CANADIAN IMPERIAL BANK OF COMMERCE $83 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is the fifth-largest bank in Canada, with assets of $288.9 billion.
In 2005, CIBC paid $2.8 billion to settle class-action lawsuits over its involvement with U.S. energy trading firm Enron Corp. We felt at the time that CIBC did not intentionally try to deceive investors, and the stock would bounce back. It’s now back to pre-settlement levels.
The bank’s new managers now aim to cut costs by $250 million this year. To put that in context, CIBC earned $1.62 a share (total $580 million) in its first fiscal quarter ended January 31, 2006, down 16.5% from $1.94 a share ($707 million) a year earlier. If you exclude gains on the sale of assets in the year-earlier period, CIBC’s pershare earnings actually grew 11.7%.
Now that CIBC has put its Enron problems behind it, it can take advantage of attractive acquisition opportunities. It recently agreed to double its stake in FirstCaribbean International Bank, from 43.7% to 87.4%, for $1.08 billion U.S.
FirstCaribbean operates 100 branches in 17 countries. Owning a majority interest will make it easier for CIBC to integrate FirstCaribbean’s operations with its own businesses in the region.
The stock now trades at 13.1 times its estimated fiscal 2006 profit of $6.33 a share. The $2.72 dividend yields 3.3%.
CIBC is a buy.