(Bloomberg) -- Canadian Imperial Bank of Commerce shares surged to the highest level in more than two years after the bank reported profit that beat analysts’ estimates and said problems with US commercial real estate have eased.
The lender had suffered in recent quarters from the slumping US office market, but said in a presentation to investors that the “majority of challenges” in the $3 billion portfolio were now behind it and it has cut its exposure.
“We have put the worst behind us, but we do not think that the stress we have seen in the US office market as a market overall is over yet,” Frank Guse, the head of CIBC’s risk-management group, said on a call with analysts. “We are not expecting any of the large losses we have seen previously to re-occur, but what we are saying here is there could be some that will still come.”
The Toronto-based lender reported earnings of C$1.93 a share, exceeding forecasts of C$1.74 for the fiscal third quarter ended July 31. CIBC also set aside less than expected to cover potentially sour loans. It booked C$483 million ($359 million) in provisions for credit losses, lower than the C$551 million that analysts had projected in a Bloomberg survey. On that measure, it was the bank’s best quarter in more than a year.
The shares surged as much as 6.4% to C$78.22, the highest since March 30, 2022. They gained 5% at 10:40 a.m. in Toronto.
Guse said the bank doesn’t expect the strong US credit performance to be the “new normal,” and the run rate could edge a bit higher as it had before the pandemic, but he doesn’t expect substantive increases.
“Watchlist loans remain elevated and there will be some new inflow, but defaults are significantly reduced going forward,” the bank said.
For the overall credit outlook, Guse said unemployment will be a headwind for a while, but falling interest rates will mitigate some of those credit pressures.
Profit in Canadian personal and business banking, CIBC’s largest unit, jumped 26% to C$628 million. Net interest margins widened in that segment, while balances on personal loans, mortgages and credit cards all ticked higher and credit-loss provisions dropped.
But the biggest percentage gain of any operating line came from the US commercial bank, where profit of C$215 million was about three times what the bank earned a year earlier.
“We note that provisions related to commercial real estate impairments were largely immaterial for the first time in a year and a half,” Jefferies analyst John Aiken said in a note to investors.
Net income in capital markets, on the other hand, declined more than 20% to C$388 million.
CIBC was the last of the six largest Canadian banks to report earning — and one of three to come in well ahead of consensus expectations. Improving credit trends at CIBC and Royal Bank of Canada stand in contrast with Bank of Montreal, which missed estimates and was hit with multiple downgrades from analysts over concerns about weakness in its commercial loan book.
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