America is beautiful for this Canadian bank

Last week’s rise in interest rates could lower demand for mortgages and loans at the big banks, but is unlikely to slow their growth.

The smallest of the big five banks has grown significantly in the past year with two acquisitions in Chicago. As a result, the bank saw a big jump in earnings for its U.S. operations while Canadian operations also posted strong gains. Yet the bank’s shares trade at a low multiple to this year’s projected earnings.

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CANADIAN IMPERIAL BANK OF COMMERCE (Toronto symbol CM; is the smallest of the big five Canadian banks, with assets of $565.3 billion.

CIBC completed its acquisition of Chicago-based PrivateBancorp Inc. in June 2017. That firm mainly lends to small and mid-sized businesses. It also provides wealth management services. In addition to Chicago, it operates in 11 U.S. markets. CIBC paid $6.6 billion in cash and stock.

If you exclude costs to integrate PrivateBancorp, CIBC earned $1.26 billion in the three months ended October 31, 2017. That’s up 21.3% from $1.04 billion a year earlier. The new operations also contributed $65 million to the latest earnings earnings. Due to the additional shares outstanding, earnings per share rose 8.1%, to $2.81 from $2.60.

Earnings from CIBC’s Canadian retail banking (50% of the total) rose 11.3% due to higher loan demand and interest rates. The Canadian wealth management business (23%) reported 13.4% higher earnings on higher assets under management. CIBC’s U.S. operations (10%) saw its earnings soar 395.8% due to the PrivateBancorp acquisition. However, earnings at the securities trading business (18%) fell 15.3% on lower trading volumes and underwriting activity.

Overall revenue in the quarter increased 16.0%, to $4.3 billion from $3.7 billion a year earlier. Loan-loss provisions rose 3.2%, to $229 million from $222 million.

Blue Chip Stocks: Following October increase, dividend yields 4.3%

In September 2017, CIBC made a smaller strategic acquisition in Chicago. It completed its purchase of Geneva Advisors, a wealth management firm.

CIBC paid $200 million U.S. (consisting of 25% in cash and 75% in CIBC shares). Geneva Advisors focuses on high-net-worth clients, and has $8.4 billion U.S. in assets under administration.

With this purchase, total assets under administration in CIBC’s American operations rise to $50 billion U.S. The new acquisition looks like a good fit with PrivateBancorp,

Starting with the October 2017 payment, the bank raised its quarterly dividend by 2.4%, to $1.30 a share from $1.27. The new annual rate of $5.20 yields a high 4.3%.

CIBC will probably earn $11.21 a share in fiscal 2018. The stock trades at just 10.9 times that forecast.

Recommendation in The Successful Investor: CIBC is a buy.

For our views on the best way to make a very important decision regarding blue chip stocks, read How to Identify the Best High Dividend Blue Chip Stocks.

For our recent report on another of Canada’s big five banks, read Big bank counting on more growth in its future.


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