TORONTO (CU)_The Canadian Imperial Bank of Commerce (CIBC) recently reported its earnings for the fiscal second-quarter, in which net income for the three months that ended on 30 April reached $1.52 billion. It was an eight per cent drop year-over-year, as the multinational banking company reserved $303 million for loans that could go bad. Investors did not respond kindly to these latest set of earnings, but CIBC has been commended by an analyst who said the bank is “ahead of the curve” amid bleak credit outlook.
CIBC’s shares fell by more than two per cent following the second-quarter earnings on Thursday (26 May), as the firm was forced to expand its provisions for credit losses. The financial service provider set aside $13 million for potential losses on so-called performing loans, which is where CIBC separated itself from its peers, drawing praise from Gabriel Dechaine, an analyst at National Bank of Canada Financial Markets. “The bank added a modest amount to its performing [allowance for credit losses], while every other bank reported releases. While [CIBC’s] tactic led to a negative market reaction, we believe it is ahead of the curve in this regard,” he wrote, in a report to clients Sunday.
According to Dechaine, five of Canada’s big six banks beat expectations in their second quarter earnings by an average of eight per cent, which he largely attributed lower provisions for credit losses. Accordingly, he cautioned that these figures could turn out to be a “false signal”, given a bleak credit outlook. “We could point out that such an [earnings per share] driver gets lower billing in the late stages of the economic cycle. More importantly, we believe that positive credit surprises could turn into negative ones, especially if recessionary probabilities increase,” the National Bank Analyst wrote.
