OTTAWA: Canadian Imperial Bank of Commerce (NYSE:CM) is the fifth largest Canadian bank by market cap and revenue, and one of the country’s ‘Big Five’ banks. The bank outperforms the competition in several key metrics, its dividend yield of 4.76% is around 1% higher than the other banks, and its PE ratio of 8.88 is around 25% lower as well. The bank’s balance sheet and loan portfolio are mostly comparable to the competition, although its small international footprint makes the bank extra susceptible to the business cycle in Canada. The bank’s high dividend and low valuation make it an attractive investment choice for a long-term investor.
The bank has averaged solid income growth of 15% in the last few years. Each of the company’s three main business units, Retail and Business Banking, Wealth Management and Capital Markets, have had relatively stable growth in the last few years. Retail and Business Banking is the largest segment, and generates around two-thirds of the bank’s income: The bank has averaged income growth of 15% in the last few years, mainly due to the high growth of its Wealth Management and Capital Markets segments. Retail and Business has grown relatively slowly for the bank, averaging 5% annual income growth for the last five years, 4% in the last twelve months, and actually decreased last quarter. This segment could experience some headwinds moving forward as/if the Canadian housing market slumps further.
Wealth Management has grown rapidly in the last few years, averaging 25% income growth for the last five years, 35% in the last twelve months, and 15% in the last quarter. Most of the growth in this sector is organic, the result of AUM growth and more high-fee brokerage services. CIBC’s CEO has mentioned the possibility of expanding this segment through acquisitions (Read: Canada’s CIBC completes $5 billion PrivateBancorp buy). Capital Markets has also grown rapidly in the last few years, averaging 14% income growth in the last five years, 12% in the last twelve months, but decreased in the last quarter due to less trading income. This segment is more volatile than the last two, as trading income varies significantly quarter to quarter, but most of the growth is organic, coming from increases in deposits and income from long-term investment portfolios. The bank has recently completed the acquisition of PrivateBancorp (see note above), a medium-sized American bank specializing in wealth management and private banking. Privatebancorp has around $25 billion in assets and generated $264 million in income in 2016. The acquisition will increase CIBC’s revenue and income, especially in their Wealth Management and Capital Markets segments, and will reduce the bank’s reliance on the Canadian market.