CIBC sees a long-term reward in wooing new Canadians with small-balance credit cards, saying it hopes to win their business in future as investment and mortgage clients.
David Williamson, CIBC's head of retail and business banking, says new Canadians are an obvious growth area for the country's fifth-largest lender.
"A lot of folks coming in are of solid credit standard. They're coming in to work here or to invest here, so we're looking to more than just participate in that space," Williamson told analysts on a call Thursday following the bank's latest earnings release.
One of the difficulties new Canadians face in obtaining credit at major banks is their lack of Canadian credit history, a factor in assessing whether they can repay debt.
CIBC said it reduces this risk by approving credit cards with initially with small, unsecured balances.
"It's a very small balance but allows new Canadians to build a credit history," he said. "Obviously, the experience is a winning proposition, that's why you see us and others doing it."
CIBC is not the only bank to offer special deals to Canadian immigrants. Royal Bank (TSX:RY) approves new Canadians for credit cards, car loans and even mortgages even if they have no Canadian credit history, while TD Bank offers new Canadians a no-fee checking account, a credit card and fee-less money transfers.
Wealth management drives earnings bump
Meanwhile, CIBC reported that it had a five per cent jump in profit in its third quarter boosted, like its competitors, by solid earnings from its wealth management division.
CIBC said Thursday it earned $921 million, or $2.26 per diluted share, in the three-month period ended July 31. That compared with $878 million, or $2.13 per share, in the same quarter last year.
After adjusting for one-time items, net earnings were $908 million or $2.23 per share, down 2.5 per cent from the same period a year ago but beating analysts expectations of $2.21 per share.
The drop was largely due to the sale of 50 per cent of its Aeroplan portfolio. Loyalty rewards company Aimia Inc., which owns and operates the Aeroplan rewards program in Canada, is now working with competitor TD Bank as its main partner as the issuer of Aeroplan credit cards.
Quarterly revenue was $3.36 billion, up from $3.25 billion in the same period a year ago.
Barclays analyst John Aiken said none of the bank's divisions really stood out in terms of growth, but overall, showed that CIBC is setting the stage for the future.
"While we agree that the quarter's performance does not merit much outperformance against the group, we are becoming increasingly convinced that the growth outlook for CIBC is improving over the longer term, but investors should not expect outsized return of capital as a payment for waiting," he wrote in a research note.
Shares in CIBC fell more than two per cent, or $2.46 to $103.05 in afternoon trading on the Toronto Stock Exchange.
Like the other banks that reported earnings this week, CIBC had strong results from its wealth management services. The division benefited from strong stock markets, higher commissions and sales of long-term mutual funds. The division earned a net income of $121 million for the third quarter, up $19 million or 19 per cent from the third quarter a year ago.
The bank has been working to expand its wealth management services by eyeing growth in the U.S. Ultimately, it wants the division to generate about 15 per cent of its total profit. This quarter, wealth management accounted for 13 per cent of the bank's total profit.
Retail banking slumps
CIBC's retail and business banking arm, which includes business from the branches, had net income of $589 million, down $23 million from a year ago, due to lower revenue and its sale of its Aeroplan credit card portfolio.
Provision for credit losses was down $125 million, or 39 per cent from the same quarter last year.
The bank says it will renew its share buyback program for another year.
"We are on track in executing our growth strategy to be the leading bank for our clients and we are well positioned for future growth," said Gerry McCaughey, CIBC president and CEO.
McCaughey will be leaving the bank on Sept. 15 to be succeeded by Victor Dodig, who is currently head of CIBC's wealth management division. The move was a surprise because McCaughey had previously announced that he would stay in the top job until April 2016 when he turns 60.
McCaughey is the fourth CEO from Canada's Big Five banks in the past year to announce his retirement, following Gordon Nixon of Royal Bank, Rick Waugh of Scotiabank and Ed Clark of TD.