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 the Short-Term Instruments at R-1 (high). All trends are Stable. DBRS has also discontinued its rating of the Bank’s Cumulative Preferred Shares because there are none outstanding. 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 is Canada’s fifth-largest financial institution by market capitalization, deposits and assets under management. The Bank has the strongest Common Equity Tier 1 (CET1) and Tier 1 ratios of the big six banks in Canada as of Q2 2014. Asset quality at CIBC remains strong.

About two years ago, the Bank ceased mortgage originations from its FirstLine broker channel and 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 customers, exceeding the initial 25% customer retention target. 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 historical third-party customer satisfaction scores, which the Bank has been working to improve. Additionally, CIBC sold nearly 50% of its Aerogold Visa portfolio to Toronto-Dominion (TD) Bank in December 2013 and has launched its own loyalty travel card.

The Bank revised its expectations on the extent and timing of the anticipated economic recovery in the Caribbean region and consequently reported charges related to FirstCaribbean International Bank, its Caribbean subsidiary, in Q2 2014.

Like its other Canadian peers, the Bank has exposure to the Canadian residential mortgage market and other real estate lending. A slowdown in these markets may slow earnings generation, while a downturn in the residential mortgage or commercial real estate markets could hurt asset quality indicators and ultimately have an impact on provisioning levels.

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:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2014), Rating Bank Capital Securities -- Subordinated, Hybrid, Preferred & Contingent Capital Securities (December, 2013) and Criteria: Support Assessment for Banks and Banking Organisations (January 2014), which can be found on the DBRS website under Methodologies.

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