Canadian Imperial Bank of Commerce $99 – Toronto symbol CM

CANADIAN IMPERIAL BANK OF COMMERCE $99 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is the fifth-largest Canadian bank, with $304.0 billion in assets.

CIBC ran into trouble a few years ago, and absorbed big losses on the shut down of its U.S. retail banking operations. It also had to pay $2.8 billion to settle a class action lawsuit over its involvement with Enron. But the bank’s focus on its less risky retail businesses is now paying off.

It earned $2.32 a share (total $819 million) in its fourth fiscal quarter ended October 31, 2006, up 12.6% from $2.06 a share ($728 million) a year earlier. If you exclude unusual items, per-share income rose 38.9%, to $2.00 from $1.44. Foreign exchange losses helped cut revenue in the quarter by 14.7%, to $2.9 billion from $3.4 billion. The year-earlier figure also included several one-time gains.

CIBC is also enjoying the benefits of a restructuring. Lower revenue caused its efficiency ratio in the fourth quarter to rise to 65.4% from 60.1% a year earlier. But for the entire year, it fell to 65.9% from 86.9% in fiscal 2005.

These savings are helping CIBC expand. In December 2006, it paid $988.7 million U.S. for 39.3% of FirstCaribbean International Bank, which increased its total stake to 83.0%.

This business operates over 100 branches in 17 Caribbean countries. CIBC now aims to buy out the minority shareholders, which will make it easier to improve FirstCaribbean’s profitability.

More free cash should also let CIBC raise its $2.80 dividend (2.8% yield), and resume share buybacks. The stock has gained 30% in the past six months, but still trades at just 13.0 times the $7.59 a share it will probably earn this year.

CIBC is a buy.

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