March 2, 2008

CIBC struck by loss after monoline charges

by Dave Nixon

Story link: CIBC struck by loss after monoline charges

Canadian Imperial Bank of Commerce sank to a C$1.5bn (US$1.5bn) first-quarter loss owing to charges originating from the reduced value of protection from ACA and other monoline insurers, including its exposure to US subprime mortgage-related securities.

The bank, which has a lengthy history of misfortune, also warned that its exposure to the insurers “could result in significant future losses”.

CIBC shares lost about 1 per cent in early trading on Thursday.

The losses go against of the bank’s strategy over the past two years of moving away from dicey businesses and centering more on its steadier retail operations.

Gerald McCaughey, chief executive, described the losses as a major disappointment.

The bank said that it had changed its business mix by exiting businesses that were not wholly aligned with the desired risk profile and strategy.

CIBC previously shored up its capital with a C$2.9bn share issue. It said yesterday that additionally strengthening the balance sheet would be its crown priority this year.

Numerous senior managers have been replaced, including the chief risk officer and the head of its investment banking arm.

The writedowns on exposure to monoline insurers totalled C$2.9bn before tax, whilst the charges on subprime securities amounted to C$473m.

These charges were partially offset by net income of C$857m from retail banking profits, up 15 per cent from a year earlier. CIBC reported net income of C$770m in the first quarter of 2007.

Unconnectedly, DBRS, a rating agency, downgraded two Canadian asset-backed commercial paper trusts supported by Bank of Montreal.

The bank earlier this month announced a C$130m writedown on its investment in the trusts.

The rating downgrade could open it to further losses. BMO is due to report first-quarter earnings next Tuesday.

In contrast, Toronto-Dominion Bank, which pulled out entirely from the structured-finance market a few years ago, reported net income of C$970m for the quarter to January 31, up 5.3 per cent from a year earlier. TD raised its dividend by 3.5 per cent.

Despite the problems at CIBC and Bank of Montreal, Canadian banks have until now escaped with comparatively slight damage from the credit-market turmoil in the US.