CIBC sees Q1 trading revenue jump while earnings hit by lawsuit settlement

TORONTO — Market volatility helped lead to a surge in trading activity for CIBC that boosted first quarter revenue, while a lawsuit settlement pushed earnings down.

The bank, the first among the Big Six to report first-quarter results this year, said Friday that its non-trading margins on earnings income also rose in the quarter thanks to rising central bank interest rates, while the same trend is leading to a slowing of loan growth.

“While our pipelines remain stable, we've seen slower lending growth due to both reduced client demand and from our prudent risk posture in this environment," said chief executive Victor Dodig on an earnings call.

He said that overall the bank expects the trend to mean increased pressure on the economy, though he stopped short of predicting an outright recession.

"While pockets of strength exist, there are growing uncertainties driven by geopolitical tensions and persistent inflationary and interest rate pressures. This will have an impact on economic growth and on client activity in the near term," said Dodig.

The bank said growth is expected to slow especially in the real estate sector, which has seen both slowing demand on the retail side from higher rates and on the commercial side as the office market shows signs of strain.

"Real estate is quiet. That will subdue growth a bit," said Jon Hountalas, recently-appointed group head of Canadian banking, noting that the bank will be more conservative in how it gives loans to new clients.

"In this type of environment, we're going to be a little more conservative," he said.

The comments come as CIBC reported a net income of $432 million or 39 cents per diluted share for the quarter ended Jan. 31 compared with $1.87 billion or $2.01 per diluted share a year earlier.

Revenue totalled $5.93 billion, up from $5.50 billion in the same quarter last year.

Adjusted earnings, which excluded the $1.17-billion charge to settle a lawsuit filed by Cerberus Capital Management LP, came in at $1.94 per diluted share for its latest quarter, down from an adjusted profit of $2.04 per diluted share a year earlier.

Analysts on average had expected a profit of $1.70 per share and $5.67 billion in revenue, according to estimates compiled by financial markets data firm Refinitiv.

“CIBC produced a strong headline beat against expectations," said Barclays analyst John Aiken in a note.

"However, we anticipate that the market is likely to temper its enthusiasm to a certain degree as the better-than-expected results were led by exceptionally strong trading revenues and lower-than-forecast provisions," he said.

Trading revenue was up 18 per cent from a year earlier to $610 million, while credit loss provisions of $295 million were up $220 million from the same quarter last year but below what observers had expected.

The bank also reported that it had a capital ratio of 11.6 per cent in the quarter, despite the lawsuit settlement, which was also welcomed along with the results generally by analysts.

"The bottom line is that this is a constructive result that takes capital worries off the table and sets the group up well for next week," said Scotiabank analyst Meny Grauman.

This report by The Canadian Press was first published Feb. 24, 2023.

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Ian Bickis, The Canadian Press