Can CIBC keep up with the other Big Banks?

CM - CIBC

Canadian Imperial Bank of Commerce is a leading financial institution in North America. It was formed as a result of the merger between the Canadian Bank of Commerce and the Imperial Bank of Canada in 1961.

The bank operates through its four strategic business units Canadian Personal and Business Banking (50% of 2018 revenue), Canadian Commercial Banking and Wealth Management (23%), U.S. Commercial Banking and Wealth Management (10%), and Capital Markets (17%).

The bank caters to 10 million individuals, businesses, commercial, corporate and institutional clients in Canada, the U.S. and around the world. CIBC operates through a wide network of more than 1000 banking centers, over 3,000 ATMs, as well as direct, mobile and remote channels.

Investment Data

Revenue Growth & Market Exposure

CIBC is a leading North American financial institution with a market capitalization of $50 billion and a Basel III CET1 ratio of 11.4%. The bank provides a wide spectrum of financial products and services ranging from personal, business, and commercial banking to wealth management and capital markets businesses.

Solid volume growth across small business and commercial banking, and wealth management in the US and Canada have been driving the bank’s strong performance. CIBC is also focusing on investments in new markets and client development to generate strong loan growth.

CIBC has a strong client focused culture and operational efficiencies which aid shareholder value creation. Strong client relationships should also support growth across its different platforms. CIBC is investing in technology and digital platforms to meet the evolving needs of its clients and has been witnessing significant growth in both digital adoption rate and active mobile users over the quarters.

CIBC’s acquisition of The PrivateBank in 2017 strengthened its position on the cross-border platform which further helped in business diversification. The bank is also focusing on diversifying its earnings and business by investing in its Canadian and U.S. Commercial Banking and Wealth Management platforms. It is also in a good position to leverage its capital markets expertise to deliver advice and solutions across the bank.

A wide range of financial products and services, solid core businesses, strong client focus, and a disciplined capital approach are the key competitive strengths of CIBC.

Dividends

CIBC last raised its annual dividend by 2.9%. It has an attractive dividend yield of 5% and a payout ratio of 49%. The bank has compounded its dividend growth by 4.5% compounded annually, over the last decade. It aims to pay out 40%-50% of its earnings as dividends and grow its earnings by 5%-10% annually. A CET1 capital ratio of 11.4% also allows the dividend to grow comfortably in-line with earnings.

This Canadian Dividend Aristocrat has maintained a dividend payout ratio ranging between 40% and 50%. CIBC also has an objective to deliver total shareholder return that exceeds the industry average and has delivered a TSR of 60.6% for the five years ended October 31, 2018.

CIBC continues to launch new programs and solutions to cater to the financial needs of its clients conveniently. The bank launched a direct banking brand, Simplii Financial and successfully transitioned nearly two million clients to this system last year. In addition, CIBC also launched CIBC Innovation banking to deliver strategic advice and banking services to North American technology and innovation clients. It also Introduced the CIBC Bank USA Smart account, giving Canadian clients a U.S. based account that links to their Canadian accounts.

A strong client focused franchise, diversified earnings, and strong capital structure form a deep moat around CIBC’s business. Heavy investments in transforming CIBC to a client-centric bank and establishing a strong cross-border platform should support client servicing and shareholders growth. The bank should continue to grow from increased employment opportunities and economic growth in Canada and the U.S.

Competition

The Canadian personal and commercial banking segment is highly competitive. CIBC competes with other leading Canadian banks like TD Bank TSE:TD, Royal Bank TSE:RY, Scotiabank TSE:BNS, Bank of Montreal TSE:BMO and National Bank TSE:NA.

TD Bank is one of the top ten largest financial services companies in North America. National Bank ranks amongst six largest commercial banks in Canada, while Scotiabank is a leading international financial services provider with a rich history of 185 years and Bank of Montreal is the eighth largest bank in North America by assets.

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderAchieverAristocratKingGraph
RYRoyal BankFinancial ServicesBanks63%$105.42151.3112.3711.66$8.523.87%47.89%4$4.0810.15%NOYESNO1
TDTD BankFinancial ServicesBanks69%$74.28136.1412.310.95$6.043.98%49.01%4$2.9612.25%NOYESNO1
BNSScotia BankFinancial ServicesBanks77%$72.3388.6710.7310.03$6.744.81%51.63%4$3.4810.31%NOYESNO1
BMOBank of MontrealFinancial ServicesBanks62%$104.1666.5011.5210.79$9.043.84%44.25%4$4.006.89%NOYESNO1
CMCIBCFinancial ServicesBanks79%$110.7749.179.778.98$11.345.06%49.38%4$5.609.39%NOYESNO1
NANational BankFinancial ServicesBanks70%$63.3821.2610.4910.10$6.044.10%43.05%4$2.6010.25%NOYESNO1
CWBCanadian Western BankFinancial ServicesBanks72%$29.352.5610.269.22$2.863.68%37.76%4$1.088.84%NOYESNO1
FNFirst National Financial CorporationFinancial ServicesBanks67%$29.831.7911.8410.96$2.526.37%75.38%12$1.909.52%NONONO1
LBLaurentian BankFinancial ServicesBanks80%$42.041.779.189.41$4.586.18%56.77%4$2.6011.09%YESYESNO1
EQBEquitable Group Inc.Financial ServicesBanks54%$72.951.217.446.35$9.811.70%12.64%4$1.249.71%NOYESNO1

Bottom Line

Investment in a client-focused culture and cross-border platform should help Canadian Imperial Bank to deliver high-quality earnings consistently. Strong GDP growth and low unemployment rate across North America are strong tailwinds for CIBC. As a focused relationship-oriented bank, CIBC ticks all the boxes to cater to the financial needs of a modern world and should continue its dividend growth streak in the future.

CIBC is one of the most exposed bank to the real estate in Canada and that either scares you away or you invest because of the fear. Remember the quote from Warren Buffett below. With CIBC investing in the US market, it should see some growth similar to what TD, RY and BMO have seen.

Be fearful when others are greedy and greedy when others are fearful.
– Warren Buffett

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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