year earlier to $91 million, mostly due to the settlement with the Lehman Bros. estate.

Analysts had estimated that, on average, the bank would have adjusted earnings of $2.08 per share and revenue of $3.23 billion, according to consensus estimates compiled by Thomson Reuters.

CIBC has more than 42,000 employees across its operations including retail and wholesale banking and financial services, serving more than 11 million customers.