Divide Emerges as Big Banks Cope With Strained Consumers

Canadian Imperial Bank of Commerce (CIBC) announced a rise in its third-quarter profit compared to the previous year, attributing this growth to setting aside less money for bad loans. This positive outcome contrasts with the trend observed among other banks in the same quarter.

In the quarter ending July 31, CIBC reported a net income of $1.80 billion or $1.82 per diluted share, up from $1.43 billion or $1.47 per diluted share in the corresponding quarter of the previous year. The revenue also increased to $6.60 billion from $5.85 billion.

CIBC’s provision for credit losses for the quarter decreased to $483 million from $736 million in the previous year.

During a call with analysts, CIBC’s chief executive Victor Dodig expressed optimism about the future, anticipating a rise in business activity through 2025 due to interest rate relief and stronger economic growth. He noted that while commercial clients are showing more confidence following interest rate cuts by the Bank of Canada, consumers remain cautious about borrowing.

On an adjusted basis, CIBC reported earnings of $1.93 per diluted share for the latest quarter, compared to $1.52 per diluted share in the same quarter last year. Analysts had expected an adjusted profit of $1.74 per share.

Jefferies analyst John Aiken praised CIBC’s performance, highlighting it as one of the banks that surpassed consensus expectations. In contrast, Royal Bank of Canada impressed by setting aside less money for bad loans, while BMO faced pressure due to higher-than-expected provisions for bad loans.

Looking ahead, banks warned of potential challenges in the upcoming quarters, particularly regarding credit quality. RBC’s chief risk officer Graeme Hepworth emphasized the difficulties faced by consumers in the current rate environment, citing pending mortgage renewals and rising unemployment as potential stressors.

In a unique situation, TD Bank Group addressed U.S. regulatory issues by allocating funds to address the financial impact of investigations into its anti-money laundering program shortcomings.

CIBC’s strong performance in reducing provisions for bad loans was noted by Scotiabank analyst Meny Grauman, highlighting the positive development given the previous stress in CIBC’s U.S. office portfolio.

Overall, CIBC’s various business segments showed mixed results, with Canadian personal and business banking seeing an increase in earnings, while capital markets and direct financial services reported a decrease in profit for the third quarter.