Canadian Imperial Bank of Commerce (CM) may have swung to a first quarter profit, but analysts weighing in on the results aren't ready to start dancing in the streets. Instead many of them remain extremely concerned about the bank's credit woes and warn investors to proceed with caution.
"For fiscal 2009 and fiscal 2010, we see a weak credit outlook, driven by the slumping economy as the key driver of bank earnings prospects, said Michael Goldberg, analyst at Desjardins Securities.
"While this is expected to cause higher on-balance sheet loan losses, CIBC faces the added risk of markdowns from its off-balance sheet non-mortgage structured credit exposures."
Mr. Goldberg reduced his fiscal 2009 EPS forecast from C$4.85 per share to C$3.85 per share due to higher expected loss provisions and his fiscal 2010 earnings forecast from C$6.60 to C$6.20. The analyst added that his earnings estimates could be worse if markdowns in the structured credit run-off books continue. He maintained his "hold" rating and left his C$59 price target unchanged.
Blackmont Capital analyst Brad Smith called CIBC's first quarter a "disappointing start to the year" and reiterated his "hold" recommendation and C$46 price target.
"The so-called 'run off' structured credit business net loss increased 49% sequentially to C$483-million after tax, and is unlikely, given current market conditions, to get much better any time soon.
Ian De Verteuil, analyst at BMO Capital, downgraded his rating on CIBC from "outperform" to "market perform" and left his price target unchanged at C$49. Although he acknowledged his concern regarding CIBC's credit, Mr. De Verteuil also expressed worry about the bank's Tier One Capital in relation to its peers.
"While we believe that the bank is making progress on structured credit, this remains an issue. Given the premium price/book value and price/tangible book value and the bank's below-average capital position, we believe that the upside is now more modest."