One of Canada’s biggest banks said Thursday that third-quarter profit rose, but that an energy sector beset by low natural gas prices forced it to set aside more money for potential loan losses.
Canadian Imperial Bank of Commerce reported net income of nearly $1.4 billion for the three months ended July 31, up two per cent from a year ago. Adjusted earnings per share were $3.10 for the bank’s third quarter, an increase of one per cent year-over-year, and better than what analysts had been expecting.
However, higher earnings in CIBC’s personal and small business operations in Canada, as well as its commercial and wealth management business in the United States, were offset somewhat by the bank’s capital-markets unit, which saw net income fall 13 per cent from a year ago, to $231 million.
The bank said the dip in profit was mainly due to higher provisions for credit losses in the capital-markets business. Provisions for performing loans, it said, rose to $24 million, “primarily due to an increase in the oil and gas sector to reflect expectations of potentially higher losses resulting from low natural gas prices.”
CIBC added that provisions for impaired loans also rose, to $18 million, “primarily due to higher provisions on impaired loans in the oil and gas sector.”
The added provisions come as Canada’s energy industry has struggled with pipeline constraints and low prices, frustrating producers and putting pressure on their finances. At the end of April, one privately-held junior gas producer, Calgary-based Trident Exploration Corp., ceased operations, blaming low prices, among other things.
Bank-wide provisions for credit losses were $291 million for CIBC’s third quarter, up from $241 million a year ago.
“While our provision for credit losses increased modestly this quarter to $291 million, the quality of our book remained relatively stable, and we remain comfortable with the outlook,” said Victor Dodig, CIBC’s president and CEO, during a conference call Thursday morning.
CIBC’s latest results snapped a recent streak of misses for the bank’s earnings per share. Moreover, the lender continues to get a boost from its growing presence in the United States, which will include Cleary Gull, a boutique Milwaukee-based investment bank that CIBC announced last month it had agreed to buy.
CIBC also announced Thursday it was increasing its quarterly dividend by four cents to $1.44 per share. Dodig added that, given the bank’s “strong capital position,” it would resume share buybacks as well.
“To the upside, Canadian P&C Banking was ahead of expectations on the back of higher margins (and despite flat earning assets), while to the downside capital markets operations were below estimates due to elevated credit charges,” Eight Capital analyst Steve Theriault said in a note on CIBC’s quarter. “The margin beat in Canadian banking is due in large part to the discontinuation of deposit promotions.”
In addition to Thursday’s earnings, CIBC announced its chief financial officer, Kevin Glass, will step down from the role at the end of October and retire effective Jan. 1, 2020. Hratch Panossian, executive vice-president, global controller and investor relations, will take over the CFO job on Nov. 1.
Another retirement will happen as of May 1, 2020, as CIBC’s head of technology and operations, Kevin Patterson, will depart after more than 35 years with the bank, the lender said.