Canadian Imperial Bank of Commerce posted a net loss of $1.11 billion in the second quarter as its Canadian retail operations, a key profit driver, suffered a slowdown and the bank recorded a huge writedown at its investment banking division.
The bank (TSX: CM) said Thursday the second quarter loss was worth $3 per share. That was down from net income of $807 million or $2.27 per share in the same period last year.
Retail banking revenue from CIBC's consumer operations slipped three per cent to $2.24 billion, and the segment's earnings fell to $509 million, compared with $617 million a year ago, which included an $80-million tax recovery.
CIBC was the only big Canadian bank to report lower results in its retail banking operations during the February-April period, which is the second quarter of its 2008 financial year.
"CIBC's quarter was disappointing in that core businesses were less profitable than we expected and writeoffs were larger than we expected, partially offset by a benign quarter from a credit perspective," wrote Andre-Philippe Hardy of RBC Dominion Securities.
The loss included a charge of $2.48 billion, or $1.67 billion after tax, on writedowns of structured credit, adding to $3.46 billion in first-quarter writedowns.
Shares in the bank slipped $1.38 to $69.47 on the Toronto Stock Exchange after falling as low as $69 earlier in the session – down from over $100 before the credit crunch hit last summer.
The $1.1-billion quarterly loss came as "the deterioration in credit and liquidity conditions, particularly for securities with exposure to the U.S. residential mortgage market, has required CIBC to record asset writedowns and counterparty credit reserves within its structured credit business," the bank stated.
"In addition, market conditions have had a negative impact on performance in other areas, particularly within CIBC's wholesale and retail brokerage operations."
CIBC stressed that its Tier 1 capital ratio at April 30 was a robust 10.5 per cent.
The CIBC World Markets investment banking division lost $1.64 billion, including the $1.67-billion setback, and warned that ``market and economic conditions relating to the financial guarantors may change in the future, which could result in significant future losses."
Further after-tax losses of $92 million were logged on foreign exchange, derivatives and other items – including $18 million of ``higher than normal severance expense in CIBC World Markets."
The results were weak and credit losses were worse than expected, said Brad Smith, an analyst at Blackmont Capital.
Operating earnings per share, worth $1.62, fell "well below" market expectations, Smith added.
The bank said it expects Canadian economic growth "to remain very sluggish in the coming quarter, held back by weak exports as the U.S. appears to be entering a mild recession."
The bank said in its outlook that it foresees a return to moderate growth by the final calendar quarter of 2008.
"For CIBC World Markets, mergers and acquisition and equity activity will likely remain slower than in the prior year due to credit concerns affecting global leveraged deals," CIBC added.
"We expect loan demand to increase due to reduced investor appetite for asset-backed securities. U.S. economic softness and a strong Canadian dollar could lead to a less favourable period for corporate credit risk in certain parts of the Canadian economy."