Victor Dodig’s overhaul of Canadian Imperial Bank of Commerce is paying off.
Total returns and profitability at the former underdog of Canadian banking are top among its peers and its dividend yield is the fattest of the nation’s five largest lenders.
With the bank’s domestic operations sharpened, the chief executive officer is on the hunt for a US acquisition that could help diversify its operations. “On a five-year and 10-year basis, if this leadership team can deliver total shareholder returns that are at the top of the heap, that would be a very good outcome,” Dodig, 50, said an an interview in Vancouver, where the bank held its annual meeting.
The Toronto-based lender had a total return of 11 percent in the 12 months through March 31, more than double the 5.4 percent advance of the eight-company Standard & Poor’s/TSX Commercial Banks Index, due in part to raising its dividend for six straight quarters.
CIBC is also Canada’s most profitable bank, with a return on equity of about 19 percent, compared with Royal Bank of Canada’s 17 percent, Bank of Nova Scotia’s 14 percent and Toronto-Dominion’s 14 percent.
CIBC’s tier 1 capital ratio of 10.6 percent makes it the country’s best capitalized bank, while it’s dividend yield of 4.55 percent is the highest among Canada’s five largest lenders.
John Kinsey of Caldwell Securities Ltd. in Toronto said he’s been impressed by the bank’s performance under Dodig, who took over about 18 months ago.
“This is a pure personal-and-commercial bank, so if our economy does well, they will do well,” said Kinsey, who oversees about C$1 billion ($763 million), including bank shares.
Dodig, who became CEO in September 2014, has focused on improving CIBC’s retail lending business, with a greater emphasis on becoming a more nimble, technology-driven bank. The firm plans to simplify operations and revamp branches as its seeks to push earnings growth to 5 percent to 10 percent over the next three years from about 5 percent in the past four.
“CIBC had gone through a period where it had been looked over and I think portfolio managers certainly feel more comfortable at least having an honorable mention of the name in their portfolios,” Sohrab Movahedi, a BMO Capital Markets analyst, said in an interview.
Investors in the 2000s shunned CIBC as bad bets on telecommunications firms, failed energy trader Enron Corp. and structured debt led to billions of dollars in losses.
CIBC posted more than C$10 billion in writedowns tied to U.S. debt securities following the financial crisis, the highest among Canadian lenders. “We wouldn’t have bought it a decade ago,” said Kinsey, whose firm now owns some of the stock. “They just made one mistake after another. A long time ago, if there was a pothole in the road Commerce would hit it, but that hasn’t happened in a long time.”
Dodig said Tuesday the bank has the flexibility to spend as much as C$4 billion on a deposit-taking commercial bank in the U.S. following the sale of its stake in American Century Investments. CIBC has been trying for more than three years to find additional acquisitions in the U.S. to build up its wealth-management business and diversify.
Domestic retail and business banking contributed 70 percent — or C$2.53 billion — of CIBC’s fiscal 2015 profit, according to financial statements. That’s the highest among its Canadian peers and compares with about 50 percent for Royal Bank, Bank of Nova Scotia and Bank of Montreal. Toronto-Dominion receives 55 percent of earnings from Canadian commercial-and-personal lending. CIBC’s concentration in domestic retail banking puts it at a disadvantage for investors such as Kinsey, who find lenders with U.S. exposure more appealing at a time when the American economy is gaining traction. Canadian households also have a record ratio of debt to disposable income amid housing booms in Toronto and Vancouver.