DBRS Confirms CIBC at AA and R-1 (high); Trends Stable

DBRS has today confirmed the ratings of Canadian Imperial Bank of Commerce (CIBC or the Bank) and its related entities, including the Bank’s Deposits & Senior Debt at AA and Short-Term Instruments at R-1 (high). All trends are Stable, except for the Non-Cumulative Class A Preferred Shares, Series 26, 27 and 29, which remain Under Review with Negative Implications, where they were placed on August 17, 2011. The ratings are supported by CIBC’s low-risk retail business mix, the result of a well-developed Canadian consumer distribution network, substantial presence in domestic wealth management and improvements in expense metrics.

CIBC delivered 17% year-to-date earnings growth in the first nine months of 2012, driven by strong income growth in Retail and Business Banking (8%), largely resulting from increased revenue from higher fees paired with volume growth and Wealth Management (22%). CIBC demonstrated prudent expense management through its ability to deliver top-line revenue growth while decreasing operating expenses by 3.2% in the nine months ended Q3 2012 relative to the prior-year period. This can be attributed to both operational efficiencies and the absence of the prior period’s impairment charge on CIBC FirstCaribbean International Bank (FirstCaribbean). On June 20, 2012, CIBC announced that it was unable to find a suitable buyer for the Bank’s FirstLine mortgage origination business and would be ceasing originations through FirstLine as of July 31, 2012. Going forward, CIBC is looking to focus on branch-based mortgage originations, which are typically characterized as higher-margin and are known to develop stronger customer relationships.

CIBC’s Deposits & Senior Debt rating of AA is composed of its assigned intrinsic assessment of AA (low) and its support assessment of SA2 (reflecting the expectation of systemic and timely external support by the Government of Canada). The SA2 ranking results in a one-notch benefit to the Deposits & Senior Debt and Subordinated Debt ratings.

Based in Toronto, Canadian Imperial Bank of Commerce has full-service banking operations in retail and wholesale banking and wealth management in Canada and a retail business in the Caribbean.

CIBC revised its organizational structure in 2011 to include three operating business units: Retail and Business Banking, Wealth Management and Wholesale Banking, as well as a Corporate & Other segment. Retail and Business Banking (personal and business banking), Wealth Management (retail brokerage, asset management and private wealth management) and Wholesale Banking (capital markets and corporate and investment banking) generated operating net income of $1,717 million, $255 million and $420 million, respectively, in the first nine months of 2012. The Corporate & Other segment generated net operating income of $89 million in the first nine months of 2012, up from the $103 million loss experienced by the segment in the same period a year prior.

CIBC has a sizeable Canadian retail banking operation, with one of the largest full-service brokerages and the third largest branch network in Canada. CIBC is dedicated to being an industry leader in mobile banking, as evidenced most recently by the Bank’s partnership with Rogers Communications Inc., making CIBC the first Canadian bank to allow customers to use their credit card through their smartphone to make purchases. The Bank also has a large retail business in the Caribbean through its 91% ownership in FirstCaribbean. Wholesale Banking is a client-focused investment bank based in Canada, with strengths in mergers and acquisitions and equity underwriting, and a focus on expanding debt underwriting capabilities, in both government and corporate bonds.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2012), DBRS Criteria: Rating Bank Preferred Shares and Equivalent Hybrids (June 2009) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on our website.

The sources of information used for this rating include information provided by the Canadian Imperial Bank of Canada, Investment Funds Institute of Canada, Bank for International Settlements, and Office of the Superintendent of Financial Institutions Canada. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

For additional information on this rating, please see Banks and Banking Organisations Linking Document by clicking the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Brenda Lum
Rating Committee Chair: Kent Wideman
Initial Rating Date: December 31, 1980
Most Recent Rating Update: July 12, 2011