CANADIAN IMPERIAL BANK OF COMMERCE $46 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 380.8 million; Market cap: $17.5 billion; Price-to-sales ratio: 1.3; SI Rating: Above Average) is Canada’s fifth-largest bank, with assets of $353.9 billion. CIBC is looking to cut its risk by focusing on retail banking, which now represents 65% of its business. CIBC wants to raise this to 75%. CIBC is also cutting its exposure to risky assets. It recently sold $1.05 billion U.S. of notes backed by American subprime mortgages to private-equity firm Cerberus Capital. The bank is not obligated to compensate Cerberus if these underlying mortgages fail, so this deal should help shield CIBC from future charges. In fiscal 2008, CIBC lost $2.1 billion, or $5.89 a share, mainly because of $4.9 billion in writedowns at its security-trading operations. If you exclude all non-recurring items, the bank would have earned $6.84 a share. In the prior year, CIBC earned $3.0 billion, or $8.93 a share, before unusual items. Problem assets at the end of fiscal 2008 made up 0.47% of CIBC’s total loans.
Low U.S. exposure should help CIBC
CIBC’s earnings will likely dip to $5.80 a share in 2009. However, the bank has cut its exposure to the problems in the U.S. credit market, which strengthens its long-term earnings potential. The stock trades at 7.9 times the 2009 forecast. The $3.48 dividend yields 7.6%. CIBC is a buy.
