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Charges send CIBC to $51-million loss

Globe and Mail Update

Canadian Imperial Bank of Commerce lost $51-million in the second quarter, compared to a year-earlier loss of $1.1-billion.

The bank's bottom line was hurt by a series of charges and writeoffs, including a $475-million loss related to the run-off of its structured credit activities, a hit that stemmed largely from the deterioration of bond insurers that were guaranteeing some of the bank's holdings.

Other charges included $168-million from the impact of narrowing credit spreads; $100-million of valuation charges; a $65-million provision for credit losses; a $57-million writeoff of future tax assets; and $49-million of writedowns relating to the bank's merchant banking portfolio.

“At first glance, we view CIBC's results as neutral to slightly negative to our view on the stock,” RBC Capital Markets analyst Andre-Philippe Hardy wrote in a note to clients.

“Writedowns were greater than we had anticipated and retail banking continues to lack revenue momentum.”

Backing out the one-time items, the bank's core cash earnings per share were $1.44, compared to analysts' estimates of $1.39 per share. However, the extent of the one-time items – pushing the bank into the red – is likely to surprise investors. CIBC had a profit of $147-million in the prior quarter.

“Losses in structured credit did impact our results, but the bulk of these losses occurred early in the quarter before market conditions improved,” said chief executive officer Gerald McCaughey. “The rate of deterioration in the broader economy appeared to slow, and liquidity levels recovered during the quarter – both of which are encouraging signs as we head into the last half of the year.”

The bank's results also benefited from a $159-million foreign exchange gain.

Its Tier 1 capital ratio, the key measure of its financial cushion, was 11.5 per cent, significantly above the regulatory minimum of 7 per cent. The bank boosted its provisions for troubled loans by $218-million from a year ago.

CIBC's core Canadian personal and commercial banking business, CIBC Retail Markets, earned $390-million during the quarter, which ended April 30. That compares to profit of $516-million in the same period a year earlier. The 31-per-cent decline comes as the provision for loan losses rose because of the impact of higher delinquencies and bankruptcies on the bank's credit card and personal lending portfolios.

Wholesale or investment banking operations posted a loss of $373-million, compared to a loss of $1.64-billion a year ago. Structured credit losses were lower this quarter than in the comparable period last year.

More to come.

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