Canadian Imperial Bank of Commerce $76 – Toronto symbol CM

CANADIAN IMPERIAL BANK OF COMMERCE $76 (Toronto symbol CM; SI Rating: Above average) is Canada’s fifth-largest bank with $280.4 billion in assets.

In August 2005, the bank set aside $2.8 billion (or $7.45 a share) to cover various lawsuit settlements related to its dealings with bankrupt U.S. energy trading firm Enron Corp. The charge wiped out about 20% of CIBC’s shareholders’ equity. It also forced it to suspend stock buybacks, and freeze its $2.72 dividend, which yields 3.6%.

CIBC now hopes that its new restructuring plan will cut its annual operating expenses by $250 million, which would bring its costs in line with the other big banks.

To put that in context, CIBC earned $2.06 a share (total $728 million) in its fourth fiscal quarter ended October 31, 2005, up 94.3% from $1.06 a share ($402 million) a year earlier. If you disregard gains on the sale of investments and restructuring charges, per-share earnings in the most recent quarter rose 35.8%, to $1.44. Revenue grew 17.2%, to $3.4 billion from $2.9 billion, as low interest rates continued to spur demand for mortgages and other loans.

The bank is also changing the way it pays top executives and elects directors. More transparent corporate governance should cut CIBC’s risk and enhance its investment stature. The stock now trades at 12.2 times the $6.25 a share it is likely to earn in fiscal 2006.

CIBC is a buy.

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