Canadian Imperial Bank Set To Begin Profiting From American Century Investments Stake

| About: Canadian Imperial (CM)

Rated Aa2 by Moody's and A+ by Standard & Poor's, the Canadian Imperial Bank of Commerce (NYSE:CM) seems to have been black-listed by the financial analysts after June 15, when CIBC announced that it is going to buy a 41% equity stake in American Century Investments, a major private US asset management company, with over $112 billion worth of assets under management and a long track record of strong investment performance, for over $848 million.

And this was all fortified by the not-so-good performance in the second quarter of 2011. Net income subsided to $678 million in the second quarter from $799 in the first quarter in 2011, although it was still better than $660 million in second quarter of 2010. Tier 1 Capital Ratio increased to 14.7% in the second quarter of 2011, as opposed to 13.7% in the second quarter of 2010. This might have resulted in the decrease in return on equity to 19.9% in the second quarter, compared to 23.3% in the first quarter of 2011.

Although cash efficiency ratio went up to 60.8% in the second quarter this year from 57.7% in the first quarter this year, the overall outlook on CIBC was not so positive, and with the acquisition of further stake in American Century Investments, the general market sentiment wasn't too hopeful for the third quarter.

But the third quarter seems to have been extremely good for CIBC, thwarting all the misjudgment by financial experts. As was already expected in the 2010 annual report, the retail sector is going strong, and that accounted for 77% in the business mix of CIBC. And most of these retail products fall into the information technology sector, especially mobile banking. It seems the bank was already focusing on the booming merger of the IT and the finance sectors.

So let's focus on the financial highlights of the third quarter results of 2011:

  • Net income went up to $808 million in the third quarter this year, compared to $640 million in the third quarter of 2010.
  • The Tier 1 Capital Ratio dropped to 14.6% last quarter, compared to 14.7% in the second quarter this year.
  • The ROE shot up to 21.5% last quarter from 19.9% in the second quarter this year.
  • Wholesale banking went up by $61 million in the second quarter and generated an increase in net income of $33 million -- an awesome performance.
  • Retail and business banking rose 2.5% to $539 million, driven by enhanced personal banking and higher investment banking revenues. In fact, the bank has set a goal of $3 billion in consumer lending for the next 3 years, as opposed to $2.2 billion in 2010.
  • Wealth management registered a revenue of $404 million, with net income worth $68 million, an increase by 28%.
  • And all these shows in the dividend payout per share being increased to $0.90 this quarter from $0.87 the quarter before that. In fact, this is the first change in four years. Wow!

Looking at the strong variable market base, steady cash efficiency ratio and an industry-leading Tier 1 Capital Ratio, CIBC proves to be in a strong position as of now. Not to mention that it will start gaining 15 cents per share from American Century Investments in 2012. Good times ahead. Thumbs up to CIBC.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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