TORONTO, May 30, 2013 /CNW/ - CIBC (TSX: CM) (NYSE: CM) today announced its financial results for the second quarter ended April 30, 2013.
Second quarter highlights
- Reported net income was $876 million, compared with $811 million for the second quarter a year ago, and $798 million for the prior quarter.
- Adjusted net income was $876(1) million, compared with $840(1) million for the second quarter a year ago, and $895(1) million for the prior quarter.
- Reported diluted earnings per share was $2.12, compared with $1.90 for the prior year quarter, and $1.91 for the prior quarter.
- Adjusted diluted earnings per share was $2.12(1), compared with $2.00(1) for the prior year quarter, and $2.15(1) for the prior quarter.
Results for the second quarter of 2013 were affected by the following items of note:
- $27 million ($20 million after-tax or $0.05 per share) income from the structured credit run-off business;
- $21 million ($15 million after-tax or $0.04 per share) loan losses in our exited European leveraged finance portfolio; and
- $6 million ($5 million after-tax or $0.01 per share) amortization of intangible assets.
CIBC's Basel III Common Equity Tier 1 ratio at April 30, 2013 was 9.7%, and our Tier 1 capital ratio and Total capital ratio were 12.2% and 15.5%, respectively, on an all-in basis compared to Basel III Common Equity Tier 1 ratio of 9.6%, Tier 1 capital ratio of 12.0% and Total capital ratio of 15.3% in the prior quarter.
Return on common shareholders' equity for the second quarter was 22.3%.
CIBC announced a quarterly dividend increase of 2 cents per common share to 96 cents per share.
"CIBC delivered solid results this quarter across our core businesses in Retail and Business Banking, Wealth Management and Wholesale Banking," says Gerald T. McCaughey, President and Chief Executive Officer. "These results reflect our strong focus on our clients as well as our underlying business fundamentals."
Core business performance
Retail and Business Banking reported net income of $604 million for the second quarter, up $48 million or 9% from the same quarter last year.
Revenue of $2.0 billion was up $32 million or 2% from the second quarter of 2012, primarily due to volume growth across most products, wider spreads, and higher fees. Provision for credit losses of $233 million was down $38 million, or 14%, from the same quarter last year due to lower write-offs and bankruptcies in the cards portfolio.
During the second quarter of 2013, Retail and Business Banking continued to make progress against our objectives of accelerating profitable revenue growth and enhancing client experience:
- We continued to invest in our distribution platform, opening 10 branches in the first half of fiscal 2013 to better serve our clients. We now offer expanded evening and Saturday hours at over 650 of our branches, as well as Sunday hours at over 100 branches;
- In April, we launched the CIBC Everyday Banking Bundle and the CIBC Premium Banking Bundle to make it easier for our clients to bank with us and reward them for doing so;
- We launched Break Away to our Imperial Service teams across the country. Break Away, a leadership training program to support frontline best practices, has successfully demonstrated that through a consistent approach to sales and service delivery we can significantly improve sales and client experience results; and
- Post quarter-end, we announced the availability of CIBC Mobile Payments to Android smartphones, starting with the Samsung Galaxy S3 from Rogers. This builds on our leadership in the mobile payments space. Last October, CIBC became the first bank in Canada to provide consumers with the ability to complete credit card transactions via their smartphone.
Wealth Management reported net income of $92 million for the second quarter, up 16% from the same quarter last year.
Revenue of $443 million was up $25 million or 6% compared to the second quarter of 2012, primarily due to higher client assets under management driven by higher long-term net sales of mutual funds.
During the second quarter of 2013, Wealth Management continued its progress in support of our strategic priority to build our wealth management platform:
- We announced our intention to acquire Atlantic Trust Private Wealth Management from its parent company Invesco Ltd. as part of our strategic plan to grow our North American wealth management business; and
- We continue to maintain momentum in our retail fund business with 17 consecutive quarters of positive long-term net sales.
Wholesale Banking reported net income of $198 million for the second quarter, up $107 million from the prior quarter, which included a settlement charge shown as an item of note. Excluding items of note, adjusted net income was $193(1) million, down $7 million from the prior quarter.
Revenue of $580 million was up $17 million or 3% from the prior quarter, primarily due to higher revenue in the structured credit run-off business and U.S. real estate finance, partially offset by lower capital markets revenue.
In support of its objective to be the premier client-focused wholesale bank centred in Canada, Wholesale Banking acted as:
- Financial advisor to Inmet Mining on its sale to First Quantum Minerals for $4.6 billion;
- Joint bookrunner and administrative agent in the refinancing of Hydro-Québec's US$2.0 billion revolving credit facility;
- Joint bookrunner of TELUS Corporation's $1.7 billion dual-tranche bond offering;
- Financial advisor, joint underwriter, joint bookrunner and administrative agent for Leon's Furniture Limited's $500 million acquisition financing to acquire The Brick; and
- Joint lead and joint bookrunner on the Province of Manitoba's US$500 million global debt offering.
In summary, CIBC delivered solid performance during the second quarter.
"The investments we are making in our retail and business banking, wealth management and wholesale banking businesses are furthering our strength and positioning us well for the future," says Mr. McCaughey.
CIBC in our communities
CIBC is committed to supporting organizations that help make our communities stronger and healthier. During the quarter CIBC announced:
- A $1 million sponsorship of the National Arts Centre (NAC) Gala in support of the National Youth and Education Trust;
- A $500,000 donation to London Health Sciences Foundation;
- A $250,000 donation to the Ottawa Hospital to support the hospital's Breast Health Centre; and
- A $250,000 donation to the IWK's Women's & Newborn Health Program in Halifax to help redevelop the operating suites and recovery area at the IWK Health Centre.
As the official Canadian bank in association with VISA of the 2014 FIFA World Cup Brazil™, CIBC hosted the 2014 FIFA World Cup Winner's Trophy at an event for more than 4,000 clients, employees and the public to celebrate Canada's diverse communities and passion for sports.
For a second consecutive year, CIBC was ranked as the strongest bank in Canada, strongest in North America and third strongest in the world by Bloomberg Markets. During the quarter, CIBC was also named as one of the:
- Best Workplaces in Canada 2013 by the Great Place to Work Institute;
- Best Employers for New Canadians 2013 and Canada's Best Diversity Employers 2013 by Mediacorp; and
- Top Brands 2013 in Canada by the Reputation Institute.
"These awards reflect our strategy to be a lower risk bank that generates consistent and sustainable earnings over the long term, while achieving strategic growth; and demonstrate our commitment to creating an environment where all employees can excel," adds Mr. McCaughey.
_________________________________________ (1) For additional information, see the "Non-GAAP measures" section. |
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The information on the following pages forms a part of this press release.
(The board of directors of CIBC reviewed this press release prior to it being issued. CIBC's controls and procedures support the ability of the President and Chief Executive Officer and the Chief Financial Officer of CIBC to certify CIBC's second quarter financial report and controls and procedures. CIBC's CEO and CFO will voluntarily provide to the Securities and Exchange Commission a certification relating to CIBC's second quarter financial information, including the attached unaudited interim consolidated financial statements, and will provide the same certification to the Canadian Securities Administrators.)
Management's discussion and analysis
Management's discussion and analysis (MD&A) is provided to enable readers to assess CIBC's financial condition and results of operations as at and for the quarter and six months ended April 30, 2013, compared with corresponding periods. The MD&A should be read in conjunction with our 2012 Annual Report and the unaudited interim consolidated financial statements included in this report. Unless otherwise indicated, all financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (IFRS or GAAP) and all amounts are expressed in Canadian dollars. This MD&A is current as of May 29, 2013. Additional information relating to CIBC is available on SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission's (SEC) website at www.sec.gov. No information on CIBC's website (www.cibc.com) should be considered incorporated herein by reference. A glossary of terms used throughout this quarterly report can be found on pages 182 to 185 of our 2012 Annual Report.
External reporting changes
Basel III
We adopted the Office of the Superintendent of Financial Institution's (OSFI) revised Capital Adequacy Requirements (CAR) Guideline effective January 2013. The revised CAR Guideline reflects the changes to capital requirements, commonly referred to as Basel III, that have been issued by the Basel Committee on Banking Supervision (BCBS).
A NOTE ABOUT FORWARD-LOOKING STATEMENTS: From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including in this report, in other filings with Canadian securities regulators or the U.S. Securities and Exchange Commission and in other communications. These statements include, but are not limited to, statements made in the "Overview - Income taxes", "Overview - Outlook for calendar year 2013", "Review of quarterly financial information", "Capital resources", "Management of risk - Credit risk", "Management of risk - Market risk", "Management of risk - Liquidity risk", and "Accounting and control matters" sections of this report and other statements about our operations, business lines, financial condition, risk management, priorities, targets, ongoing objectives, strategies and outlook for 2013 and subsequent periods. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate" and other similar expressions or future or conditional verbs such as "will", "should", "would" and "could". By their nature, these statements require us to make assumptions, including the economic assumptions set out in the "Overview - Outlook for calendar year 2013" section of this report, and are subject to inherent risks and uncertainties that may be general or specific. A variety of factors, many of which are beyond our control, affect our operations, performance and results, and could cause actual results to differ materially from the expectations expressed in any of our forward-looking statements. These factors include: credit, market, liquidity, strategic, insurance, operational, reputation and legal, regulatory and environmental risk; the effectiveness and adequacy of our risk management models and processes; legislative or regulatory developments in the jurisdictions where we operate; amendments to, and interpretations of, risk-based capital guidelines and reporting instructions; the resolution of legal proceedings and related matters; the effect of changes to accounting standards, rules and interpretations; changes in our estimates of reserves and allowances; changes in tax laws; changes to our credit ratings; political conditions and developments; the possible effect on our business of international conflicts and the war on terror; natural disasters, public health emergencies, disruptions to public infrastructure and other catastrophic events; reliance on third parties to provide components of our business infrastructure; the accuracy and completeness of information provided to us by clients and counterparties; the failure of third parties to comply with their obligations to us and our affiliates; intensifying competition from established competitors and new entrants in the financial services industry; technological change; global capital market activity; changes in monetary and economic policy; currency value fluctuations; general business and economic conditions worldwide, as well as in Canada, the U.S. and other countries where we have operations; changes in market rates and prices which may adversely affect the value of financial products; our success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels; changes in client spending and saving habits; our ability to attract and retain key employees and executives; our ability to successfully execute our strategies and complete and integrate acquisitions and joint ventures; and our ability to anticipate and manage the risks associated with these factors. This list is not exhaustive of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements. We do not undertake to update any forward-looking statement that is contained in this report or in other communications except as required by law.
Second quarter financial highlights
As at or for the | As at or for the | ||||||||||||||||||||
three months ended | six months ended | ||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||
Unaudited | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | ||||||||||||||||
Financial results ($ millions) | |||||||||||||||||||||
Net interest income | $ | 1,823 | $ | 1,855 | $ | 1,753 | $ | 3,678 | $ | 3,595 | |||||||||||
Non-interest income | 1,316 | 1,326 | 1,331 | 2,642 | 2,646 | ||||||||||||||||
Total revenue | 3,139 | 3,181 | 3,084 | 6,320 | 6,241 | ||||||||||||||||
Provision for credit losses | 265 | 265 | 308 | 530 | 646 | ||||||||||||||||
Non-interest expenses | 1,821 | 1,987 | 1,764 | 3,808 | 3,555 | ||||||||||||||||
Income before taxes | 1,053 | 929 | 1,012 | 1,982 | 2,040 | ||||||||||||||||
Income taxes | 177 | 131 | 201 | 308 | 394 | ||||||||||||||||
Net income | $ | 876 | $ | 798 | $ | 811 | $ | 1,674 | $ | 1,646 | |||||||||||
Net income attributable to non-controlling interests | $ | 2 | $ | 2 | $ | 1 | $ | 4 | $ | 4 | |||||||||||
Preferred shareholders | 25 | 25 | 44 | 50 | 100 | ||||||||||||||||
Common shareholders | 849 | 771 | 766 | 1,620 | 1,542 | ||||||||||||||||
Net income attributable to equity shareholders | $ | 874 | $ | 796 | $ | 810 | $ | 1,670 | $ | 1,642 | |||||||||||
Financial measures | |||||||||||||||||||||
Reported efficiency ratio | 58.0 | % | 62.5 | % | 57.2 | % | 60.3 | % | 57.0 | % | |||||||||||
Adjusted efficiency ratio (1) | 56.6 | % | 56.1 | % | 55.1 | % | 56.3 | % | 55.2 | % | |||||||||||
Loan loss ratio (2) | 0.47 | % | 0.42 | % | 0.53 | % | 0.44 | % | 0.53 | % | |||||||||||
Return on common shareholders' equity | 22.3 | % | 19.9 | % | 22.1 | % | 21.1 | % | 22.2 | % | |||||||||||
Net interest margin | 1.85 | % | 1.83 | % | 1.82 | % | 1.84 | % | 1.84 | % | |||||||||||
Net interest margin on average interest-earning assets (3) | 2.14 | % | 2.12 | % | 2.11 | % | 2.13 | % | 2.13 | % | |||||||||||
Return on average assets (4) | 0.89 | % | 0.79 | % | 0.84 | % | 0.84 | % | 0.84 | % | |||||||||||
Return on average interest-earning assets (3)(4) | 1.03 | % | 0.91 | % | 0.98 | % | 0.97 | % | 0.98 | % | |||||||||||
Total shareholder return | (2.02) | % | 7.13 | % | (1.12) | % | 4.97 | % | 1.63 | % | |||||||||||
Common share information | |||||||||||||||||||||
Per share ($) | - basic earnings | $ | 2.12 | $ | 1.91 | $ | 1.90 | $ | 4.03 | $ | 3.84 | ||||||||||
- reported diluted earnings | 2.12 | 1.91 | 1.90 | 4.03 | 3.83 | ||||||||||||||||
- adjusted diluted earnings (1) | 2.12 | 2.15 | 2.00 | 4.27 | 3.97 | ||||||||||||||||
- dividends | 0.94 | 0.94 | 0.90 | 1.88 | 1.80 | ||||||||||||||||
- book value | 39.11 | 38.07 | 35.22 | 39.11 | 35.22 | ||||||||||||||||
Share price ($) | - high | 84.70 | 84.10 | 78.00 | 84.70 | 78.00 | |||||||||||||||
- low | 77.02 | 76.70 | 73.27 | 76.70 | 68.43 | ||||||||||||||||
- closing | 80.57 | 83.20 | 74.53 | 80.57 | 74.53 | ||||||||||||||||
Shares outstanding (thousands) | - weighted-average basic | 400,400 | 403,332 | 403,058 | 401,890 | 402,068 | |||||||||||||||
- weighted-average diluted | 400,812 | 403,770 | 403,587 | 402,315 | 402,590 | ||||||||||||||||
- end of period | 399,811 | 401,960 | 404,945 | 399,811 | 404,945 | ||||||||||||||||
Market capitalization ($ millions) | $ | 32,213 | $ | 33,443 | $ | 30,181 | $ | 32,213 | $ | 30,181 | |||||||||||
Value measures | |||||||||||||||||||||
Dividend yield (based on closing share price) | 4.8 | % | 4.5 | % | 4.9 | % | 4.7 | % | 4.9 | % | |||||||||||
Reported dividend payout ratio | 44.2 | % | 49.2 | % | 47.4 | % | 46.6 | % | 46.9 | % | |||||||||||
Adjusted dividend payout ratio (1) | 44.2 | % | 43.7 | % | 45.0 | % | 43.9 | % | 45.3 | % | |||||||||||
Market value to book value ratio | 2.06 | 2.19 | 2.12 | 2.06 | 2.12 | ||||||||||||||||
On- and off-balance sheet information ($ millions) | |||||||||||||||||||||
Cash, deposits with banks and securities | $ | 78,361 | $ | 72,656 | $ | 68,695 | $ | 78,361 | $ | 68,695 | |||||||||||
Loans and acceptances, net of allowance | 252,292 | 251,139 | 251,487 | 252,292 | 251,487 | ||||||||||||||||
Total assets | 397,705 | 392,783 | 387,458 | 397,705 | 387,458 | ||||||||||||||||
Deposits | 307,353 | 306,304 | 297,111 | 307,353 | 297,111 | ||||||||||||||||
Common shareholders' equity | 15,638 | 15,303 | 14,260 | 15,638 | 14,260 | ||||||||||||||||
Average assets | 404,782 | 402,313 | 391,646 | 403,527 | 393,909 | ||||||||||||||||
Average interest-earning assets (3) | 350,136 | 347,020 | 337,852 | 348,552 | 338,718 | ||||||||||||||||
Average common shareholders' equity | 15,583 | 15,361 | 14,095 | 15,470 | 13,959 | ||||||||||||||||
Assets under administration (5) | 1,468,429 | 1,429,049 | 1,397,624 | 1,468,429 | 1,397,624 | ||||||||||||||||
Balance sheet quality measures (7) | |||||||||||||||||||||
Basel III - Transitional basis | |||||||||||||||||||||
Risk-weighted assets (RWA) ($ billions) | $ | 138.3 | $ | 134.8 | n/a | $ | 138.3 | n/a | |||||||||||||
Common Equity Tier 1 (CET1) ratio | 11.5 | % | 11.5 | % | n/a | 11.5 | % | n/a | |||||||||||||
Tier 1 capital ratio | 12.4 | % | 12.4 | % | n/a | 12.4 | % | n/a | |||||||||||||
Total capital ratio | 15.2 | % | 15.3 | % | n/a | 15.2 | % | n/a | |||||||||||||
Basel III - All-in basis | |||||||||||||||||||||
RWA ($ billions) | $ | 125.9 | $ | 126.4 | n/a | $ | 125.9 | n/a | |||||||||||||
CET1 ratio | 9.7 | % | 9.6 | % | n/a | 9.7 | % | n/a | |||||||||||||
Tier 1 capital ratio | 12.2 | % | 12.0 | % | n/a | 12.2 | % | n/a | |||||||||||||
Total capital ratio | 15.5 | % | 15.3 | % | n/a | 15.5 | % | n/a | |||||||||||||
Basel II | |||||||||||||||||||||
RWA ($ billions) | n/a | n/a | $ | 113.3 | n/a | $ | 113.3 | ||||||||||||||
Tier 1 capital ratio | n/a | n/a | 14.1 | % | n/a | 14.1 | % | ||||||||||||||
Total capital ratio | n/a | n/a | 17.7 | % | n/a | 17.7 | % | ||||||||||||||
Other information | |||||||||||||||||||||
Retail / wholesale ratio (1)(6) | 78 % / 22 | % | 78 % / 22 | % | 76 % / 24 | % | 78 % / 22 | % | 76 % / 24 | % | |||||||||||
Full-time equivalent employees (8) | 43,057 | 42,793 | 42,267 | 43,057 | 42,267 |
(1) | For additional information, see the "Non-GAAP measures" section. | ||||||||||||||||||
(2) | The ratio is calculated as the provision for credit losses on impaired loans to average loans and acceptances, net of allowance for credit losses. The provision for credit losses on impaired loans includes provision for: individual allowance; collective allowance on personal, scored small business and mortgages that are greater than 90 days delinquent; and net credit card write-offs. |
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(3) | Average interest-earning assets include interest-bearing deposits with banks, securities, securities borrowed or purchased under resale agreements, and loans net of allowances. |
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(4) | Net income expressed as a percentage of average assets or average interest-earning assets. | ||||||||||||||||||
(5) | Includes the full contract amount of assets under administration or custody under a 50/50 joint venture between CIBC and The Bank of New York Mellon. | ||||||||||||||||||
(6) | For the purposes of calculating this ratio, Retail includes Retail and Business Banking, Wealth Management, and International banking operations (reported as part of Corporate and Other). The ratio represents the amount of economic capital attributed to these businesses as at the end of the period. |
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(7) | Capital measures for fiscal year 2013 are based on Basel III whereas fiscal 2012 measures are based on Basel II. | ||||||||||||||||||
(8) | Full-time equivalent employees is a measure that normalizes the number of full-time and part-time employees, base plus commissioned employees, and 100% commissioned employees into equivalent full time units based on actual hours of paid work during a given period. |
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n/a | Not applicable. |
Overview
Financial results
Reported net income for the quarter was $876 million, compared to $811 million for the same quarter last year and $798 million for the prior quarter. Net income for the six months ended April 30, 2013 was $1,674 million, compared to $1,646 million for the same period in 2012.
Reported diluted earnings per share (EPS) for the quarter was $2.12, compared to $1.90 for the same quarter last year and $1.91 for the prior quarter. Reported diluted EPS for the six months ended April 30, 2013 was $4.03 compared to $3.83 for the same period in 2012.
Adjusted diluted EPS for the quarter was $2.12(1), compared to $2.00(1) for the same quarter last year and $2.15(1) for the prior quarter.
Adjusted diluted EPS for the six months ended April 30, 2013 was $4.27(1), compared to $3.97(1) for the same period in 2012.
Net income for the current quarter was affected by the following items of note:
- $27 million ($20 million after-tax) income from the structured credit run-off business (Wholesale Banking);
- $21 million ($15 million after-tax) loan losses in our exited European leveraged finance portfolio (Wholesale Banking); and
- $6 million ($5 million after-tax) amortization of intangible assets ($1 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management, and $3 million after-tax in Corporate and Other)
The above items of note increased revenue by $29 million, provision for credit losses by $21 million and non-interest expenses by $8 million. In aggregate, the impact of these items of note on net income was nil.
Net interest income(2)
Net interest income was up $70 million or 4% from the same quarter last year, primarily due to higher trading-related net interest income and wider retail spreads, partially offset by lower treasury-related net interest income. The prior year quarter included the hedge accounting loss on leveraged leases, shown as an item of note.
Net interest income was down $32 million or 2% from the prior quarter primarily due to fewer days in the quarter.
Net interest income for the six months ended April 30, 2013 was up $83 million or 2% from the same period in 2012, primarily due to higher trading-related net interest income, wider retail spreads, and volume growth across most retail products, partially offset by lower treasury-related net interest income. The same period in 2012 included the hedge accounting loss on leveraged leases shown as an item of note.
Non-interest income(2)
Non-interest income was down $15 million or 1% from the same quarter last year, primarily due to trading losses in the current quarter compared to trading income in the prior year quarter, partially offset by higher mutual fund fees.
Non-interest income was down $10 million or 1% from the prior quarter primarily due to trading losses in the current quarter compared to trading income in the prior quarter, partially offset by higher gains net of write-downs on available-for-sale (AFS) securities and higher mutual fund fees. The prior quarter had a gain on sale of the private wealth management business, included as an item of note.
Non-interest income for the six months ended April 30, 2013 was comparable to the same period in 2012. Higher mutual fund and credit fees were largely offset by lower trading income. The current year period had the gain on sale of the private wealth management business included as an item of note, while the prior year period had a gain relating to an equity-accounted investment in our Wealth Management strategic business unit (SBU), also included as an item of note.
Provision for credit losses
Provision for credit losses was down $43 million or 14% from the same quarter last year. In Retail and Business Banking, provisions were down mainly due to lower write-offs and bankruptcies in the cards portfolio. In Wholesale Banking, provisions were up due to losses in the exited European leveraged finance portfolio in the current quarter, partially offset by lower losses in the U.S. real estate finance portfolio. In Corporate and Other, provisions were down due to lower losses in CIBC FirstCaribbean International Bank (CIBC FirstCaribbean).
Provision for credit losses was the same as the prior quarter. In Retail and Business Banking, provisions were down mainly due to lower bankruptcies and write-offs in the cards portfolio. In Wholesale Banking, provisions were up due to losses in the exited European leveraged finance portfolio, partially offset by lower losses in the U.S. real estate finance portfolio. In Corporate and Other, the provision for collective allowance reported in this segment was lower.
Provision for credit losses for the six months ended April 30, 2013 was down $116 million or 18% from the same period in 2012. In Retail and Business Banking, provisions were down mainly due to lower write-offs and bankruptcies in the cards portfolio. In Wholesale Banking, provisions were down due to lower losses in the U.S. real estate finance portfolio, partially offset by losses in the exited European leveraged finance portfolio. In Corporate and Other, provisions were down due to lower losses in CIBC FirstCaribbean and the provision for collective allowance reported in this segment was lower.
Non-interest expenses
Non-interest expenses were up $57 million or 3% compared to the same quarter last year, primarily due to higher employee compensation and benefits.
Non-interest expenses were down $166 million or 8% from the prior quarter, primarily due to lower expenses in the structured credit run-off business, which included a settlement charge in the prior quarter shown as an item of note, and lower employee compensation.
Non-interest expenses for the six months ended April 30, 2013 were up $253 million or 7% from the same period in 2012, primarily due to higher expenses in the structured credit run-off business in the current period, which included a settlement charge shown as an item of note, and higher employee compensation and benefits.
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(1) | For additional information, see the "Non-GAAP measures" section. | |
(2) | Trading activities and related risk management strategies can periodically shift trading income between net interest income and non-interest income. Therefore, we view total trading income as the most appropriate measure of trading performance. |
Income taxes
Income tax expense was down $24 million or 12% from the same quarter last year. The impact of higher income was more than offset by the impact of higher tax-exempt income.
Income tax expense was up $46 million or 35% from the prior quarter, mainly due to higher income.
Income tax expense for the six months ended April 30, 2013 was down $86 million or 22% from the same period in 2012, mainly due to higher tax-exempt income and an increase in the relative proportion of income subject to lower income tax rates.
In prior years, the Canada Revenue Agency issued reassessments disallowing the deduction of approximately $3.0 billion of the 2005 Enron settlement payments and related legal expenses. The matter is currently in litigation and on December 21, 2011 (and reconfirmed on July 5, 2012), in connection with a motion by CIBC to strike the Crown's replies, the Tax Court of Canada (TCC) struck certain portions of the replies and directed the Crown to submit amended replies. Both the Crown and CIBC appealed the ruling to the Federal Court of Appeal (FCA) and on May 6, 2013, the FCA found in CIBC's favour on all grounds. If the Crown does not seek to appeal these rulings, we would expect the TCC trial on the deductibility of the Enron charges to commence in the latter part of 2014 or 2015.
Should we successfully defend our tax filing position in its entirety, we would recognize an additional accounting tax benefit of $214 million and taxable refund interest of approximately $189 million. Should we fail to defend our position in its entirety, we would incur an additional tax expense of approximately $866 million and non-deductible interest of approximately $124 million.
Foreign exchange
The estimated impact of U.S. dollar translation on key lines of our interim consolidated statement of income, as a result of changes in average exchange rates, is as follows:
For the three | For the six | ||||||||||||||||
months ended | months ended | ||||||||||||||||
Apr. 30, 2013 | Apr. 30, 2013 | Apr. 30, 2013 | |||||||||||||||
vs. | vs. | vs. | |||||||||||||||
$ millions | Apr. 30, 2012 | Jan. 31, 2013 | Apr. 30, 2012 | ||||||||||||||
Estimated increase in: | |||||||||||||||||
Total revenue | $ | 9 | $ | 8 | $ | 3 | |||||||||||
Provision for credit losses | 1 | 1 | - | ||||||||||||||
Non-interest expense | 4 | 4 | 1 | ||||||||||||||
Income taxes | - | - | - | ||||||||||||||
Net income | 4 | 3 | 2 | ||||||||||||||
Average US$ appreciation relative to C$ | 2.7 | % | 2.3 | % | 0.4 | % |
Impact of items of note in prior periods
Net income for the prior quarters was affected by the following items of note:
Q1, 2013
- $148 million ($109 million after-tax) loss from the structured credit run-off business, including the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. (Wholesale Banking);
- $16 million ($16 million after-tax) gain, net of associated expenses, on the sale of our Hong Kong and Singapore-based private wealth management business (Corporate and Other); and
- $5 million ($4 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $2 million after-tax in Corporate and Other).
The above items of note increased revenue by $28 million, non-interest expenses by $165 million, and decreased income tax expenses by $40 million. In aggregate, these items of note decreased net income by $97 million.
Q2, 2012
- $28 million ($16 million after-tax) hedge accounting loss on leveraged leases (Wholesale Banking);
- $10 million ($7 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and
- $7 million ($6 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking, $1 million after-tax in Wealth Management and $3 million after-tax in Corporate and Other).
The above items of note decreased revenue by $29 million, increased non-interest expenses by $16 million, and decreased income tax expenses by $16 million. In aggregate, these items of note decreased net income by $29 million.
In addition, net income attributable to common shareholders was also affected by the following item of note:
- $12 million premium paid on preferred share redemptions.
Q1, 2012
- $37 million ($35 million after-tax) gain relating to an equity-accounted investment (Wealth Management);
- $35 million ($26 million after-tax) loss from the structured credit run-off business (Wholesale Banking); and
- $9 million ($7 million after-tax) amortization of intangible assets ($2 million after-tax in Retail and Business Banking and $5 million after-tax in Corporate and Other).
The above items of note increased revenue by $10 million, non-interest expenses by $17 million, and decreased income tax expenses by $9 million. In aggregate, these items of note increased net income by $2 million.
In addition, net income attributable to common shareholders was also affected by the following item of note:
- $18 million premium paid on preferred share redemptions.
Significant events
Atlantic Trust Private Wealth Management
On April 11, 2013, CIBC announced that it entered into a definitive agreement to acquire Atlantic Trust Private Wealth Management (Atlantic Trust) from its parent company, Invesco Ltd., for US$210 million. Atlantic Trust, which has approximately US$20 billion in assets under management, provides integrated wealth management solutions for high-net-worth individuals, families, foundations and endowments. The transaction is subject to regulatory approval and is expected to close in early fiscal 2014. The results of the acquired business will be consolidated from the date of close and will be included in the Wealth Management SBU.
Private wealth management (Asia)
On January 25, 2013, CIBC sold its stand-alone Hong Kong and Singapore-based private wealth management business. This niche advisory and brokerage business, which was included in International banking within Corporate and Other, provided private banking services to a small number of high-net-worth individuals in the Asia-Pacific region and had assets under management of approximately $2 billion. As a result, CIBC recognized a gain, net of associated expenses, of $16 million ($16 million after-tax) during the quarter ended January 31, 2013. CIBC's other businesses in Asia were unaffected by this transaction.
Lehman Brothers bankruptcy proceedings
During the quarter ended January 31, 2013, CIBC recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note as further detailed in Note 23 of the 2012 consolidated financial statements.
Outlook for calendar year 2013
Moderate economic growth is likely to continue in both Canada and the U.S. in 2013. Real GDP gains are likely to be in the vicinity of 2% in the U.S. and slightly below that pace in Canada, in the face of soft growth overseas, and ongoing fiscal tightening. We expect European governments will prevent sovereign debt troubles from spilling over into a larger Eurozone banking crisis but fiscal tightening has left Europe in a mild recession. In the U.S., improving household credit fundamentals and continued recovery in home building will help offset the drag from tighter fiscal policy.
Canada's economy will benefit from a pick-up in oil output, but will see somewhat less robust domestic demand. Government spending will remain a slight negative for growth as fiscal tightening continues. Consumer demand will be supported by ongoing job creation, but will be held close to income gains as the appetite for credit is held in check by existing high debt levels, even with the Bank of Canada avoiding interest rate increases through 2013. Housing is turning from a strong growth contributor to a slight negative this year as the impact of softer sales shows up in a modest retreat in construction activity.
Retail and Business Banking is expected to face slightly slower growth in demand for mortgages, while consumer credit demand could continue to see limited growth. Demand for business credit should continue at a healthy growth rate. Slightly slower economic growth is unlikely to result in deterioration in household credit quality, with the unemployment rate holding nearly steady.
Wealth Management should see an improvement in demand for equities and other risk assets over the course of 2013 as global uncertainties are gradually resolved.
Wholesale Banking will continue to benefit from a healthy pace of debt financings as both governments and corporations take advantage of low interest rates and robust market conditions. Equity issuance could improve over the course of the year as global growth uncertainties are gradually resolved, a trend that should also support merger activity. Corporate credit demand should be supported by growth in capital spending, although the public debt market and internal cash flows will be a competitive source of funding.
Review of quarterly financial information
$ millions, except per share amounts, | |||||||||||||||||||||||||||||||||||
for the three months ended | 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||
Apr. 30 | Jan. 31 | Oct. 31 | Jul. 31 | Apr. 30 | Jan. 31 | Oct. 31 | Jul. 31 | ||||||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||||||||||
Retail and Business Banking | $ | 2,036 | $ | 2,065 | $ | 2,036 | $ | 2,085 | $ | 2,004 | $ | 2,029 | $ | 2,076 | $ | 2,035 | |||||||||||||||||||
Wealth Management | 443 | 432 | 420 | 401 | 418 | 435 | 396 | 404 | |||||||||||||||||||||||||||
Wholesale Banking (1) | 580 | 563 | 575 | 527 | 463 | 495 | 561 | 503 | |||||||||||||||||||||||||||
Corporate and Other (1) | 80 | 121 | 128 | 136 | 199 | 198 | 162 | 189 | |||||||||||||||||||||||||||
Total revenue | $ | 3,139 | $ | 3,181 | $ | 3,159 | $ | 3,149 | $ | 3,084 | $ | 3,157 | $ | 3,195 | $ | 3,131 | |||||||||||||||||||
Net interest income | $ | 1,823 | $ | 1,855 | $ | 1,848 | $ | 1,883 | $ | 1,753 | $ | 1,842 | $ | 1,776 | $ | 1,785 | |||||||||||||||||||
Non-interest income | 1,316 | 1,326 | 1,311 | 1,266 | 1,331 | 1,315 | 1,419 | 1,346 | |||||||||||||||||||||||||||
Total revenue | 3,139 | 3,181 | 3,159 | 3,149 | 3,084 | 3,157 | 3,195 | 3,131 | |||||||||||||||||||||||||||
Provision for credit losses | 265 | 265 | 328 | 317 | 308 | 338 | 306 | 310 | |||||||||||||||||||||||||||
Non-interest expenses | 1,821 | 1,987 | 1,829 | 1,831 | 1,764 | 1,791 | 1,920 | 2,005 | |||||||||||||||||||||||||||
1,053 | 929 | 1,002 | 1,001 | 1,012 | 1,028 | 969 | 816 | ||||||||||||||||||||||||||||
Income taxes | 177 | 131 | 150 | 160 | 201 | 193 | 212 | 225 | |||||||||||||||||||||||||||
Net income | $ | 876 | $ | 798 | $ | 852 | $ | 841 | $ | 811 | $ | 835 | $ | 757 | $ | 591 | |||||||||||||||||||
Net income attributable to: | |||||||||||||||||||||||||||||||||||
Non-controlling interests | $ | 2 | $ | 2 | $ | 2 | $ | 2 | $ | 1 | $ | 3 | $ | 3 | $ | 2 | |||||||||||||||||||
Equity shareholders | 874 | 796 | 850 | 839 | 810 | 832 | 754 | 589 | |||||||||||||||||||||||||||
EPS | - basic | $ | 2.12 | $ | 1.91 | $ | 2.02 | $ | 2.00 | $ | 1.90 | $ | 1.94 | $ | 1.80 | $ | 1.35 | ||||||||||||||||||
- diluted | 2.12 | 1.91 | 2.02 | 2.00 | 1.90 | 1.93 | 1.79 | 1.33 |
(1) | Wholesale Banking revenue and income taxes are reported on a taxable equivalent basis (TEB) with an equivalent offset in the revenue and income taxes of Corporate and Other. |
Our quarterly results are modestly affected by seasonal factors. The second quarter has fewer days as compared with the other quarters, generally leading to lower earnings. The summer months (July - third quarter and August - fourth quarter) typically experience lower levels of capital markets activity, which affects our brokerage, investment management, and wholesale banking activities.
Revenue
Retail and Business Banking revenue has benefitted from volume growth across most retail products, offset to some extent by the continued low interest rate environment and attrition in our exited FirstLine mortgage business.
Wealth Management revenue has benefitted from continued strong net sales of long-term mutual funds and higher average assets under management. Income from our proportionate share in American Century Investments (ACI) is included from September 1, 2011 and a gain related to this equity-accounted investment was included in the first quarter of 2012.
Wholesale Banking revenue is influenced to a large extent by capital market conditions, and growth in the equity derivatives business which has resulted in higher tax-exempt income. Revenue has also been impacted by the volatility in the structured credit run-off business. The second quarter of 2012 included the hedge accounting loss on leveraged leases. The fourth quarter of 2012 included a gain on sale of interests in entities in relation to the acquisition of TMX Group Inc. by Maple Group Acquisition Corporation and a loss relating to the change in valuation of collateralized derivatives to an overnight index swap (OIS) basis.
Corporate and Other includes the offset related to tax-exempt income noted above. The second half of 2012 and first half of 2013 had lower unallocated treasury revenue. The first quarter of 2013 included a gain on sale of the private wealth management business (Asia).
Provision for credit losses
Provision for credit losses is dependent upon the credit cycle in general and on the credit performance of the loan portfolios. Losses in the cards portfolio declined in 2012 and the first half of 2013. In Wholesale Banking, the fourth quarter of 2011 had higher losses in the exited European leveraged finance portfolio. During 2012, we had higher losses in the U.S. real estate finance portfolio and the fourth quarter included losses in the exited U.S. leveraged finance portfolio. The current quarter had losses in the exited European leveraged finance portfolio.
Non-interest expenses
Non-interest expenses have fluctuated over the period largely due to changes in employee compensation and benefits, including pension expense. An impairment loss relating to CIBC FirstCaribbean goodwill was recognized in the third quarter of 2011. The first quarter of 2013 had higher expenses in the structured credit run-off business.
Income taxes
Income taxes vary with changes in income subject to tax, and the jurisdictions in which the income is earned. Taxes can also be affected by the impact of significant items. Tax-exempt income has been trending higher for the periods presented in the table above. The above-noted impairment loss relating to CIBC FirstCaribbean goodwill was not tax-effected.
Non-GAAP measures
We use a number of financial measures to assess the performance of our business lines. Some measures are calculated in accordance with GAAP (IFRS), while other measures do not have a standardized meaning under GAAP, and accordingly, these measures may not be comparable to similar measures used by other companies. Investors may find these non-GAAP measures useful in analyzing financial performance. For a more detailed discussion on our non-GAAP measures, see page 19 of the 2012 Annual Report. The following table provides a reconciliation of non-GAAP to GAAP measures related to CIBC on a consolidated basis.
As at or for the | As at or for the | |||||||||||||||||||||||||
three months ended | six months ended | |||||||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | |||||||||||||||||||||
Reported and adjusted diluted EPS | ||||||||||||||||||||||||||
Reported net income attributable to diluted common shareholders | A | $ | 849 | $ | 771 | $ | 766 | $ | 1,620 | $ | 1,542 | |||||||||||||||
After-tax impact of items of note (1) | - | 97 | 41 | 97 | 57 | |||||||||||||||||||||
Adjusted net income attributable to diluted common shareholders (2) | B | $ | 849 | $ | 868 | $ | 807 | $ | 1,717 | $ | 1,599 | |||||||||||||||
Diluted weighted-average common shares outstanding (thousands) | C | 400,812 | 403,770 | 403,587 | 402,315 | 402,590 | ||||||||||||||||||||
Reported diluted EPS ($) | A/C | $ | 2.12 | $ | 1.91 | $ | 1.90 | $ | 4.03 | $ | 3.83 | |||||||||||||||
Adjusted diluted EPS ($) (2) | B/C | 2.12 | 2.15 | 2.00 | 4.27 | 3.97 | ||||||||||||||||||||
Reported and adjusted efficiency ratio | ||||||||||||||||||||||||||
Reported total revenue | D | $ | 3,139 | $ | 3,181 | $ | 3,084 | $ | 6,320 | $ | 6,241 | |||||||||||||||
Pre-tax impact of items of note (1) | (29) | (28) | 29 | (57) | 19 | |||||||||||||||||||||
TEB | 97 | 92 | 61 | 189 | 118 | |||||||||||||||||||||
Adjusted total revenue (2) | E | $ | 3,207 | $ | 3,245 | $ | 3,174 | $ | 6,452 | $ | 6,378 | |||||||||||||||
Reported non-interest expenses | F | $ | 1,821 | $ | 1,987 | $ | 1,764 | $ | 3,808 | $ | 3,555 | |||||||||||||||
Pre-tax impact of items of note (1) | (8) | (165) | (16) | (173) | (33) | |||||||||||||||||||||
Adjusted non-interest expenses (2) | G | $ | 1,813 | $ | 1,822 | $ | 1,748 | $ | 3,635 | $ | 3,522 | |||||||||||||||
Reported efficiency ratio | F/D | 58.0 | % | 62.5 | % | 57.2 | % | 60.3 | % | 57.0 | % | |||||||||||||||
Adjusted efficiency ratio (2) | G/E | 56.6 | % | 56.1 | % | 55.1 | % | 56.3 | % | 55.2 | % | |||||||||||||||
Reported and adjusted dividend payout ratio | ||||||||||||||||||||||||||
Reported net income attributable to common shareholders | H | $ | 849 | $ | 771 | $ | 766 | $ | 1,620 | $ | 1,542 | |||||||||||||||
After-tax impact of items of note (1) | - | 97 | 41 | 97 | 57 | |||||||||||||||||||||
Adjusted net income attributable to common shareholders (2) | I | $ | 849 | $ | 868 | $ | 807 | $ | 1,717 | $ | 1,599 | |||||||||||||||
Dividends paid to common shareholders | J | $ | 376 | $ | 379 | $ | 364 | $ | 755 | $ | 724 | |||||||||||||||
Reported dividend payout ratio | J/H | 44.2 | % | 49.2 | % | 47.4 | % | 46.6 | % | 46.9 | % | |||||||||||||||
Adjusted dividend payout ratio (2) | J/I | 44.2 | % | 43.7 | % | 45.0 | % | 43.9 | % | 45.3 | % | |||||||||||||||
Retail and | ||||||||||||||||||||||||
Business | Wealth | Wholesale | Corporate | CIBC | ||||||||||||||||||||
$ millions, for the three months ended | Banking | Management | Banking | and Other | Total | |||||||||||||||||||
Apr. 30 | Reported net income | $ | 604 | $ | 92 | $ | 198 | $ | (18) | $ | 876 | |||||||||||||
2013 | After-tax impact of items of note (1) | 1 | 1 | (5) | 3 | - | ||||||||||||||||||
Adjusted net income (2) | $ | 605 | $ | 93 | $ | 193 | $ | (15) | $ | 876 | ||||||||||||||
Jan. 31 | Reported net income | $ | 611 | $ | 90 | $ | 91 | $ | 6 | $ | 798 | |||||||||||||
2013 | After-tax impact of items of note (1) | 2 | - | 109 | (14) | 97 | ||||||||||||||||||
Adjusted net income (2) | $ | 613 | $ | 90 | $ | 200 | $ | (8) | $ | 895 | ||||||||||||||
Apr. 30 | Reported net income | $ | 556 | $ | 79 | $ | 131 | $ | 45 | $ | 811 | |||||||||||||
2012 | After-tax impact of items of note (1) | 2 | 1 | 23 | 3 | 29 | ||||||||||||||||||
Adjusted net income (2) | $ | 558 | $ | 80 | $ | 154 | $ | 48 | $ | 840 | ||||||||||||||
$ millions, for the six months ended | ||||||||||||||||||||||||
Apr. 30 | Reported net income | $ | 1,215 | $ | 182 | $ | 289 | $ | (12) | $ | 1,674 | |||||||||||||
2013 | After-tax impact of items of note (1) | 3 | 1 | 104 | (11) | 97 | ||||||||||||||||||
Adjusted net income (2) | $ | 1,218 | $ | 183 | $ | 393 | $ | (23) | $ | 1,771 | ||||||||||||||
Apr. 30 | Reported net income | $ | 1,123 | $ | 179 | $ | 264 | $ | 80 | $ | 1,646 | |||||||||||||
2012 | After-tax impact of items of note (1) | 4 | (34) | 49 | 8 | 27 | ||||||||||||||||||
Adjusted net income (2) | $ | 1,127 | $ | 145 | $ | 313 | $ | 88 | $ | 1,673 |
(1) | Reflects impact of items of note under "Financial results" section. | |||||||||||||
(2) | Non-GAAP measure. |
Strategic business units overview
CIBC has three SBUs - Retail and Business Banking, Wealth Management and Wholesale Banking. These SBUs are supported by six functional groups - Technology and Operations, Corporate Development, Finance, Treasury, Administration, and Risk Management, which form part of Corporate and Other. The revenue, expenses and balance sheet resources of these functional groups are generally allocated to the business lines within the SBUs. Corporate and Other also includes our International banking operations comprising mainly CIBC FirstCaribbean, strategic investments in the CIBC Mellon joint ventures and The Bank of N.T. Butterfield & Son Limited, and other income statement and balance sheet items not directly attributable to the business lines. The key methodologies and assumptions used in reporting financial results of our SBUs are provided on page 22 of the 2012 Annual Report.
Retail and Business Banking
Retail and Business Banking provides clients across Canada with financial advice, banking, investment, and authorized insurance products and services through a strong team of advisors and more than 1,100 branches, as well as our ABMs, mobile sales force, and telephone, online and mobile banking.
Results (1) | |||||||||||||||||||||||
For the three | For the six | ||||||||||||||||||||||
months ended | months ended | ||||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | ||||||||||||||||||
Revenue | |||||||||||||||||||||||
Personal banking | $ | 1,596 | $ | 1,623 | $ | 1,535 | $ | 3,219 | $ | 3,098 | |||||||||||||
Business banking | 372 | 380 | 368 | 752 | 741 | ||||||||||||||||||
Other | 68 | 62 | 101 | 130 | 194 | ||||||||||||||||||
Total revenue | 2,036 | 2,065 | 2,004 | 4,101 | 4,033 | ||||||||||||||||||
Provision for credit losses | 233 | 241 | 271 | 474 | 552 | ||||||||||||||||||
Non-interest expenses | 1,008 | 1,021 | 998 | 2,029 | 1,994 | ||||||||||||||||||
Income before taxes | 795 | 803 | 735 | 1,598 | 1,487 | ||||||||||||||||||
Income taxes | 191 | 192 | 179 | 383 | 364 | ||||||||||||||||||
Net income | $ | 604 | $ | 611 | $ | 556 | $ | 1,215 | $ | 1,123 | |||||||||||||
Net income attributable to: | |||||||||||||||||||||||
Equity shareholders (a) | $ | 604 | $ | 611 | $ | 556 | $ | 1,215 | $ | 1,123 | |||||||||||||
Efficiency ratio | 49.5 | % | 49.4 | % | 49.8 | % | 49.5 | % | 49.4 | % | |||||||||||||
Return on equity (2) | 57.7 | % | 58.3 | % | 57.9 | % | 58.0 | % | 58.0 | % | |||||||||||||
Charge for economic capital (2) (b) | $ | (131) | $ | (132) | $ | (125) | $ | (263) | $ | (255) | |||||||||||||
Economic profit (2) (a+b) | $ | 473 | $ | 479 | $ | 431 | $ | 952 | $ | 868 | |||||||||||||
Full-time equivalent employees | 21,987 | 22,063 | 21,733 | 21,987 | 21,733 |
(1) | For additional segmented information, see the notes to the interim consolidated financial statements. | ||||||||||
(2) | For additional information, see the "Non-GAAP measures" section. |
Financial overview
Net income for the quarter was $604 million, up $48 million from the same quarter last year, primarily due to a lower provision for credit losses and higher revenue, partially offset by higher non-interest expenses.
Net income was down $7 million from the prior quarter, primarily due to lower revenue, partially offset by lower non-interest expenses and provision for credit losses.
Net income for the six months ended April 30, 2013 was $1,215 million, up $92 million from the same period in 2012, mainly due to a lower provision for credit losses and higher revenue, partially offset by higher non-interest expenses.
Revenue
Revenue was up $32 million or 2% from the same quarter last year.
Personal banking revenue was up $61 million, primarily due to wider spreads, volume growth across most products, and higher fees.
Business banking revenue was up $4 million, primarily due to volume growth and higher fees, partially offset by narrower spreads.
Other revenue was down $33 million mainly due to lower treasury allocations and lower revenue in our exited FirstLine mortgage business.
Revenue was down $29 million or 1% from the prior quarter.
Personal banking revenue was down $27 million, primarily due to fewer days in the quarter, partially offset by wider spreads.
Business banking revenue was down $8 million due to fewer days in the quarter.
Other revenue was up $6 million due to higher treasury allocations.
Revenue for the six months ended April 30, 2013 was up $68 million or 2% from the same period in 2012.
Personal banking revenue was up $121 million, primarily due to wider spreads, volume growth across most products, and higher fees.
Business banking revenue was up $11 million, mainly due to volume growth and higher fees, partially offset by narrower spreads.
Other revenue was down $64 million due to lower treasury allocations.
Provision for credit losses
Provision for credit losses was down $38 million from the same quarter last year, mainly due to lower write-offs and bankruptcies in the cards portfolio.
Provision for credit losses was down $8 million from the prior quarter, mainly due to lower bankruptcies and write-offs in the cards portfolio.
Provision for credit losses for the six months ended April 30, 2013 was down $78 million from the same period in 2012, mainly due to lower write-offs and bankruptcies in the cards portfolio.
Non-interest expenses
Non-interest expenses were up $10 million or 1% from the same quarter last year, primarily due to higher employee compensation and benefits relating to client-facing employees.
Non-interest expenses were down $13 million or 1% from the prior quarter, primarily due to fewer days in the quarter and lower corporate support costs.
Non-interest expenses for the six months ended April 30, 2013 were up $35 million or 2% from the same period in 2012, primarily due to higher employee compensation and benefits relating to client-facing employees, and increased spending on strategic business initiatives.
Income taxes
Income taxes were up $12 million from the same quarter last year due to higher income.
Income taxes were comparable to the prior quarter.
Income taxes for the six months ended April 30, 2013 were up $19 million from the same period in 2012 due to higher income.
Aeroplan Agreement
CIBC and Aimia Canada Inc. (Aimia) are parties to an agreement (the Aeroplan Agreement) pursuant to which CIBC pays Aimia for Aeroplan miles credited to participating CIBC cardholders' accounts, based on the value of the cardholders' purchases using such cards. The Aeroplan Agreement will expire on December 31, 2013 unless renewed by the parties or replaced in accordance with its terms. CIBC has engaged in periodic renewal discussions with Aimia and is also actively investing in, and building, an alternative travel card offer. At this stage, there can be no assurance that the Aeroplan Agreement will be renewed or replaced and CIBC has started incurring expenditures to plan and build for alternative outcomes.
Wealth Management
Wealth Management provides relationship-based advisory services and an extensive suite of leading investment solutions to meet the needs of institutional, retail and high net worth clients. Our asset management, retail brokerage and private wealth management businesses combine to create an integrated offer, delivered through nearly 1,500 advisors across Canada.
Results (1) | |||||||||||||||||||||||
For the three | For the six | ||||||||||||||||||||||
months ended | months ended | ||||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | ||||||||||||||||||
Revenue | |||||||||||||||||||||||
Retail brokerage | $ | 262 | $ | 259 | $ | 263 | $ | 521 | $ | 512 | |||||||||||||
Asset management | 153 | 144 | 130 | 297 | 292 | ||||||||||||||||||
Private wealth management | 28 | 29 | 25 | 57 | 49 | ||||||||||||||||||
Total revenue | 443 | 432 | 418 | 875 | 853 | ||||||||||||||||||
Non-interest expenses | 323 | 315 | 313 | 638 | 625 | ||||||||||||||||||
Income before taxes | 120 | 117 | 105 | 237 | 228 | ||||||||||||||||||
Income taxes | 28 | 27 | 26 | 55 | 49 | ||||||||||||||||||
Net income | $ | 92 | $ | 90 | $ | 79 | $ | 182 | $ | 179 | |||||||||||||
Net income attributable to: | |||||||||||||||||||||||
Equity shareholders (a) | $ | 92 | $ | 90 | $ | 79 | $ | 182 | $ | 179 | |||||||||||||
Efficiency ratio | 72.7 | % | 73.0 | % | 74.8 | % | 72.9 | % | 73.3 | % | |||||||||||||
Return on equity (2) | 19.9 | % | 19.1 | % | 18.8 | % | 19.5 | % | 21.6 | % | |||||||||||||
Charge for economic capital (2) (b) | $ | (57) | $ | (58) | $ | (52) | $ | (115) | $ | (104) | |||||||||||||
Economic profit (2) (a+b) | $ | 35 | $ | 32 | $ | 27 | $ | 67 | $ | 75 | |||||||||||||
Full-time equivalent employees | 3,792 | 3,765 | 3,756 | 3,792 | 3,756 |
(1) | For additional segmented information, see the notes to the interim consolidated financial statements. | |||||||||||||||||||||
(2) | For additional information, see the "Non-GAAP measures" section. |
Financial overview
Net income for the quarter was $92 million, up $13 million or 16% from the same quarter last year, and up $2 million or 2% from the prior quarter, mainly due to higher revenue, partially offset by higher non-interest expenses.
Net income for the six months ended April 30, 2013 was $182 million, up $3 million or 2% compared to the same period in 2012, primarily due to higher revenue, partially offset by higher non-interest expenses.
Revenue
Revenue was up $25 million or 6% compared to the same quarter last year.
Retail brokerage revenue was comparable to the same quarter last year.
Asset management revenue was up $23 million, primarily due to higher client assets under management driven by higher long-term net sales of mutual funds.
Private wealth management revenue was up $3 million, mainly due to higher assets under management driven by client growth, including the impact of the acquisition of the MFS McLean Budden private wealth management business in September 2012.
Revenue was up $11 million or 3% from the prior quarter.
Retail brokerage revenue was up $3 million, primarily due to higher commissions from mutual fund sales and fee-based revenue.
Asset management revenue was up $9 million, primarily due to higher client assets under management driven by higher long-term net sales of mutual funds.
Private wealth management revenue was comparable to the prior quarter.
Revenue for the six months ended April 30, 2013 was up $22 million or 3% from the same period in 2012.
Retail brokerage revenue was up $9 million, primarily due to higher fee-based revenue and commissions from mutual fund sales.
Asset management revenue was up $5 million, primarily due to higher client assets under management driven by higher long-term net sales of mutual funds. The prior year period included a gain relating to an equity accounted investment, included as an item of note.
Private wealth management revenue was up $8 million, mainly due to higher assets under management, including the impact of the acquisition noted above.
Non-interest expenses
Non-interest expenses were up $10 million or 3% from the same quarter last year, up $8 million or 3% from the prior quarter, and up $13 million or 2% from the same six month period in 2012, primarily due to higher performance-based compensation.
Income taxes
Income taxes were up $2 million from the same quarter last year mainly due to higher income.
Income taxes were comparable to the prior quarter.
Income taxes for the six months ended April 30, 2013 were up $6 million from the same period in 2012, mainly due to the impact of a lower tax rate on the prior year gain discussed above and higher income in the current year period.
Wholesale Banking
Wholesale Banking provides a wide range of credit, capital markets, investment banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world.
Results (1) | |||||||||||||||||||||||
For the three | For the six | ||||||||||||||||||||||
months ended | months ended | ||||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | ||||||||||||||||||
Revenue | |||||||||||||||||||||||
Capital markets | $ | 312 | $ | 328 | $ | 285 | $ | 640 | $ | 592 | |||||||||||||
Corporate and investment banking | 226 | 213 | 175 | 439 | 372 | ||||||||||||||||||
Other | 42 | 22 | 3 | 64 | (6) | ||||||||||||||||||
Total revenue (2) | 580 | 563 | 463 | 1,143 | 958 | ||||||||||||||||||
Provision for credit losses | 21 | 10 | 16 | 31 | 42 | ||||||||||||||||||
Non-interest expenses | 299 | 445 | 279 | 744 | 568 | ||||||||||||||||||
Income before taxes | 260 | 108 | 168 | 368 | 348 | ||||||||||||||||||
Income taxes (2) | 62 | 17 | 37 | 79 | 84 | ||||||||||||||||||
Net income | $ | 198 | $ | 91 | $ | 131 | $ | 289 | $ | 264 | |||||||||||||
Net income attributable to: | |||||||||||||||||||||||
Equity shareholders (a) | $ | 198 | $ | 91 | $ | 131 | $ | 289 | $ | 264 | |||||||||||||
Efficiency ratio (2) | 51.5 | % | 79.0 | % | 60.4 | % | 65.1 | % | 59.4 | % | |||||||||||||
Return on equity (3) | 38.6 | % | 16.3 | % | 25.0 | % | 27.1 | % | 25.7 | % | |||||||||||||
Charge for economic capital (3) (b) | $ | (64) | $ | (68) | $ | (66) | $ | (132) | $ | (131) | |||||||||||||
Economic profit (3) (a+b) | $ | 134 | $ | 23 | $ | 65 | $ | 157 | $ | 133 | |||||||||||||
Full-time equivalent employees | 1,245 | 1,261 | 1,222 | 1,245 | 1,222 |
(1) | For additional segmented information, see the notes to the interim consolidated financial statements. | |||||||||||||||||||||||||||||||||||||||
(2) | Revenue and income taxes are reported on a TEB basis. Accordingly, revenue and income taxes include a TEB adjustment of $97 million for the quarter ended April 30, 2013 (January 31, 2013: $92 million; April 30, 2012: $61 million) and $189 million for the six months ended April 30, 2013 (April 30, 2012: $118 million). The equivalent amounts are offset in the revenue and income taxes of Corporate and Other. |
|||||||||||||||||||||||||||||||||||||||
(3) | For additional information, see the "Non-GAAP measures" section. |
Financial overview
Net income for the quarter was $198 million, up $67 million from the same quarter last year, mainly due to higher revenue partially offset by higher non-interest expenses.
Net income was up $107 million from the prior quarter, mainly due to lower non-interest expenses.
Net income for the six months ended April 30, 2013 was $289 million, up $25 million from the same period in 2012, mainly due to higher revenue partially offset by higher non-interest expenses.
Revenue
Revenue was up $117 million or 25% from the same quarter last year.
Capital markets revenue was up $27 million, primarily due to higher revenue from equity derivatives and commodities trading, partially offset by lower fixed income trading and equity new issuance revenue.
Corporate and investment banking revenue was up $51 million mainly due to higher revenue from corporate credit products and U.S. real estate finance and higher investment portfolio gains.
Other revenue was up $39 million, primarily due to revenue in the structured credit run-off business compared to losses in the prior year quarter. The prior year quarter included a hedge accounting loss on leveraged leases shown as an item of note.
Revenue was up $17 million or 3% from the prior quarter.
Capital markets revenue was down $16 million, mainly due to lower revenue from fixed income trading partially offset by higher revenue from equity derivatives and commodities trading. The prior quarter included a reversal of a credit valuation adjustment (CVA) against credit exposures to derivative counterparties (other than financial guarantors).
Corporate and investment banking revenue was up $13 million, primarily due to higher revenue from U.S. real estate finance.
Other revenue was up $20 million from the prior quarter, primarily due to higher revenue in the structured credit run-off business.
Revenue for the six months ended April 30, 2013 was up $185 million or 19% from the same period in 2012.
Capital markets revenue was up $48 million, mainly due to higher revenue from equity derivatives trading, partially offset by lower fixed income trading and equity new issuance revenue. The current year period included a reversal of the CVA charge noted above.
Corporate and investment banking revenue was up $67 million, primarily due to higher revenue from corporate credit products and higher investment portfolio gains.
Other revenue was up $70 million primarily due to revenue in the structured credit run-off business compared to losses in the prior year period. The prior year period included the hedge accounting loss on leveraged leases shown as an item of note.
Provision for credit losses
Provision for credit losses was up $5 million from the same quarter last year, and up $11 million from the prior quarter, mainly due to losses in the exited European leveraged finance portfolio in the current quarter, partially offset by lower losses in the U.S. real estate finance portfolio.
Provision for credit losses for the six months ended April 30, 2013 was down $11 million from the same period in 2012, mainly due to lower losses in the U.S. real estate finance portfolio, partially offset by losses in the exited European leveraged finance portfolio.
Non-interest expenses
Non-interest expenses were up $20 million or 7% from the same quarter last year mainly due to higher performance-based compensation.
Non-interest expenses were down $146 million or 33% from the prior quarter, primarily due to higher expenses in the prior quarter related to the charge in respect of a settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. (refer to the "Structured credit run-off business" section for further details).
Non-interest expenses for the six months ended April 30, 2013 were up $176 million or 31% from the same period in 2012, primarily due to higher expenses in the structured credit run-off business as noted above and higher employee and performance-based compensation.
Income taxes
Income tax expense for the quarter was $25 million higher than the same quarter last year and $45 million higher than the prior quarter, primarily due to higher income.
Income tax expense for the six months ended April 30, 2013 was $5 million lower than the same period in 2012. The impact of higher income was more than offset by the impact of changes in the proportion of income earned in jurisdictions with varying rates of income tax.
Structured credit run-off business
The results of the structured credit run-off business are included in the Wholesale Banking SBU.
Results | ||||||||||||||||||||||
For the three | For the six | |||||||||||||||||||||
months ended | months ended | |||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | |||||||||||||||||
Net interest income (expense) | $ | (9) | $ | (14) | $ | (17) | $ | (23) | $ | (32) | ||||||||||||
Trading income | 35 | 18 | 19 | 53 | 11 | |||||||||||||||||
Designated at fair value (FVO) losses | (3) | (3) | (2) | (6) | (8) | |||||||||||||||||
Other income | 6 | 5 | (1) | 11 | 1 | |||||||||||||||||
Total revenue | 29 | 6 | (1) | 35 | (28) | |||||||||||||||||
Non-interest expenses | 2 | 154 | 9 | 156 | 17 | |||||||||||||||||
Income (loss) before taxes | 27 | (148) | (10) | (121) | (45) | |||||||||||||||||
Income taxes | 7 | (39) | (3) | (32) | (12) | |||||||||||||||||
Net income (loss) | $ | 20 | $ | (109) | $ | (7) | $ | (89) | $ | (33) |
Net income for the quarter was $20 million (US$20 million), compared with net losses of $7 million (US$7 million) for the same quarter last year and $109 million (US$110 million) for the prior quarter. The net loss for the six months ended April 30, 2013 was $89 million (US$89 million) compared to $33 million (US$33 million) for the same period in 2012.
Net income for the quarter was mainly due to gains on unhedged positions, a reduction in CVA relating to financial guarantors and transactions completed to reduce our structured credit positions. These were partially offset by net interest expense.
During the quarter, sales and terminations reduced notional of securities by US$290 million and purchased credit derivatives by US$420 million. The completion of these transactions resulted in an aggregate pre-tax gain of $8 million (US$8 million), or $6 million (US$6 million) after-tax.
Position summary
The following table summarizes our positions within our structured credit run-off business:
Written credit | |||||||||||||||||||||||||||||||
derivatives, liquidity | Credit protection purchased from | ||||||||||||||||||||||||||||||
US$ millions, as at April 30, 2013 | Investments and loans | (1) | and credit facilities | Financial guarantors | Other counterparties | ||||||||||||||||||||||||||
Fair | Carrying | ||||||||||||||||||||||||||||||
Fair value of | value of | value of | Fair | ||||||||||||||||||||||||||||
trading, AFS | securities | securities | value of | Fair value | Fair value | ||||||||||||||||||||||||||
and FVO | classified | classified | written credit | net of | net of | ||||||||||||||||||||||||||
Notional | securities | as loans | as loans | Notional | derivatives | Notional | CVA | Notional | CVA | ||||||||||||||||||||||
USRMM - CDO | $ | - | $ | - | $ | - | $ | - | $ | 266 | $ | 201 | $ | - | $ | - | $ | 266 | $ | 202 | |||||||||||
CLO | 3,275 | 1 | 3,079 | 3,082 | 2,894 | 55 | 5,355 | 79 | 231 | 6 | |||||||||||||||||||||
Corporate debt | - | - | - | - | 4,927 | 13 | - | - | 4,927 | 17 | |||||||||||||||||||||
Other | 837 | 555 | 47 | 50 | 573 | 51 | 279 | 23 | 12 | 1 | |||||||||||||||||||||
Unmatched | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||
$ | 4,112 | $ | 556 | $ | 3,126 | $ | 3,132 | $ | 8,660 | $ | 320 | $ | 5,634 | $ | 102 | $ | 5,436 | $ | 226 | ||||||||||||
October 31, 2012 | $ | 4,742 | $ | 564 | $ | 3,731 | $ | 3,749 | $ | 9,035 | $ | 455 | $ | 6,492 | $ | 269 | $ | 5,926 | $ | 316 |
(1) | Excluded from the table above are equity and surplus note AFS securities that we obtained in consideration for commutation of our U.S. residential mortgage market (USRMM) contracts with financial guarantors. The equity securities had a carrying value of US$8 million (October 31, 2012: US$9 million) and the surplus notes had a notional value of US$140 million (October 31, 2012: US$140 million) and a carrying value of US$12 million (October 31, 2012: US$12 million). |
USRMM - collateralized debt obligation (CDO)
Our net USRMM position, consisting of a written credit derivative, amounted to US$65 million. This position was hedged through protection purchased from a large U.S.-based diversified multinational insurance and financial services company with which we have market-standard collateral arrangements.
Collateralized loan obligation (CLO)
CLO positions consist of super senior tranches of CLOs backed by diversified pools of primarily U.S. (62%) and European-based (35%) senior secured leveraged loans. As at April 30, 2013, approximately 17% of the total notional amount of the CLO tranches was rated equivalent to AAA, 76% was rated between the equivalent of AA+ and AA-, and the remainder was the equivalent of A. As at April 30, 2013, approximately 16% of the underlying collateral was rated equivalent to BB- or higher, 53% was rated between the equivalent of B+ and B-, 6% was rated equivalent to CCC+ or lower, with the remainder unrated. The CLO positions have a weighted-average life of 2.5 years and average subordination of 30%.
Corporate debt
Corporate debt exposure consists of a large matched super senior derivative, where CIBC has purchased and sold credit protection on the same reference portfolio. The reference portfolio consists of highly diversified, predominantly investment grade corporate credit. Claims on these contracts do not occur until cumulative credit default losses from the reference portfolio exceed 30% during the 44 month term of the contract. On this reference portfolio, we have sold protection to an investment dealer.
Other
Our significant positions in Other, as at April 30, 2013, include:
- US$207 million notional value of CDOs consisting of trust preferred securities (TruPs) collateral, which are Tier I Innovative Capital Instruments issued by U.S. regional banks and insurers. These securities are classified as FVO securities and had a fair value of US$170 million;
- US$160 million notional value of trading securities with a fair value of US$129 million, and US$284 million notional value of written protection with a fair value of US$49 million, on inflation-linked notes, and CDO tranches with collateral consisting of high-yield corporate debt portfolios, TruPs and non-U.S. residential mortgage-backed securities, with 55% rated between the equivalent of A+ and A-, 36% rated between the equivalent of BBB+ and BBB-, and the majority of the remaining rated equivalent of BB+ or lower;
- US$54 million notional value of an asset-backed security (ABS) classified as a loan, with fair value of US$46 million and carrying value of US$49 million;
- Variable rate Class A-1/A-2 notes classified as trading securities with a notional value of US$287 million and a fair value of US$247 million, tracking notes classified as AFS with a notional value of US$6 million and a fair value of US$2 million, and loans with a notional value of US$59 million and fair value and carrying value of nil. These notes were originally received in exchange for our non-bank sponsored asset-backed commercial paper (ABCP) in January 2009, upon the ratification of the Montreal Accord restructuring; and
- US$238 million of undrawn Margin Funding Facility related to the Montreal Accord restructuring.
Credit protection purchased from financial guarantors and other counterparties
The following table presents the notional amounts and fair values of credit protection purchased from financial guarantors and other counterparties by counterparty credit quality, based on external credit ratings (Standard & Poor's (S&P) and/or Moody's Investors Service (Moody's)), and the underlying referenced assets. Excluded from the table below are certain performing loans and tranched securities positions in our continuing businesses, with a total notional amount of approximately US$60 million, which are partly secured by direct guarantees from financial guarantors or by bonds guaranteed by financial guarantors.
Credit protection purchased | ||||||||||||||||||||||||||||||||||||
from financial guarantors | ||||||||||||||||||||||||||||||||||||
Notional amounts of referenced assets | and other counterparties | |||||||||||||||||||||||||||||||||||
Corporate | CDO - | Total | Fair value | Fair value | ||||||||||||||||||||||||||||||||
US$ millions, as at April 30, 2013 | CLO | debt | USRMM | Other | Unmatched | notional | before CVA | CVA | net of CVA | |||||||||||||||||||||||||||
Financial guarantors (1) | ||||||||||||||||||||||||||||||||||||
Investment grade | $ | 3,188 | $ | - | $ | - | $ | 53 | $ | - | $ | 3,241 | $ | 78 | $ | (13) | $ | 65 | ||||||||||||||||||
Non-investment grade | 75 | - | - | 176 | - | 251 | 29 | (16) | 13 | |||||||||||||||||||||||||||
Unrated | 2,092 | - | - | 50 | - | 2,142 | 42 | (18) | 24 | |||||||||||||||||||||||||||
5,355 | - | - | 279 | - | 5,634 | 149 | (47) | 102 | ||||||||||||||||||||||||||||
Other counterparties (1) | ||||||||||||||||||||||||||||||||||||
Investment grade | 231 | 20 | 266 | 12 | - | 529 | 208 | - | 208 | |||||||||||||||||||||||||||
Unrated | - | 4,907 | - | - | - | 4,907 | 17 | 1 | 18 | |||||||||||||||||||||||||||
231 | 4,927 | 266 | 12 | - | 5,436 | 225 | 1 | 226 | ||||||||||||||||||||||||||||
$ | 5,586 | $ | 4,927 | $ | 266 | $ | 291 | $ | - | $ | 11,070 | $ | 374 | $ | (46) | $ | 328 | |||||||||||||||||||
October 31, 2012 | $ | 6,284 | $ | 4,968 | $ | 298 | $ | 356 | $ | 512 | $ | 12,418 | $ | 692 | $ | (107) | $ | 585 |
(1) | In cases where one credit rating agency does not provide a rating, the classification in the table is based on the rating provided by the other agency. Where ratings differ between agencies, we use the lower rating. |
The unrated other counterparties is primarily one Canadian conduit. The conduit is in compliance with collateral posting arrangements and has posted collateral exceeding current market exposure. The fair value of the collateral as at April 30, 2013 was US$307 million relative to US$17 million of net exposure.
Lehman Brothers bankruptcy proceedings
During the quarter ended January 31, 2013, CIBC recognized a US$150 million charge (US$110 million after-tax) in respect of the full settlement of the U.S. Bankruptcy Court adversary proceeding brought by the Estate of Lehman Brothers Holdings, Inc. challenging the reduction to zero of our unfunded commitment on a variable funding note. In 2008, we recognized a US$841 million gain on the variable funding note as further detailed in Note 23 of the 2012 consolidated financial statements.
Corporate and Other
Corporate and Other includes the six functional groups - Technology and Operations, Corporate Development, Finance, Treasury, Administration, and Risk Management - that support CIBC's SBUs. The revenue, expenses and balance sheet resources of these functional groups are generally allocated to the business lines within the SBUs. Corporate and Other also includes our International banking operations comprising mainly CIBC FirstCaribbean, strategic investments in the CIBC Mellon joint ventures and The Bank of N.T. Butterfield & Son Limited, and other income statement and balance sheet items not directly attributable to the business lines.
Results (1) | |||||||||||||||||||||||||||
For the three | For the six | ||||||||||||||||||||||||||
months ended | months ended | ||||||||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | ||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||
International banking | $ | 140 | $ | 163 | $ | 139 | $ | 303 | $ | 287 | |||||||||||||||||
Other | (60) | (42) | 60 | (102) | 110 | ||||||||||||||||||||||
Total revenue (2) | 80 | 121 | 199 | 201 | 397 | ||||||||||||||||||||||
Provision for credit losses | 11 | 14 | 21 | 25 | 52 | ||||||||||||||||||||||
Non-interest expenses | 191 | 206 | 174 | 397 | 368 | ||||||||||||||||||||||
Income (loss) before taxes | (122) | (99) | 4 | (221) | (23) | ||||||||||||||||||||||
Income taxes (2) | (104) | (105) | (41) | (209) | (103) | ||||||||||||||||||||||
Net income (loss) | $ | (18) | $ | 6 | $ | 45 | $ | (12) | $ | 80 | |||||||||||||||||
Net income (loss) attributable to: | |||||||||||||||||||||||||||
Non-controlling interests | $ | 2 | $ | 2 | $ | 1 | $ | 4 | $ | 4 | |||||||||||||||||
Equity shareholders | (20) | 4 | 44 | (16) | 76 | ||||||||||||||||||||||
Full-time equivalent employees | 16,033 | 15,704 | 15,556 | 16,033 | 15,556 |
(1) | For additional segmented information, see the notes to the interim consolidated financial statements. | |||||||||||||
(2) | TEB adjusted. See footnote 2 in "Wholesale Banking" section for additional details. |
Financial overview
Net loss for the quarter was $18 million, compared to net income of $45 million for the same quarter last year and net income of $6 million for the prior quarter, mainly due to lower revenue.
Net loss for the six months ended April 30, 2013 was $12 million, compared to net income of $80 million for the same period in 2012, mainly due to lower revenue.
Revenue
Revenue was down $119 million or 60% from the same quarter last year.
International banking revenue was comparable to the same quarter last year.
Other revenue was down $120 million from the same quarter last year due to lower unallocated treasury revenue and a higher TEB adjustment.
Revenue was down $41 million or 34% from the prior quarter.
International banking revenue was down $23 million primarily due to a gain on sale of the private wealth management business in the prior quarter included as an item of note.
Other revenue was down $18 million primarily due to lower unallocated treasury revenue and a higher TEB adjustment.
Revenue for the six months ended April 30, 2013 was down $196 million or 49% from the same period in 2012.
International banking revenue was up $16 million primarily due to the gain on sale of the private wealth management business included as an item of note.
Other revenue was down $212 million primarily due to lower unallocated treasury revenue and a higher TEB adjustment.
Provision for credit losses
Provision for credit losses was down $10 million from the same quarter last year, mainly due to lower losses in CIBC FirstCaribbean. Net higher provision reversals of collectively assessed credit losses relating to the cards portfolio was offset by a net higher provision in the personal lending portfolio.
Provision for credit losses was down $3 million from the prior quarter, mainly due to a lower provision for collectively assessed credit losses relating to the personal lending portfolio.
Provision for credit losses for the six months ended April 30, 2013 was down $27 million from the same period in 2012, mainly due to lower losses in CIBC FirstCaribbean. Net higher provision reversals of collectively assessed credit losses relating to the cards and commercial lending portfolios was partially offset by a higher provision in the personal lending portfolio.
Non-interest expenses
Non-interest expenses were up $17 million or 10% from the same quarter last year, mainly due to higher unallocated corporate support costs.
Non-interest expenses were down $15 million or 7% from the prior quarter, mainly due to lower unallocated corporate support costs.
Non-interest expenses for the six months ended April 30, 2013 were up $29 million or 8% from the same period in 2012, mainly due to higher unallocated corporate support costs.
Income taxes
Income tax benefit was up $63 million from the same quarter last year, primarily due to a higher TEB adjustment and higher losses before taxes.
Income tax benefit was comparable to the prior quarter.
Income tax benefit for the six months ended April 30, 2013 was up $106 million from the same period in 2012, primarily due to a higher TEB adjustment and higher losses before taxes.
Financial condition
Review of condensed consolidated balance sheet | ||||
2013 | 2012 | |||
$ millions, as at | Apr. 30 | Oct. 31 | ||
Assets | ||||
Cash and deposits with banks | $ | 6,950 | $ | 4,727 |
Securities | 71,411 | 65,334 | ||
Securities borrowed or purchased under resale agreements | 26,486 | 28,474 | ||
Loans and acceptances, net of allowance | 252,292 | 252,732 | ||
Derivative instruments | 25,454 | 27,039 | ||
Other assets | 15,112 | 15,079 | ||
$ | 397,705 | $ | 393,385 | |
Liabilities and equity | ||||
Deposits | $ | 307,353 | $ | 300,344 |
Capital Trust securities | 1,691 | 1,678 | ||
Obligations related to securities lent or sold short or under repurchase agreements | 20,849 | 21,259 | ||
Derivative instruments | 25,073 | 27,091 | ||
Other liabilities | 20,425 | 21,152 | ||
Subordinated indebtedness | 4,802 | 4,823 | ||
Equity | 17,512 | 17,038 | ||
$ | 397,705 | $ | 393,385 | |
Assets
As at April 30, 2013, total assets were up $4.3 billion or 1% from October 31, 2012.
Cash and deposits with banks increased by $2.2 billion or 47%, mostly due to higher treasury deposit placements.
Securities increased by $6.1 billion or 9%. The main increase was in trading securities of $5.5 billion, primarily due to higher Canadian government securities and corporate equities.
Securities borrowed or purchased under resale agreements decreased $2.0 billion or 7%, primarily due to client-driven activities.
Net loans and acceptances decreased by $440 million. Residential mortgages were down $1.3 billion, primarily due to attrition in our FirstLine mortgage business, partially offset by new mortgage originations through CIBC channels. Personal loans were down $602 million and credit card loans were down $309 million, primarily due to net repayments. Business and government loans and acceptances were up $1.8 billion, largely due to growth in our domestic portfolio.
Derivative instruments decreased by $1.6 billion or 6%, largely driven by interest rate derivatives valuation.
Liabilities
As at April 30, 2013, total liabilities were up $3.8 billion or 1% from October 31, 2012.
Deposits increased by $7.0 billion or 2%, primarily driven by funding and retail volume growth. Further details on the composition of deposits are provided in Note 6 to the interim consolidated financial statements.
Obligations related to securities lent or sold short or under repurchase agreements decreased by $410 million or 2%, primarily due to client-driven activities.
Derivative instruments decreased by $2.0 billion or 7%, largely driven by interest rate derivatives valuation.
Other liabilities decreased by $727 million or 3%, mainly due to lower acceptances.
Equity
As at April 30, 2013, equity increased by $474 million or 3% from October 31, 2012, primarily due to a net increase in retained earnings and the issuance of common shares pursuant to the stock option and employee share purchase plans (ESPP), offset in part by common shares purchased for cancellation, as explained in the "Significant capital management activity" section below.
Capital resources
We actively manage our capital to maintain a strong and efficient capital base, to maximize risk-adjusted returns to shareholders, and to meet regulatory requirements. For additional details on capital resources, see pages 35 to 39 of the 2012 Annual Report.
Basel III and revisions to regulatory capital requirements
Our regulatory capital requirements are determined in accordance with guidelines issued by OSFI.
On December 10, 2012, OSFI issued the final version of revisions to its guidelines for capital adequacy in Canada which incorporate the adoption of the significant capital reforms, referred to as Basel III, issued by the Basel Committee on Banking Supervision (BCBS). The most significant aspects of the reforms are measures to improve the quality of capital and increase capital requirements for the global financial system. These measures, including changes to the determination of RWAs, are discussed further on page 37 of the 2012 Annual Report.
OSFI expects all institutions to establish target capital ratios that meet or exceed the 2019 all-in(i) minimum ratios plus conservation buffer early in the transition period. For the CET1 ratio, the target was 7% by the first quarter of 2013. The targets for the Tier 1 capital ratio and Total capital ratio are 8.5% and 10.5%, respectively, to be established by the first quarter of 2014. All ratios include a 2.5% capital conservation buffer. These targets may be higher for certain institutions or groups of institutions if OSFI feels the circumstances warrant it. See discussion on domestic systemically important banks (DSIBs) below.
OSFI's capital adequacy guidelines provide for a deferral of the additional capital charge to cover credit valuation charges for bilateral OTC derivatives to January 1, 2014. The delay recognizes a deferral in implementation of this new requirement by other significant jurisdictions.
On March 26, 2013, OSFI released its guidance on DSIBs and the associated capital surcharge. CIBC is considered to be a DSIB in Canada along with the Bank of Montreal, the Bank of Nova Scotia, the National Bank of Canada, the Royal Bank of Canada, and the Toronto-Dominion Bank. DSIBs will be subject to a 1% CET1 surcharge no later than January 1, 2016.
The BCBS has issued new consultation documents to enhance the risk assessment of certain credit exposures and to increase capital requirements as applicable. The recent consultation documents issued include: "Revisions to the Basel Securitization Framework" which proposed a revised framework for the calculation of capital for securitization exposures, and "Recognising the cost of credit protection purchase" which revised the requirements for recognizing credit risk mitigation transactions. No timetable for implementation of these proposals has been set.
Regulatory capital
Our capital ratios and assets-to-capital multiple (ACM) are presented in the following table:
2013 | 2013 | 2012 | ||||||||||||||||||
$ millions, as at | Apr. 30 | (1) | Jan. 31 | (1) | Oct. 31 | (1) | ||||||||||||||
Basel III- Transitional basis | ||||||||||||||||||||
CET1 capital | $ | 15,871 | $ | 15,556 | n/a | |||||||||||||||
Tier 1 capital | 17,070 | 16,718 | n/a | |||||||||||||||||
Total capital | 20,992 | 20,689 | n/a | |||||||||||||||||
RWA | 138,256 | 134,821 | n/a | |||||||||||||||||
CET1 ratio | 11.5 | % | 11.5 | % | n/a | |||||||||||||||
Tier 1 capital ratio | 12.4 | % | 12.4 | % | n/a | |||||||||||||||
Total capital ratio | 15.2 | % | 15.3 | % | n/a | |||||||||||||||
ACM | 18.0 | x | 17.9 | x | n/a | |||||||||||||||
Basel III- All-in basis | ||||||||||||||||||||
CET1 capital | $ | 12,260 | $ | 12,077 | n/a | |||||||||||||||
Tier 1 capital | 15,357 | 15,179 | n/a | |||||||||||||||||
Total capital | 19,471 | 19,352 | n/a | |||||||||||||||||
RWA | 125,938 | 126,366 | n/a | |||||||||||||||||
CET1 ratio | 9.7 | % | 9.6 | % | n/a | |||||||||||||||
Tier 1 capital ratio | 12.2 | % | 12.0 | % | n/a | |||||||||||||||
Total capital ratio | 15.5 | % | 15.3 | % | n/a | |||||||||||||||
Basel II | ||||||||||||||||||||
Tier 1 capital | n/a | n/a | $ | 15,940 | (2) | |||||||||||||||
Total capital | n/a | n/a | 19,924 | (2) | ||||||||||||||||
RWA | n/a | n/a | 115,229 | |||||||||||||||||
Tier 1 capital ratio | n/a | n/a | 13.8 | % | ||||||||||||||||
Total capital ratio | n/a | n/a | 17.3 | % | ||||||||||||||||
ACM | n/a | n/a | 17.4 | x |
(1) | Capital measures for fiscal year 2013 are based on Basel III whereas fiscal year 2012 measures are based on Basel II. | |||||||||||||||||||
(2) | Incorporates OSFI's IFRS transitional relief election. | |||||||||||||||||||
n/a | Not applicable. |
Effective in the first quarter of 2013, regulatory capital requirements are based on the Basel III methodology, while requirements for the fourth quarter of 2012 were determined on a Basel II basis. As a result of the change in methodology, the regulatory capital information at October 31, 2012 is not comparable to April 30, 2013 or January 31, 2013.
All-in basis (i)
On an all-in basis (i) under Basel III, the CET1 ratio increased by 0.1% from January 31, 2013 to April 30, 2013. All capital ratios were favourably impacted by an increase in CET1 capital and a slight decrease in RWAs. The CET1 capital increased due to internal capital generation net of the impact of common share repurchases and increased regulatory capital deductions during the quarter.
RWAs decreased slightly from January 31, 2013. An increase in the amount of corporate and bank exposure was offset by a decrease in other credit risk weighted assets.
The ACM increased 0.1 times from January 31, 2013 due to the changes to total regulatory capital discussed above, and higher on- and off-balance sheet assets.
(i) "All-in" is defined by OSFI as capital calculated to include all of the regulatory adjustments that will be required by 2019, but retaining the phase-out rules for non-qualifying capital instruments.
Significant capital management activity
Subordinated debt
During the quarter, we purchased and cancelled $8 million (US $8 million) of our floating rate Debentures (subordinated indebtedness) due August 31, 2085, and $10 million (US $10 million) of our floating rate Debentures (subordinated indebtedness) due July 31, 2084.
On April 9, 2013, we announced our intention to redeem all $550 million of our 5.15% Medium Term Notes (subordinated indebtedness) due June 6, 2018. In accordance with their terms, the Medium Term Notes will be redeemed at 100% of their principal value, and accrued but unpaid interest, on June 6, 2013.
Normal course issuer bid
During the quarter, we purchased and cancelled 2,471,031 common shares under the normal course issuer bid at an average price of $83.23 for a total amount of $206 million. During the six months ended April 30, 2013, we purchased and cancelled 5,808,331 common shares at an average price of $81.77 for a total amount of $475 million. We have now purchased all shares pursuant to the normal course issuer bid announced on August 30, 2012.
Dividends
On May 29, 2013, the Board of Directors approved an increase in our quarterly common share dividend from $0.94 per share to $0.96 per share for the quarter ending July 31, 2013.
Off-balance sheet arrangements
We enter into off-balance sheet arrangements in the normal course of our business. We consolidate all of our sponsored trusts that securitize our own assets with the exception of the commercial mortgage securitization trust.
CIBC-sponsored conduits
We sponsor a single-seller conduit and several multi-seller conduits (collectively, the conduits) in Canada.
As at April 30, 2013, the underlying collateral for various asset types in our multi-seller conduits amounted to $2.6 billion (October 31, 2012: $1.6 billion). The estimated weighted-average life of these assets was 1.2 years (October 31, 2012: 9 months). Our holdings of commercial paper issued by our non-consolidated sponsored multi-seller conduits that offer commercial paper to external investors were $53 million (October 31, 2012: $23 million). Our committed backstop liquidity facilities to these conduits were $3.5 billion (October 31, 2012: $2.2 billion). We also provided credit facilities of $30 million (October 31, 2012: $30 million) to these conduits as at April 30, 2013.
We participated in a syndicated facility for a 3-year commitment of $575 million to our single-seller conduit that provides funding to franchisees of a major Canadian retailer. Our portion of the commitment was $110 million (October 31, 2012: $110 million). As at April 30, 2013, we funded $82 million (October 31, 2012: $80 million) through the issuance of bankers' acceptances.
2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ millions, as at | Apr. 30 | Oct. 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Undrawn | Undrawn | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
liquidity | Written | liquidity | Written | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment | and credit | credit | Investment | and credit | credit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and loans | (1) | facilities | derivatives | (2) | and loans | (1) | facilities | derivatives | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CIBC sponsored conduits | $ | 135 | $ | 2,517 | $ | - | $ | 103 | $ | 1,554 | $ | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CIBC structured CDO vehicles | 213 | 41 | 189 | 232 | 40 | 207 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Third-party structured vehicles | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Structured credit run-off | 3,958 | 350 | 3,297 | 4,313 | 333 | 4,382 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Continuing | 669 | 27 | - | 1,004 | 23 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pass-through investment structures | 3,692 | - | - | 2,182 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial mortgage securitization trust | 2 | - | - | 1 | - | - | |
(1) | Excludes securities issued by, retained interest in, and derivatives with entities established by Canada Mortgage and Housing Corporation (CMHC), Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Government National Mortgage Association (Ginnie Mae), Federal Home Loan Banks, Federal Farm Credit Bank, and Student Loan Marketing Association (Sallie Mae). $3.4 billion (October 31, 2012: $3.7 billion) of the exposures related to CIBC-structured vehicles and third-party structured vehicles - structured credit run-off were hedged. |
(2) | The negative fair value recorded on the interim consolidated balance sheet was $436 million (October 31, 2012: $1.2 billion). Notional of $3.1 billion (October 31, 2012: $3.3 billion) was hedged with credit derivatives protection from third parties. The fair value of these hedges net of CVA was $246 million (October 31, 2012: $307 million). An additional notional of $183 million (October 31, 2012: $1.0 billion) was hedged through a limited recourse note. Accumulated fair value losses were $22 million (October 31, 2012: $26 million) on unhedged written credit derivatives. |
Additional details of our structured entities are provided in Note 5 to the interim consolidated financial statements. Details of our other off-balance sheet arrangements are provided on pages 39 to 41 of the 2012 Annual Report.
Management of risk
Our approach to management of risk has not changed significantly from that described on pages 42 to 68 of the 2012 Annual Report. Certain disclosures in this section have been shaded as they are required under IFRS 7 "Financial Instruments - Disclosures" and form an integral part of the interim consolidated financial statements.
Risk overview
We manage risk and related balance sheet resources within tolerance levels established by our management committees and approved by the Board of Directors and its committees. Key risk management policies are reviewed and approved by the applicable Board and management committees annually. Further details on the Board and management committees, as applicable to the management of risk, are provided on pages 42 and 43 of the 2012 Annual Report.
The five key groups within Risk Management, independent of the originating businesses, contribute to our management of risk:
- Capital Markets Risk Management - This unit provides independent oversight of the measurement, monitoring and control of market risks (both trading and non-trading), trading credit risk and trading operational risk across CIBC's portfolios;
- Card Products Risk Management - This unit oversees the management of credit risk in the card products portfolio, including the optimization of credit portfolio quality;
- Retail Lending and Wealth Risk Management - This unit primarily oversees the management of credit and fraud risk in the retail lines of credit and loans, residential mortgage, and small business loan portfolios, including the optimization of credit portfolio quality. This unit is also responsible for overall risk management oversight of wealth management activities;
- Wholesale Credit and Investment Risk Management - This unit is responsible for the adjudication and oversight of credit risks associated with our commercial and wholesale lending activities globally, management of the risks of our investment portfolios, as well as management of the special loans portfolios; and
- Risk Services - This unit is responsible for enterprise-wide analysis and reporting. Risk Services is also responsible for economic capital methodologies and policies, and CIBC's operational risk framework.
Liquidity, funding and interest rate risks are managed by Treasury. The measurement, monitoring and control of these risks are addressed in collaboration with Risk Management, with oversight provided by the Asset Liability Committee (ALCO).
Enhanced Disclosure Task Force
The Enhanced Disclosure Task Force (EDTF) was established by the Financial Stability Board in May, 2012. The stated goal of the EDTF is to improve the quality, comparability and transparency of risk disclosures. On October 29, 2012 the EDTF released its report "Enhancing the Risk Disclosures of Banks", which included thirty-two disclosure recommendations, principally in the areas of risk governance, credit risk, market risk, liquidity risk and capital adequacy.
We are in the process of implementing and note that many of the recommendations have already been embodied in fiscal 2012 disclosures, and others intended to be substantially in place by the end of fiscal 2013.
Credit risk
Credit risk primarily arises from our direct lending, trading, investment and hedging activities. Credit risk is defined as the risk of financial loss due to a borrower or counterparty failing to meet its obligations in accordance with contractual terms
Exposure to credit risk | ||||||||
2013 | 2012 | |||||||
$ millions, as at | Apr. 30 | Oct. 31 | ||||||
Business and government portfolios-advanced internal ratings-based (AIRB) approach | ||||||||
Drawn | $ | 80,829 | $ | 75,666 | ||||
Undrawn commitments | 33,892 | 33,208 | ||||||
Repo-style transactions | 48,036 | 56,938 | ||||||
Other off-balance sheet | 61,518 | 52,322 | ||||||
Over-the-counter (OTC) derivatives | 14,492 | 14,426 | ||||||
Gross exposure at default (EAD) on business and government portfolios | 238,767 | 232,560 | ||||||
Less: repo collateral | 38,521 | 48,152 | ||||||
Net EAD on business and government portfolios | 200,246 | 184,408 | ||||||
Retail portfolios-AIRB approach | ||||||||
Drawn | 192,874 | 194,586 | ||||||
Undrawn commitments | 61,250 | 69,778 | ||||||
Other off-balance sheet | 351 | 370 | ||||||
Gross EAD on retail portfolios | 254,475 | 264,734 | ||||||
Standardized portfolios | 11,624 | 11,808 | ||||||
Securitization exposures | 18,374 | 19,003 | ||||||
Gross EAD | $ | 523,240 | $ | 528,105 | ||||
Net EAD | $ | 484,719 | $ | 479,953 | ||||
Real estate secured personal lending
Real estate secured personal lending comprises residential mortgages and personal loans and lines secured by residential property (HELOC). This portfolio is low risk as we have a first charge on the majority of the properties, and second lien on only a small portion of the portfolio. We use the same lending criteria in the adjudication of both first lien and second lien loans.
Under the Bank Act, banks are limited to providing residential real estate loans of no more than 80% of the collateral value. An exception is made for loans with a higher loan-to-value (LTV) ratio if they are insured by either CMHC or a private mortgage insurer. Mortgage insurance protects banks from the risk of default by the borrower, over the term of the coverage. Private mortgage insurers are subject to regulatory capital requirements, which aim to ensure that they are well capitalized. If a private mortgage insurer becomes insolvent, the Government of Canada has, provided certain conditions are met, obligations in respect of policies underwritten by certain insolvent private mortgage insurers as more fully described in the recently enacted Protection of Residential Mortgage or Hypothecary Insurance Act (PRMHIA). There is a possibility that losses could be incurred in respect of insured mortgages if, among other things, CMHC or the applicable private mortgage insurer denies a claim, or further, if a private mortgage insurer becomes insolvent and either the conditions under the PRMHIA are not met or the Government of Canada denies the claim. No material losses are expected in the mortgage portfolio.
The following table provides details on our Canadian residential mortgage and HELOC portfolios:
Residential mortgages | HELOC(1) | Total | ||||||||||||||||||||
$ billions, as at April 30, 2013 | Insured | (2) | Uninsured | Uninsured | Insured | (2) | Uninsured | |||||||||||||||
Ontario | $ | 47.9 | 73 | % | $ | 17.9 | 27 | % | $ | 9.5 | 100 | % | $ | 47.9 | 64 | % | $ | 27.4 | 36 | % | ||
British Columbia | 19.8 | 70 | 8.6 | 30 | 4.0 | 100 | 19.8 | 61 | 12.6 | 39 | ||||||||||||
Alberta | 17.8 | 77 | 5.5 | 23 | 2.9 | 100 | 17.8 | 68 | 8.4 | 32 | ||||||||||||
Quebec | 8.2 | 79 | 2.2 | 21 | 1.5 | 100 | 8.2 | 69 | 3.7 | 31 | ||||||||||||
Other | 12.3 | 80 | 3.0 | 20 | 1.8 | 100 | 12.3 | 72 | 4.8 | 28 | ||||||||||||
Total Canadian portfolio (3) | $ | 106.0 | 74 | % | $ | 37.2 | 26 | % | $ | 19.7 | 100 | % | $ | 106.0 | 65 | % | $ | 56.9 | 35 | % | ||
October 31, 2012 | $ | 109.5 | 76 | % | $ | 34.8 | 24 | % | $ | 20.1 | 100 | % | $ | 109.5 | 67 | % | $ | 54.9 | 33 | % |
(1) | We did not have any insured HELOCs as at April 30, 2013 and October 31, 2012. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) | 93% (October 31, 2012: 93%) is insured by CMHC and the remaining by two private Canadian insurers, both rated at least AA (low) by DBRS. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(3) | Geographical location is based on the address of the property managed. |
The average LTV ratio(1) for our uninsured Canadian residential mortgages and HELOCs portfolios originated during the quarter and period to date are provided in the following table. We did not acquire uninsured residential mortgages and HELOCs from a third party for the periods presented in the table below.
For the three months ended |
|
For the six months ended |
||||||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||||||
Apr. 30 | Jan. 31 | (2) | Apr. 30 | Apr. 30 | Apr. 30 | |||||||||||||||||||||
Residential | Residential | Residential | Residential | Residential | ||||||||||||||||||||||
mortgages | HELOC | mortgages | HELOC | mortgages | HELOC | mortgages | HELOC | mortgages | HELOC | |||||||||||||||||
Ontario | 69 | % | 66 | % | 69 | % | 66 | % | 64 | % | 64 | % | 69 | % | 66 | % | 64 | % | 63 | % | ||||||
British Columbia | 66 | 63 | 66 | 62 | 61 | 60 | 66 | 62 | 62 | 59 | ||||||||||||||||
Alberta | 68 | 65 | 68 | 64 | 65 | 62 | 68 | 65 | 65 | 61 | ||||||||||||||||
Quebec | 70 | 68 | 70 | 68 | 65 | 66 | 70 | 68 | 65 | 64 | ||||||||||||||||
Other | 70 | 68 | 70 | 67 | 67 | 63 | 70 | 67 | 67 | 62 | ||||||||||||||||
Total Canadian portfolio (3) | 69 | % | 66 | % | 69 | % | 65 | % | 64 | % | 63 | % | 69 | % | 65 | % | 64 | % | 62 | % |
(1) | LTV ratios for newly originated residential mortgages and HELOCs are calculated as the sum of all individual account LTVs at origination over total number of accounts. | |||||||||||||||||||||||||
(2) | Restated. | |||||||||||||||||||||||||
(3) | Geographical allocation is based on the address of the property managed. |
The following table provides the average LTV ratios on our total Canadian residential mortgage portfolio:
Insured | Uninsured | |||||||||
April 30, 2013 (1) | 53 | % | 54 | % | ||||||
October 31, 2012 (1)(2) | 52 | % | 53 | % |
(1) | LTV ratios for residential mortgages are calculated as the sum of all individual account LTVs at the current estimated property values over total number of accounts. The house price estimates for April 30, 2013 and October 31, 2012 are based on Teranet - National Bank National Composite House Price Index (Teranet) as of March 31, 2013 and September 30, 2012, respectively. Teranet is an independent estimate of the rate of change of Canadian home prices. The sale prices are based on the property records of public land registries. The monthly indices cover eleven Canadian metropolitan areas which are combined to form a national composite index. | |||||||
(2) | Restated. |
The tables below summarize the remaining amortization profile of our total Canadian residential mortgages. The first table provides the remaining amortization periods based on the minimum contractual payment amounts. The second table provides the remaining amortization periods based upon current customer payment amounts, which incorporate payments larger than the minimum contractual amount and/or higher frequency of payments.
Contractual payment basis | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less than | 5-10 | 10-15 | 15-20 | 20-25 | 25-30 | 30-35 | 35 years | |||||||||||||||||||||||||||||||||||||||||||||||||||
5 years | years | years | years | years | years | years | and above | |||||||||||||||||||||||||||||||||||||||||||||||||||
As at April 30, 2013 | 1 | % | 1 | % | 3 | % | 12 | % | 20 | % | 32 | % | 29 | % | 2 | % | ||||||||||||||||||||||||||||||||||||||||||
As at October 31, 2012 | 1 | % | 1 | % | 3 | % | 13 | % | 21 | % | 27 | % | 31 | % | 3 | % | ||||||||||||||||||||||||||||||||||||||||||
Current customer payment basis | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Less than | 5-10 | 10-15 | 15-20 | 20-25 | 25-30 | 30-35 | 35 years | |||||||||||||||||||||||||||||||||||||||||||||||||||
5 years | years | years | years | years | years | years | and above | |||||||||||||||||||||||||||||||||||||||||||||||||||
As at April 30, 2013 | 3 | % | 7 | % | 12 | % | 16 | % | 20 | % | 26 | % | 14 | % | 2 | % | ||||||||||||||||||||||||||||||||||||||||||
As at October 31, 2012 | 3 | % | 7 | % | 12 | % | 16 | % | 20 | % | 26 | % | 14 | % | 2 | % |
We have two types of condominium exposures in Canada: mortgages and developer loans. Both are primarily concentrated in the Toronto and Vancouver areas. As at April 30, 2013, our Canadian condominium mortgages were $16.6 billion (October 31, 2012: $17.0 billion) of which 75% (October 31, 2012: 77%) were insured. Our drawn developer loans were $888 million (October 31, 2012: $701 million) or 2% of our business and government portfolio and our related undrawn exposure was $2.0 billion (October 31, 2012: $2.0 billion). The condominium developer exposure is diversified across 75 projects.
We stress test our mortgage and HELOC portfolio to determine the potential impact of different economic events. Our stress tests can use variables such as GDP, unemployment, bankruptcy rates, debt service ratios and delinquency trends, which are reflective of potential ranges of housing price declines, to model potential outcomes for a given set of circumstances. The stress testing involves variables that could behave differently in certain situations. Our main tests use economic variables in a similar range to the early 1980s and early 1990s when Canada experienced economic downturns. Our results show that in an economic downturn, our strong capital position should be sufficient to absorb mortgage and HELOC losses.
Counterparty credit exposure
We have counterparty credit exposure that arises from our interest rate, foreign exchange, equity, commodity, and credit derivatives trading, hedging, and portfolio management activities, as explained in Note 12 to the consolidated financial statements in our 2012 Annual Report.
We establish a CVA for expected future credit losses from each of our derivative counterparties. As at April 30, 2013, the CVA for all derivative counterparties was $66 million (October 31, 2012: $137 million).
The following table shows the rating profile of OTC derivative mark-to-market (MTM) receivables (after CVA and derivative master netting agreements, but before any collateral):
2013 | 2012 | ||||||||||
$ billions, as at | Apr. 30 | Oct. 31 | |||||||||
S&P rating equivalent | Exposure | ||||||||||
AAA to BBB- | $ | 3.88 | 83.8 | % | $ | 5.46 | 81.4 | % | |||
BB+ to B- | 0.74 | 16.0 | 1.22 | 18.2 | |||||||
CCC+ to CCC- | - | - | 0.02 | 0.2 | |||||||
Below CCC- | - | - | 0.01 | 0.1 | |||||||
Unrated | 0.01 | 0.2 | 0.01 | 0.1 | |||||||
$ | 4.63 | 100.0 | % | $ | 6.72 | 100.0 | % | ||||
The following table provides the details of our impaired loans and allowances for credit losses:
2013 | 2012 | |||
$ millions, as at | Apr. 30 | Oct. 31 | ||
Gross impaired loans | ||||
Consumer | $ | 761 | $ | 739 |
Business and government | 931 | 1,128 | ||
Total gross impaired loans | $ | 1,692 | $ | 1,867 |
Allowance for credit losses | ||||
Consumer | $ | 1,115 | $ | 1,121 |
Business and government | 641 | 739 | ||
Total allowance for credit losses | $ | 1,756 | $ | 1,860 |
Comprises: | ||||
Individual allowance for loans | $ | 391 | $ | 475 |
Collective allowance for loans (1) | 1,365 | 1,385 | ||
Total allowance for credit losses | $ | 1,756 | $ | 1,860 |
(1) | Excludes allowance on undrawn credit facilities of $61 million (October 31, 2012: $56 million). |
Gross impaired loans (GIL) were down $175 million or 9% from October 31, 2012. Consumer GIL was up $22 million or 3%, mainly driven by residential mortgages and personal lending. Business and government GIL was down $197 million or 17%, attributable to decreases in the sectors of real estate and construction, transportation, and oil and gas.
The total allowance for credit losses was down $104 million or 6% from October 31, 2012. Canadian and U.S. allowances for credit losses comprise 74% and 7%, respectively, of the total allowance. The individually assessed allowance was down $84 million or 18% from October 31, 2012, mainly driven by the transportation, and the real estate and construction sectors. The collectively assessed allowance was down $20 million or 1% from October 31, 2012, largely driven by an improvement in the cards portfolio.
For details on the provision for credit losses, see the "Overview" section.
Exposure to certain countries and regions
Several European countries, especially Greece, Ireland, Italy, Portugal, and Spain, have continued to experience credit concerns. The following tables provide our exposure to these and other European countries, both within and outside the Eurozone. Except as noted in our indirect exposures section below, we do not have any other exposure through our special purpose entities (SPEs) to the countries included in the tables below.
We do not have a material exposure to the countries in the Middle East and North Africa that have either experienced or may be at risk of unrest. These countries include Algeria, Bahrain, Egypt, Jordan, Lebanon, Libya, Morocco, Oman, Saudi Arabia, Syria, Tunisia, and Yemen.
Direct exposures to certain countries and regions
Our direct exposures presented in the tables below comprise (A) funded - on-balance sheet loans (stated at amortized cost net of allowances, if any), deposits with banks (stated at amortized cost net of allowances, if any) and securities (stated at fair value); (B) unfunded - unutilized credit commitments, letters of credit, and guarantees (stated at notional amount net of allowances, if any) and sold credit default swap (CDS) contracts where we do not benefit from subordination (stated at notional amount less fair value); and (C) derivative MTM receivables (stated at fair value) and repo-style transactions (1) (stated at fair value). Of our total direct exposures to Europe, approximately 95% (October 31, 2012: 98%) is to entities in countries with Aaa/AAA ratings from at least one of Moody's or S&P.
The following tables provide a summary of our positions in this business:
Direct exposures | |||||||||||||||||
Funded | Unfunded | ||||||||||||||||
Total | Total | ||||||||||||||||
funded | unfunded | ||||||||||||||||
$ millions, as at April 30, 2013 | Corporate | Sovereign | Bank | (A) | Corporate | Bank | (B) | ||||||||||
Austria | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||
Belgium | 2 | - | 99 | 101 | - | - | - | ||||||||||
Finland | 2 | 1 | 1 | 4 | - | - | - | ||||||||||
France | 31 | - | 27 | 58 | 11 | 6 | 17 | ||||||||||
Germany | 214 | 42 | 5 | 261 | 69 | - | 69 | ||||||||||
Greece | - | - | - | - | - | - | - | ||||||||||
Ireland | - | - | 1 | 1 | - | - | - | ||||||||||
Italy | - | - | - | - | - | - | - | ||||||||||
Luxembourg | 5 | - | 52 | 57 | - | - | - | ||||||||||
Malta | - | - | - | - | - | - | - | ||||||||||
Netherlands | 7 | 222 | 80 | 309 | - | 10 | 10 | ||||||||||
Portugal | - | - | - | - | - | - | - | ||||||||||
Spain | - | - | 1 | 1 | - | - | - | ||||||||||
Total Eurozone | $ | 261 | $ | 265 | $ | 266 | $ | 792 | $ | 80 | $ | 16 | $ | 96 | |||
Denmark | - | 7 | 26 | 33 | - | 12 | 12 | ||||||||||
Guernsey | - | - | - | - | - | - | - | ||||||||||
Norway | - | 98 | 117 | 215 | - | - | - | ||||||||||
Russia | - | - | - | - | - | - | - | ||||||||||
Sweden | 158 | 93 | 263 | 514 | 41 | - | 41 | ||||||||||
Switzerland | 204 | - | 111 | 315 | 303 | - | 303 | ||||||||||
Turkey | - | - | 13 | 13 | - | 23 | 23 | ||||||||||
United Kingdom | 723 | 31 | 584 | 1,338 | 1,148 | (2) | 171 | 1,319 | |||||||||
Total non-Eurozone | $ | 1,085 | $ | 229 | $ | 1,114 | $ | 2,428 | $ | 1,492 | $ | 206 | $ | 1,698 | |||
Total Europe | $ | 1,346 | $ | 494 | $ | 1,380 | $ | 3,220 | $ | 1,572 | $ | 222 | $ | 1,794 | |||
October 31, 2012 | $ | 1,141 | $ | 863 | $ | 1,287 | $ | 3,291 | $ | 1,397 | $ | 190 | $ | 1,587 |
(1) | Comprises securities purchased and sold under repurchase agreements for cash collateral; securities borrowed and lent for cash collateral; and securities borrowed and lent for securities collateral. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) | Includes $157 million of exposure (notional value of $179 million and fair value of $22 million) on a CDS sold on a bond issue of a U.K. corporate entity, which is guaranteed by a financial guarantor. We currently hold the CDS sold as part of our structured credit run-off business. A payout on the CDS sold would be triggered by the bankruptcy of the reference entity, or a failure of the entity to make a principal or interest payment as it is due; as well as failure of the financial guarantor to meet its obligation under the guarantee. |
Direct exposures (continued) | ||||||||||||||||
Derivative MTM receivables and repo-style transactions | ||||||||||||||||
$ millions, as at April 30, 2013 | Corporate | Sovereign | Bank | Gross exposure(1) |
Collateral held(2) |
Net exposure (C) |
Total direct exposure (A)+(B)+(C) |
|||||||||
Austria | $ | - | $ | - | $ | 36 | $ | 36 | $ | 35 | $ | 1 | $ | 1 | ||
Belgium | - | 1 | 42 | 43 | 42 | 1 | 102 | |||||||||
Finland | - | - | 2 | 2 | - | 2 | 6 | |||||||||
France | - | 164 | 1,215 | 1,379 | 1,375 | 4 | 79 | |||||||||
Germany | - | - | 1,540 | 1,540 | 1,302 | 238 | 568 | |||||||||
Greece | - | - | - | - | - | - | - | |||||||||
Ireland | - | - | 214 | 214 | 212 | 2 | 3 | |||||||||
Italy | - | - | 16 | 16 | 14 | 2 | 2 | |||||||||
Luxembourg | - | - | - | - | - | - | 57 | |||||||||
Malta | - | - | - | - | - | - | - | |||||||||
Netherlands | 3 | - | 281 | 284 | 274 | 10 | 329 | |||||||||
Portugal | - | - | - | - | - | - | - | |||||||||
Spain | - | - | 29 | 29 | 29 | - | 1 | |||||||||
Total Eurozone | $ | 3 | $ | 165 | $ | 3,375 | $ | 3,543 | $ | 3,283 | $ | 260 | $ | 1,148 | ||
Denmark | - | - | 21 | 21 | 17 | 4 | 49 | |||||||||
Guernsey | - | - | - | - | - | - | - | |||||||||
Norway | - | - | - | - | - | - | 215 | |||||||||
Russia | - | 3 | - | 3 | - | 3 | 3 | |||||||||
Sweden | 1 | - | - | 1 | - | 1 | 556 | |||||||||
Switzerland | - | - | 1,496 | 1,496 | 1,485 | 11 | 629 | |||||||||
Turkey | - | - | - | - | - | - | 36 | |||||||||
United Kingdom | 172 | 6 | 4,240 | 4,418 | 4,226 | 192 | 2,849 | |||||||||
Total non-Eurozone | $ | 173 | $ | 9 | $ | 5,757 | $ | 5,939 | $ | 5,728 | $ | 211 | $ | 4,337 | ||
Total Europe | $ | 176 | $ | 174 | $ | 9,132 | $ | 9,482 | $ | 9,011 | $ | 471 | $ | 5,485 | ||
October 31, 2012 | $ | 73 | $ | - | $ | 6,078 | $ | 6,151 | $ | 5,790 | $ | 361 | $ | 5,239 |
(1) | The amounts are shown net of CVA. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(2) | Collateral on derivative MTM receivables was $2.4 billion (October 31, 2012: $2.3 billion), and was all in the form of cash. Collateral on repo-style transactions was $6.6 billion (October 31, 2012: $3.5 billion), and is comprised of cash and investment-grade debt securities. |
Indirect exposures to certain countries and regions
Our indirect exposures comprise securities (primarily CLOs classified as loans on our consolidated balance sheet), and written credit protection on securities in our structured credit run-off business where we benefit from subordination to our position. Our gross exposure before subordination is stated at carrying value for securities and notional less fair value for derivatives where we have written protection. We have no indirect exposures to Portugal, Slovenia, Guernsey, Turkey, and Russia.
Total | ||
indirect | ||
$ millions, as at April 30, 2013 | exposure | |
Austria | $ | 1 |
Belgium | 21 | |
Finland | 15 | |
France | 508 | |
Germany | 380 | |
Greece | 10 | |
Ireland | 52 | |
Italy | 76 | |
Luxembourg | 57 | |
Netherlands | 267 | |
Spain | 155 | |
Total Eurozone | $ | 1,542 |
Denmark | $ | 36 |
Norway | 15 | |
Sweden | 77 | |
Switzerland | 4 | |
United Kingdom | 546 | |
Total non-Eurozone | $ | 678 |
Total exposure | $ | 2,220 |
October 31, 2012 | $ | 2,452 |
In addition to the indirect exposures above, we have indirect exposures to European counterparties when we have taken debt or equity securities issued by European entities as collateral for our securities lending and borrowing activity, from entities that are not in Europe. Our indirect exposure was $918 million (October 31, 2012: $846 million).
Selected exposures in certain selected activities
In response to the recommendations of the Financial Stability Board, this section provides information on our other selected activities within our continuing and exited businesses that may be of particular interest to investors based on their risk characteristics and the current market environment. For additional information on these selected exposures, refer to pages 56 to 57 of the 2012 Annual Report.
U.S. real estate finance
The following table provides a summary of our positions in this business:
$ millions, as at April 30, 2013 | Drawn | Undrawn | |||
Construction program | $ | 138 | $ | 71 | |
Interim program | 4,392 | 389 | |||
Permanent program | 68 | - | |||
Exposure, net of allowance | $ | 4,598 | $ | 460 | |
Of the above: | |||||
Net impaired | $ | 109 | $ | - | |
On credit watch list | 242 | 2 | |||
Exposure, net of allowance, as at October 31, 2012 | $ | 4,177 | $ | 445 | |
As at April 30, 2013, the allowance for credit losses for this portfolio was $71 million (October 31, 2012: $118 million). During the quarter and six months ended April 30, 2013, we recorded provision for credit losses of $4 million and $13 million, respectively ($15 million and $41 million for the quarter and six months ended April 30, 2012).
The business also maintains commercial mortgage-backed securities (CMBS) trading and distribution capabilities. As at April 30, 2013, we had CMBS inventory with a notional amount of $9 million and a fair value of less than $1 million (October 31, 2012: notional of $9 million and fair value of less than $1 million).
Leveraged finance
The exposures in our leveraged finance activities in Europe and U.S. are discussed below.
European leveraged finance
The following table provides a summary of our positions in this exited business:
$ millions, as at April 30, 2013 | Drawn | Undrawn | |||||||||||||
Manufacturing | $ | 342 | $ | 50 | |||||||||||
Publishing and printing | 19 | 1 | |||||||||||||
Utilities | 9 | - | |||||||||||||
Business services | 5 | - | |||||||||||||
Transportation | 6 | 10 | |||||||||||||
Exposure, net of allowance (1) | $ | 381 | $ | 61 | |||||||||||
Of the above: | |||||||||||||||
Net impaired | $ | 18 | $ | - | |||||||||||
On credit watch list | 157 | 8 | |||||||||||||
Exposure, net of allowance, as at October 31, 2012 | $ | 404 | $ | 60 |
(1) | Excludes $17 million (October 31, 2012: $16 million) of exposure relating to equity received pursuant to a reorganization. |
As at April 30, 2013, the allowance for credit losses for this portfolio was $62 million (October 31, 2012: $41 million). During the quarter and six months ended April 30, 2013, we recorded provision for credit losses of $21 million (nil for the quarter and six months ended April 30, 2012).
U.S. leveraged finance
The following table provides a summary of our positions in this business:
$ millions, as at April 30, 2013 | Drawn | Undrawn | ||||||||||||
Transportation | $ | 37 | $ | 16 | ||||||||||
Media and advertising | 10 | - | ||||||||||||
Manufacturing | - | 1 | ||||||||||||
Exposure, net of allowance (1) | $ | 47 | $ | 17 | ||||||||||
Of the above: | ||||||||||||||
Net impaired | $ | 35 | $ | - | ||||||||||
On credit watch list | 12 | 13 | ||||||||||||
Exposure, net of allowance, as at October 31, 2012 | $ | 91 | $ | 19 |
(1) | Excludes $34 million (October 31, 2012: nil) of exposure relating to equity received pursuant to a reorganization. |
As at April 30, 2013, the allowance for credit losses for this portfolio was $3 million (October 31, 2012: $67 million). During the quarter and six months ended April 30, 2013, the net reversal of credit losses were $5 million and $6 million, respectively (nil for the quarter and for the six months ended April 30, 2012).
Market risk
Market risk arises from positions in currencies, securities and derivatives held in our trading portfolios, and from our retail banking business, investment portfolios, and other non-trading activities. Market risk is defined as the potential for financial loss from adverse changes in underlying market factors, including interest and foreign exchange rates, credit spreads, and equity and commodity prices.
Trading activities
The following three tables show value at risk (VaR), stressed VaR and incremental risk charge for our trading activities based on risk type under an internal models-based approach.
Trading revenue (TEB) comprises both trading net interest income and non-interest income and excludes underwriting fees and commissions. Trading revenue (TEB) for the purposes of these tables excludes positions described in the "Structured credit run-off business" section of the MD&A and certain other exited portfolios.
Total average VaR for the three months ended April 30, 2013 was down 2% from the last quarter, driven mainly by a reduction in our credit spread, equity, commodity and debt specific risks, partially offset by an increase in interest rate and foreign exchange risks.
Average stressed VaR for the three months ended April 30, 2013 was down 19% from the last quarter. During the current stressed VaR period from October 15, 2008 to October 14, 2009, the market exhibited increased interest rate volatility combined with a reduction in the level of interest rates, and an increase in credit spreads.
Average incremental risk charge for the three months ended April 30, 2013 was down 10% from the last quarter, mainly due to decreased high-yield trading inventory.
VaR by risk type - trading portfolio | ||||||||||||||||||||||
As at or for the three months ended |
As at or for the six months ended |
|||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | |||||||||||||||||
High | Low | As at | Average | As at | Average | As at | Average | Average | Average | |||||||||||||
Interest rate risk | $ | 5.0 | $ | 2.3 | $ | 4.5 | $ | 4.0 | $ | 3.7 | $ | 3.0 | $ | 1.3 | $ | 2.4 | $ | 3.5 | $ | 2.1 | ||
Credit spread risk | 1.9 | 1.1 | 1.6 | 1.5 | 1.8 | 1.7 | 1.7 | 1.4 | 1.6 | 1.3 | ||||||||||||
Equity risk | 2.4 | 1.7 | 2.3 | 1.9 | 2.2 | 2.2 | 3.8 | 2.4 | 2.1 | 2.1 | ||||||||||||
Foreign exchange risk | 1.7 | 0.4 | 1.1 | 1.0 | 1.3 | 0.5 | 0.7 | 0.7 | 0.8 | 0.7 | ||||||||||||
Commodity risk | 1.6 | 0.7 | 1.5 | 0.9 | 0.8 | 1.0 | 1.2 | 1.3 | 1.0 | 1.2 | ||||||||||||
Debt specific risk | 3.3 | 1.8 | 2.6 | 2.4 | 2.4 | 2.6 | 2.4 | 2.4 | 2.5 | 2.4 | ||||||||||||
Diversification effect (1) | n/m | n/m | (8.1) | (6.8) | (7.3) | (6.0) | (6.2) | (6.0) | (6.5) | (5.5) | ||||||||||||
Total VaR (one-day measure) | $ | 6.0 | $ | 3.9 | $ | 5.5 | $ | 4.9 | $ | 4.9 | $ | 5.0 | $ | 4.9 | $ | 4.6 | $ | 5.0 | $ | 4.3 | ||
(1) Total VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from portfolio diversification effect. |
||||||||||||||||||||||
n/m Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types. |
||||||||||||||||||||||
Stressed VaR by risk type - trading portfolio | ||||||||||||||||||||||
As at or for the three months ended |
As at or for the six months ended |
|||||||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | |||||||||||||||||
High | Low | As at | Average | As at | Average | As at | Average | Average | Average | |||||||||||||
Interest rate risk | $ | 14.2 | $ | 4.9 | $ | 11.2 | $ | 8.9 | $ | 8.9 | $ | 9.5 | $ | 4.3 | $ | 6.0 | $ | 9.2 | $ | 6.4 | ||
Credit spread risk | 5.9 | 4.0 | 5.7 | 4.9 | 6.0 | 5.1 | 5.4 | 3.7 | 5.0 | 3.1 | ||||||||||||
Equity risk | 6.6 | 0.9 | 3.1 | 2.6 | 1.3 | 3.1 | 1.4 | 2.0 | 2.8 | 1.9 | ||||||||||||
Foreign exchange risk | 2.4 | 0.4 | 2.4 | 1.1 | 1.9 | 1.7 | 2.3 | 1.6 | 1.4 | 1.7 | ||||||||||||
Commodity risk | 2.2 | 0.3 | 1.6 | 0.9 | 0.4 | 1.3 | 0.9 | 0.9 | 1.1 | 1.0 | ||||||||||||
Debt specific risk | 2.0 | 1.0 | 1.2 | 1.4 | 1.4 | 1.5 | 0.8 | 0.8 | 1.4 | 1.0 | ||||||||||||
Diversification effect (1) | n/m | n/m | (12.2) | (10.3) | (9.4) | (10.4) | (9.5) | (8.8) | (10.3) | (8.9) | ||||||||||||
Total stressed VaR (one-day measure) | $ | 14.4 | $ | 4.8 | $ | 13.0 | $ | 9.5 | $ | 10.5 | $ | 11.8 | $ | 5.6 | $ | 6.2 | $ | 10.6 | $ | 6.2 | ||
(1) Total stressed VaR is less than the sum of the VaR of the different market risk types due to risk offsets resulting from portfolio diversification effect. | ||||||||||||||||||||||
n/m Not meaningful. It is not meaningful to compute a diversification effect because the high and low may occur on different days for different risk types. | ||||||||||||||||||||||
Incremental risk charge - trading portfolio | ||||||||||||||||||||||
As at or for the three months ended |
As at or for the six months ended |
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2013 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
$ millions | Apr. 30 | Jan. 31 | Apr. 30 | Apr. 30 | Apr. 30 | |||||||||||||||||
High | Low | As at | Average | As at | Average | As at | Average | Average | Average | |||||||||||||
Default risk | $ | 56.9 | $ | 34.7 | $ | 54.5 | $ | 47.0 | $ | 36.0 | $ | 51.7 | $ | 27.9 | $ | 38.0 | $ | 49.4 | $ | 33.0 | ||
Migration risk | 49.7 | 26.9 | 26.9 | 37.4 | 40.4 | 41.9 | 31.2 | 28.0 | 39.8 | 36.6 | ||||||||||||
Incremental risk charge (one-year measure) | $ | 101.3 | $ | 71.6 | $ | 81.4 | $ | 84.4 | $ | 76.4 | $ | 93.6 | $ | 59.1 | $ | 66.0 | $ | 89.2 | $ | 69.6 | ||
Trading revenue
The trading revenue (TEB) and VaR graph below compares the current quarter and the three previous quarters' actual daily trading revenue (TEB) with the previous day's VaR measures.
During the quarter, trading revenue (TEB) was positive for 98% of the days. Trading loss did not exceed VaR during the quarter. During the quarter, the largest loss occurred on February 4, 2013 totalling $0.3 million. The loss was mainly driven by reduction in interest rates. The largest gain of $15.5 million occurred on April 23, 2013. It was attributable to the normal course of business within our capital markets group, notably in the equity derivatives business. Average daily trading revenue (TEB) was $3.7 million during the quarter and the average daily TEB was $1.6 million.
To view "Trading revenue (TEB) versus VaR" graph, please click http://files.newswire.ca/256/CIBCTradingRevenue.doc
Non-trading activities
Interest rate risk
Non-trading interest rate risk consists primarily of risk inherent in asset/liability management activities and the activities of domestic and foreign subsidiaries. Interest rate risk results from differences in the maturities or repricing dates of assets and liabilities, both on- and off-balance sheet, as well as from embedded optionality in retail products. This optionality arises predominantly from the prepayment exposures of mortgage products, mortgage commitments and some GIC products with early redemption features; this optionality is measured consistent with our actual experience. A variety of cash instruments and derivatives, principally interest rate swaps, futures and options, are used to manage and control these risks.
The following table shows the potential impact over the next 12 months, adjusted for structural assumptions (excluding shareholders' equity), estimated prepayments and early withdrawals, of an immediate 100 and 200 basis point increase or decrease in interest rates. In addition, we have a floor in place in the downward shock to accommodate for the current low interest rate environment (i.e. analysis uses the floor to stop interest rates from going into a negative position in the lower rate scenarios).
Interest rate sensitivity - non-trading (after-tax)
2013 | 2013 | 2012 | ||||||||||||||||
$ millions, as at | Apr. 30 | Jan. 31 | Apr. 30 | |||||||||||||||
C$ | US$ | Other | C$ | US$ | Other | C$ | US$ | Other | ||||||||||
100 basis points increase in interest rates | ||||||||||||||||||
Increase (decrease) in net income attributable to equity shareholders | $ | 169 | $ | 1 | $ | 3 | $ | 109 | $ | (14) | $ | 3 | $ | 78 | $ | (30) | $ | 3 |
Decrease (increase) in present value of shareholders' equity | 79 | (132) | (41) | (35) | (145) | (42) | (123) | (169) | (38) | |||||||||
100 basis points decrease in interest rates | ||||||||||||||||||
Increase (decrease) in net income attributable to equity shareholders | (228) | (1) | (2) | (169) | 7 | (2) | (171) | 19 | (3) | |||||||||
Decrease (increase) in present value of shareholders' equity | (172) | 100 | 42 | (58) | 110 | 43 | (5) | 130 | 38 | |||||||||
200 basis points increase in interest rates | ||||||||||||||||||
Increase (decrease) in net income attributable to equity shareholders | $ | 330 | $ | 1 | $ | 6 | $ | 202 | $ | (28) | $ | 7 | $ | 137 | $ | (51) | $ | 6 |
Decrease (increase) in present value of shareholders' equity | 120 | (264) | (82) | (122) | (290) | (84) | (285) | (337) | (76) | |||||||||
200 basis points decrease in interest rates | ||||||||||||||||||
Increase (decrease) in net income attributable to equity shareholders | (422) | (8) | (5) | (330) | 1 | (5) | (245) | 16 | (7) | |||||||||
Decrease (increase) in present value of shareholders' equity | (502) | 118 | 64 | (268) | 137 | 68 | (120) | 129 | 61 | |||||||||
Liquidity risk
Liquidity risk is the risk of having insufficient cash resources to meet financial obligations as they fall due, in their full amount and stipulated currencies, without raising funds at adverse rates or selling assets on a forced basis.
Our liquidity risk management strategies seek to maintain sufficient liquid financial resources and diversified funding sources to continually fund our balance sheet and contingent obligations under both normal and stressed market environments.
Liquidity risk governance and management
The liquidity risk governance and management structure at CIBC comprises the Risk Management Committee of the Board (RMC), ALCO and the Office of the Treasurer.
The ongoing management of liquidity risk is the responsibility of the Treasurer, supported by guidance from ALCO. The RMC provides governance through approval of CIBC's liquidity risk framework that includes the policies, procedures, limits and independent monitoring structures. RMC's responsibilities include:
- Defining CIBC's liquidity risk tolerance through the Risk Appetite Statement;
- Establishing limits for the primary liquidity risk metric, the Liquidity Horizon, and unsecured wholesale funding;
- Reviewing and approving the Liquidity Policy and the Contingency Funding Plan (CFP);
- Reviewing and approving CIBC's liquidity profile; and
- Reviewing and approving the liquidity stress scenario.
ALCO's responsibilities include:
- Ensuring that CIBC's liquidity profile is managed consistent with the strategic, stated risk appetite and regulatory requirements;
- Monitoring reporting and metrics relating to liquidity risk exposure, such as, Liquidity Horizon, funding profile and liquid asset portfolio;
- Reviewing and setting the Liquidity Horizon management limit;
- Reviewing, on a periodic basis, the liquidity stress scenario used to measure liquidity risk exposure; and
- Reviewing and approving the funding plan.
The Treasurer is responsible for managing the activities and processes required for measurement, reporting and monitoring of CIBC's liquidity risk position and ensuring compliance within RMC, ALCO and regulatory constraints.
Policies
CIBC's liquidity policy and framework ensures a sufficient amount of unencumbered liquid assets are available to meet anticipated liquidity needs in both stable and stressed conditions for a minimum period of time as determined by the RMC.
Alongside the liquidity risk management framework, our enterprise-wide pledging policy sets out consolidated aggregate net maximum pledge limits for financial and non-financial assets. Pledged assets are considered encumbered and therefore unavailable for liquidity purposes.
CIBC maintains and periodically updates a detailed CFP for responding to liquidity stress events. The plan is presented annually to the RMC.
Process and control
CIBC manages liquidity risk in a manner that enables it to withstand a liquidity crisis without an adverse impact on the viability of its operations. Actual and anticipated inflows and outflows of funds generated from on- and off-balance sheet exposures are measured and monitored on a daily basis to ensure compliance with the established limits. Short-term asset and liability mismatch limits are set by geographic location and consolidated for overall global exposure. Contractual and behavioural on-balance sheet and off-balance sheet cash flows under normal and stressed conditions are modeled and used to determine liquidity levels to be maintained for a minimum time horizon.
The RMC is regularly informed of current and prospective liquidity conditions, ongoing monitoring measures and the implementation of enhanced measurement tools.
Risk measurement
CIBC's policy is to maintain a sound and prudent approach to managing its potential exposure to liquidity risk. CIBC's liquidity risk tolerance is defined by its Risk Appetite Statement, approved annually by the Board of Directors, which forms the basis for the delegation of liquidity risk authority to senior management. The primary liquidity risk metric used to measure and monitor CIBC's liquidity position is the Liquidity Horizon, the future point in time when projected cumulative cash outflows exceed cash inflows under a predefined liquidity stress scenario, without any reliance on the CFP. Our liquidity measurement system provides daily liquidity risk exposure reports that include the calculation of the Liquidity Horizon against the prescribed management target for review by senior management. CIBC's liquidity risk framework also incorporates the monitoring of the unsecured wholesale funding position and funding capacity, as well as regulatory mandated metrics such as the Liquidity Coverage Ratio (LCR) and the Net Cumulative Cash Flow (NCCF). ALCO monitors CIBC's current and prospective liquidity position in relation to risk appetite and limits.
A key component of the liquidity risk framework at CIBC is the liquidity risk stress testing regime. Liquidity risk stress testing is conducted daily and involves the application of a severe, name-specific and market-wide stress scenario to determine the amount of liquidity required to satisfy anticipated obligations as they come due. The scenario models potential liquidity and funding requirements in the event of unsecured wholesale funding and deposit run-off, expected contingent liquidity utilization, as well as liquid asset marketability. In addition to this CIBC-specific event, the stress scenario incorporates the impact of market-wide liquidity stress that results in significant reduction in access to both short and long-term funding and a decrease in marketability and price of assets.
Stress scenario assumptions are subject to periodic review and approval, at least annually, by the RMC.
Liquid assets
CIBC's policy is to hold a pool of high quality unencumbered liquid assets that will be immediately available to meet outflows determined under the stress scenario. Liquid assets are cash, short-term bank deposits, high-quality marketable securities and other assets that can be readily pledged at central banks and in repo markets or converted into cash in a timely fashion. Encumbered assets are those liquid assets that have been pledged for securities lending and borrowing activities, secured borrowings, derivative transactions, and other clearing and settlement of payments and securities.
Liquid assets net of encumbrances constitute our unencumbered pool of liquid assets and are summarized in the following table:
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||
$ millions, as at | Apr. 30 | Oct. 31 (1) | Apr. 30 | Oct. 31 (1) | Apr. 30 | Oct. 31 (1) | ||||||||
Gross liquid assets | Encumbered assets(2) | |||||||||||||
Cash and deposits with banks (3) | $ | 6,813 | $ | 4,404 | $ | 835 | $ | 450 | $ | 5,978 | $ | 3,954 | ||
Securities (4) | 69,715 | 63,882 | 10,370 | 8,113 | 59,345 | 55,769 | ||||||||
NHA mortgage-backed securities (5) | 59,158 | 59,911 | 37,576 | 37,457 | 21,582 | 22,454 | ||||||||
Mortgages (6) | 8,494 | 10,332 | 8,494 | 10,332 | - | - | ||||||||
Credit cards (7) | 5,671 | 4,898 | 5,671 | 4,898 | - | - | ||||||||
Other assets (8) | 3,829 | 4,526 | 3,481 | 4,120 | 348 | 406 | ||||||||
CIBC owned unencumbered liquid assets | 87,253 | 82,583 | ||||||||||||
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