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 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. The ratings are supported by CIBC’s low-risk retail business mix, the result of a well-developed Canadian consumer distribution network, as well as by the Bank’s substantial presence in domestic wealth management and improvements in expense metrics.

CIBC has one of the larger multi-pronged distribution networks in Canada to service its retail customers. The Bank also has one of the largest wealth management platforms in Canada relative to its large Canadian peers, positioning CIBC to benefit from longer-term demographic shifts as the domestic population ages. DBRS believes that CIBC’s Canadian retail markets strategy – to increase product penetration using a relationship-based approach – will be challenging given the Bank’s below-average customer satisfaction scores. CIBC continues to have the lowest customer satisfaction index ranking among the five largest Canadian banks, according to J.D. Power and Associates’ 2012 Canadian Retail Banking Customer Satisfaction Study.

It has been almost a year since CIBC ceased mortgage originations from its FirstLine broker channel on July 31, 2012. CIBC has focused its efforts on transitioning FirstLine customers to branch-based mortgages where the Bank benefits from higher margins and deeper client relationships, offering cross-sell opportunities. Thus far, the Bank has successfully executed on its retention of FirstLine clients, exceeding the initial 25% customer retention target.

CIBC remains engaged in discussions with Aimia Inc. (Aimia), the parent company of Aeroplan, regarding negotiations over the contract renewal of Aeroplan co-branded credit cards. It remains unclear whether CIBC will choose to renew its contract with Aimia, as The Toronto-Dominion Bank has put forth a competitive bid for the contract, which CIBC has the right of first refusal to match. CIBC has been extensively evaluating the prospect of developing its own loyalty travel card, which it is prepared to invest heavily in. The Bank’s ability to create an in-house credit card offering as compelling as the Aeroplan co-branded card remains unclear, although its intention is to leverage customer information to provide an industry-leading travel rewards card.

DBRS does not expect potential house price depreciation in Canada to result in material losses from the Bank’s real estate secured lending portfolio, notwithstanding the high indebtedness of the average Canadian consumer and significant increases in housing prices in certain sectors of the Canadian real estate market.

The ratings on the Non-Cumulative Class A Preferred Shares, Series 26, 27 and 29 remain Under Review with Negative Implications. DBRS hopes to resolve this rating in the near future after the publication of the results from DBRS’s recent Request for Comments on Rating Subordinated, Hybrids and Preferred Bank Capital Securities.

CIBC’s long-term Deposits & Senior Debt rating, at 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 senior debt and deposits and subordinated debt ratings.

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.