Bloomberg is heralding the earnings of Canadian Imperial Bank of Commerce. They sound like Jim Cramer in calling a bottom for the bank’s troubles. Witness:
Canadian Imperial Bank of Commerce surged in Toronto trading after reporting debt write-downs that were less than analysts’ forecast, indicating the worst may be over for the bank that’s had more debt costs than any Canadian lender.
DON’T BELIEVE IT. Canada’s fifth-largest bank really stunk up the joint when it reported its third quarter 2008 earnings. Soft revenues were hammered by an $885M subprime write-down. The bank said that year over year earnings are down 91 percent to $71M from $835M a year earlier. That write-down follows on the heels of a $2.5B write-down in the previous quarter and has forced the bank to shake loose the subprime dead weight it’s been carrying.
The bank has taken a number of steps to shore itself up following its writedowns. It sold the bulk of its U.S. investment banking and trading operations to Oppenheimer Holdings Inc., parting ways with 600 employees, in a deal that closed at the beginning of this year. At its Canadian investment banking business it shuffled executives and cut 100 jobs. The bank also raised $2.9-billion (Canadian) of equity this year to strengthen its balance sheet.
But the financial media just won’t quit. Speaking of the write-downs, Rick Hutcheon, president of RKH Investments, said this:
“The fact that it wasn’t a billion or billion-half writedown was quite encouraging,”
No, it’s not. It just means things could have been worse, and the bank expects things to get worse. That’s why they’ve increased their provisions for loan-loss:
Provisions for credit losses were increased during the latest quarter to $203 million, up from $162 million a year earlier and up from $176 million in the second quarter of 2008 ended April 30.
Canadian Imperial Bank of Commerce has been the hardest hit Canadian bank by the US subprime crisis. Nonetheless, the bank is doing a more than competent job of dealing with the position it finds itself in. Don’t think though that the road ahead isn’t long and arduous.
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