CIBC(CM) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Adjusted net earnings for Q1 2023 were $1.8 billion, or$1.94 per share, with a CET1 ratio of 11.6% and a return on equity of 15.5% [53] - Net interest income (NII) was $3.2 billion, up 2$295 million in Q1, down from $436 million last quarter, with impaired provisions at$259 million [166] - Trading income was particularly strong this quarter, contributing to a 15% increase in non-interest income to $2.7 billion [102] Business Line Data and Key Metrics - Personal and Business Banking net income was$594 million, down 15% YoY, with revenues of $2.3 billion, up 4$612 million, up 13% YoY, with revenues of $1.5 billion, up 14$159 million, down 15% YoY, with revenues up 10% YoY [127] Market Data and Key Metrics - Canadian P&C NIM improved to 248 basis points, up 12 basis points YoY, with U.S. NIM at 354 basis points, up 9 basis points YoY [152] - Canadian mortgage originations were down 47% YoY, with variable rate mortgages accounting for 30% of new originations, down from previous quarters [76][97] - Commercial real estate (CRE) exposure in Canada and the U.S. remains well-diversified, with 69% of the Canadian portfolio and 60% of the U.S. portfolio being investment grade [180] Company Strategy and Industry Competition - The company is focused on executing its strategy, particularly in the mass affluent segment, leveraging Imperial Service and small business investments [24][25] - Investments in technology, including AI and cloud, have improved efficiency and client connectivity, with plans to continue driving innovation [123][136] - The company is targeting growth in the U.S. platform, aiming for over 10% growth in areas of competitive advantage [6] - The company expects to maintain a CET1 ratio of around 12% by the end of 2023, supported by organic capital generation and share issuance [139] Management Commentary on Operating Environment and Future Outlook - Management expects NIM expansion to continue, particularly in the back half of the year, with core NIM ex-trading positioned to increase a few basis points per quarter [93] - The company anticipates normalization of credit losses towards pre-COVID levels, with impaired PCL ratios trending towards the mid-20 to 30 basis point range [37] - Management remains confident in delivering positive operating leverage over the medium term, with expenses expected to stabilize around current levels [153] - The company is prepared for potential deposit attrition, particularly in the U.S., and is managing liquidity closely given the macroeconomic backdrop [206] Other Important Information - The company has made significant investments in its Direct Financial Services platform, which has delivered a 3-year revenue CAGR of approximately 15% [136] - The company has been recognized for its ESG efforts, including being named to the Dow Jones Sustainability Index North America for the 18th consecutive year [175] - The company has a strong focus on client relationships, with over 0.5 million net new clients added in the past 12 months [170] Summary of Q&A Session Question: NIM Outlook and Rate Sensitivity - Management expects NIM to expand, particularly in the back half of the year, with core NIM ex-trading positioned to increase a few basis points per quarter [93] - A 100 basis point rate cut would negatively impact NII by approximately $300 million, but short-term cuts would be immaterial [4] Question: Trading Performance and Market Activity - The strong trading performance this quarter was driven by client activity in volatile markets, particularly in foreign exchange, interest rates, and commodities [81][154] - The company does not engage in proprietary trading, with VAR devoted entirely to client activity [16] Question: Credit Loss Normalization - Management expects credit losses to normalize towards pre-COVID levels, with impaired PCL ratios trending towards the mid-20 to 30 basis point range [37] - The company has been conservative in its outlook, assuming some normalization of the environment and counterparty credit risk [30] Question: Commercial Real Estate Exposure - The company has a long-standing CRE business with low losses, and while the industry is quiet, there are no signs of stress in the portfolio [42][43] - Office exposure is being closely monitored, but there are no significant changes in underwriting posture [205] Question: Private Wealth and Net Flows - Private wealth net flows were strong at 6.2% over the last 12 months, driven by success in the private bank and Wood Gundy franchise [33][34] - The company expects continued growth in private wealth, supported by investments in the platform and competitive recruiting [34] Question: Innovation Banking Performance - Innovation banking has seen slower loan growth due to market conditions, but the portfolio is performing well, with no signs of stress [36] - The company remains confident in exceeding the targets set at Investor Day for this segment [35]