CIBC, TD close bleak 4th-quarter earning season with lower profit

Canada's banking sector closed out its fourth-quarter earnings season Thursday with CIBC and TD providing more evidence of a challenging economic environment.

CIBC drew an impairment charge for the sale of its stake in Barbadian bank

A CIBC branch is seen Thursday, April 4, 2019 in Montreal. The bank missed analyst expectations for the quarter but revenue for the three months ended Oct. 31 was up $320 million. (Ryan Remiorz/The Canadian Press)

Canada's banking sector closed out its fourth-quarter earnings season Thursday with CIBC and TD providing more evidence of a challenging economic environment.

Canadian Imperial Bank of Commerce reported $1.19 billion of net profit in the fourth quarter, down six per cent from the comparable period of 2018, while its adjusted earnings of $2.84 per share came in below analyst estimates.

CIBC's revenue for the three months ended Oct. 31 was $4.77 billion, up from $4.45 billion in last year's fourth quarter, when it had $1.27 billion of net income, or $2.80 per share, and $3 per share of adjusted earnings.

TD Bank Group's adjusted earnings also missed analyst estimates as net profit slipped three per cent to $2.86 billion, or $1.54 per share, in the quarter ending Oct. 31, down from $2.96 billion or $1.58 per share a year earlier

Among other things, the banks increased their provisions for credit losses substantially compared with last year, when PCLs were historically low.

At TD, PCL for the quarter was $891 million, an increase of $221 million or 33 per cent, compared with the fourth quarter last year. At CIBC, PCL rose 52 per cent to $402 million from $264 million a year earlier.

CIBC's quarter was also negatively affected by a $135-million goodwill impairment charge related to the expected sale of its controlling interest in FirstCaribbean International Bank Ltd.

CIBC's net profit amounted to $2.58 per share while adjusted earnings were $2.84 per share.

Analysts had estimated $3.06 per share of adjusted profit, according to financial markets data firm Refinitiv.

"Our core businesses delivered pre-provision earnings growth of four per cent. However, our higher provisions for credit losses this quarter affected our bottom line results," CIBC chief executive Victor Dodig told analysts.

"While provisions have increased, we remain confident in the quality of our loan portfolio going forward."

Laura Dottori-Attanasio, the bank's chief risk officer, said that the quarter's PCLs included $330 million of provisions for impaired loans and $72 million of provisions for performing loans.

The higher provision for impaired loans was primarily due to one fraud-related impairment that amounted to $52 million in CIBC's business-government portfolio. The higher provision for performing loans was primarily due to changes in forward-looking indicators amid an increase in delinquency rates at its Canadian consumer portfolios.

"The increase is mainly in insured mortgages and secured lines of credit within personal lending that have conservative collateral coverage. As such, we do not expect them to translate into notable losses," she said.

Dodig concluded the CIBC call by saying the bank is focused on improving the performance of its businesses.

"We did not deliver what we wanted to deliver to our shareholders and we're focused on getting the bank back to earnings growth in 2020. That's the preliminary occupation of the leadership team."

In answer to an analyst question, Dodig said there are opportunities for CIBC to simplify its operations and improve efficiencies.

"And while we prefer to execute this gradually over the normal course. We continue to review all our options, and that could potentially require a charge down the line in order to accelerate our progress."

Bank of Montreal, which also reported lower fourth quarter profit and higher provisions for credit losses on Tuesday, said it took a $357-million restructuring charge — mostly severance for about five per cent of its global workforce — as a result of a decision to accelerate digitization initiatives and simplification of its business.

CIBC shares were down $6 or 5.2 per cent at $108.83 in midday trading at the Toronto Stock Exchange.

TD shares were down $2.36 or 3.1 per cent to $73.31.