Upcoming Quarters Don't Look Good for CIBC - Dundee Securities

| About: Canadian Imperial (CM)

CIBC was downgraded to a “sell” by Dundee Securities analyst John Aiken after the bank reported its quarterly results Thursday morning. While he does not believe CIBC will need to raise more common equity in the near term, the bank “may not be deploying capital in areas that will generate growth once some stability returns to its operating environment.”

Mr. Aiken also told clients that external uncertainty and the impact on CIBC’s on and off balance sheet items suggest the coming quarters are not a good time to hold the stock.

He said:

Despite a weakened valuation and a very strong regulatory capital ratio, we are hard pressed to recommend CIBC’s stock as the fourth quarter demonstrated way too many moving parts to have any confidence in limiting future write-downs.

Mr. Aiken is looking for more clarity on the bank’s outlook for additional write-downs. While this could come from CIBC’s afternoon conference call, it will probably take better visibility on the structured credit markets, the analyst said. “No one is forecasting this to occur any time soon.”

CIBC’s positive tax adjustments helped offset damage from another quarter of write-downs. Meanwhile, its net loss of almost C$400-million from structured credit activities was offset by a change in valuation methodology to internal modelling from relying on external, arguably liquidation, Mr. Aiken said. This provided a C$300-million benefit, while a change in classification of certain securities allowed the bank to avoid recognizing fair value adjustments of more than C$600-million.

Mr. Aiken said:

All told, the gross charges relating to the run-off business appeared to be more in the neighbourhood of C$1.3-billion,” the analyst said, adding that “significant, material economic losses and write-downs are still a potential for CIBC, regardless of accounting treatment.

His previous rating was "neutral," while his price target stands at C$54.