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CIBC stock is ripe for churning
- Friday, December 3, 1999
From a strict valuation point of view, CIBC seems an incredible bargain. Here's a
Big Five bank with ample U.S. exposure through Wall Street's Oppenheimer; a
home-run investment in the form of 20 per cent of Global Crossing, a
telecommunications company with a market value of $34.4-billion (U.S.); few credit
quality problems; and no hesitation to cut costs. Yet it trades at only 10 times
estimated earnings compared with about 13.5 times at Toronto-Dominion Bank.
That's the good news. The bad is that CIBC is no profit machine and that cost cutting
has been so aggressive that the concern is that great chunks of muscle are being
ripped out along with the fat. Between the third and fourth quarters alone, 1,600 jobs
disappeared. And CIBC, unlike rivals such as Royal, has been less than forthcoming
about which departments are turning into echo chambers (hopefully not the
high-growth wealth management business). It is also unclear how the bank will
capitalize on Global Crossing, whose share price, not surprisingly, pretty much
dictates the direction of CIBC shares. Ideally, a Global Crossing takeover would
hand CIBC all its riches at once, giving it a formidable war chest. Until some of these
questions are cleared up, CIBC is probably best played as a trading stock: sell on
strength, buy on weakness. With the shares still well below their high of $43.55, the
short-term buying opportunity still exists.

CIBC, National Bank results beat expectations
by Casey Mahood - Friday, December 3, 1999

The country's six biggest banks made a combined profit of $9.1-billion in fiscal 1999
after Canadian Imperial Bank of Commerce and National Bank of Canada
yesterday rang in with results that beat the average of analysts' expectations.

The Big Six, which made a combined $7.13-billion in the previous fiscal year,
benefited from better financial markets and cost-cutting that included eliminating
thousands of jobs.

"They've done quite well," said Nigel Heath, a vice-president of Dominion Bond
Rating Service Ltd. of Toronto

"Capital ratios are the strongest they've been in history. Asset quality is excellent."

Mr. Heath said the profitability of the big banks is reasonable, compared with major
rivals around the world, but there is still considerable room for improvement.

Toronto-based CIBC said yesterday that its profit slipped 3 per cent to $1.03-billion
in the year ended Oct. 31, although the bank's earnings were reduced by such
unusual items as restructuring charges and reductions in the estimated useful life of
certain technology.

Excluding such items, the bank's profit rose 9 per cent to $1.28-billion.

CIBC's final share profit was $2.23, compared with $2.26. Its return on equity was
9.8 per cent, compared with 10.3 per cent a year earlier.

The bank's revenue rose 11 per cent to $10.3-billion.

Like the other banks, CIBC is pushing programs to reduce the number of employees
and unnecessary expenses.

It has targeted removing $500-million in annual costs from its operations, and said the
program involves eliminating the equivalent of 4,200 full-time jobs.

Most of those job cuts will come from the bank's Canadian operations, which employ
about 35,000, said chief executive officer John Hunkin.

Canadian banks are facing new competitors and must continue to improve their
efficiency and raise profits in order to attract capital and expand, he told a conference
call with analysts, institutional investors and others.

Such efforts to improve efficiency as eliminating jobs and bank branches are tough for
everyone, he said.

"It's a tremendously difficult thing -- internally and externally," Mr. Hunkin said.

"But I have to tell you, if there is another solution, it is not evident."

The bank's personal and commercial banking unit contributed $610-million to profit
in fiscal 1999, compared with $1.06-billion a year earlier, while CIBC World
Markets added $516-million in the year, up from $37-million in fiscal 1998.

CIBC's provision for credit losses in fiscal 1999 increased to $750-million from
$480-million a year earlier.

In the fourth quarter, CIBC made a profit of $8-million, down from $34-million a
year earlier.

Montreal-based National Bank reported a 32-per-cent increase in profit to
$417-million or $2.24 a share in fiscal 1999 from $316-million or $1.69 a year

Revenue rose 5 per cent to $2.58-billion from $2.46-billion. The bank's return on
equity increased to 15.1 per cent from 11.6 per cent.

National's provision for credit losses was $185-million in fiscal 1999, compared with
$193-million in the previous period.

The bank attributed its higher profit to more favourable financial markets and higher
volumes of work from business clients.

According to a survey by First Call Corp., analysts on average had been expecting
National to make $2.23 a share in fiscal 1999. They forecast $2.75 for CIBC, which
made $2.85 excluding unusual items.

Meanwhile, the much smaller Laurentian Bank of Canada saw annual profit drop
to $55.7-million from $68.3-last year. Fourth-quarter earnings fell even more sharply
to $12.2-million from $18.5-million, as the Quebec bank faced higher Y2K-related
technology costs and squeezed margins on its loans.
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