Ashley Redmond: So, Dan, we found out in our last video that all of the Canadian bank results were pretty solid, but you were especially happy with CIBC.
Dan Werner: Yeah, I mean, they showed good results compared to the other banks in terms of the Canadian banking segment, which was particularly strong; but I think the thing that drove that wasn't necessarily growth, which has been pretty stagnant lately. It's been primarily through lower provisions for credit losses which has been the direct result of their lower gross impaired loans which have declined by about 17% over last year. Compared to most of the other banks they've been stable to slightly increasing. So, they've shown some good progress in that front.
Another thing that they're doing is that they're bringing all their mortgage originations in-house, which is giving them better margin and that continues and continues to help solidify their revenue flows.
Redmond: I know in the past you've been concerned with CIBC's risk. So, is that still a concern?
Werner: Not as much the concern in terms of the overall company. This is a company that's been trying to derisk for some time. They had problems back in the mid-2000s with some of their capital markets structured notes that they had. They're still winding those down, but it's not nearly as big impact [of an impact] as it was back then.
In terms of risk at CIBC, I think the biggest risk since it is most of their income is from the Canadian banking segment and a large portion of that is related to residential home lending. So, that is always a concern, but up to this point they seem to be managing that very well. Again, they're originating the mortgages in-house. The gross impaired loans seem to be coming down. So, if there is a concern that I'm looking for, it would be, in terms of growth, maybe hopefully see that a little bit better, but more specifically in the nonperforming, the gross impaired loans and what they do going forward.
Redmond: Okay. So as we move forward to Q4, what about CIBC's biggest three segments, what are you going to be looking for in those in Q4?
Werner: Well, again, with the Canadian banking segment, I'm looking at the gross impaired loans; I'm looking for more growth compared to their other Canadian brethren. The wealth management segment has done very well for them with the acquisition of the American Century a couple years ago. They have seen better assets under management and fee income as a result of that. The wholesale segment had good trading revenues this quarter.
So, all in all, those two segments kind of go as the market goes. If the market does very well and the assets under management increases, you can get better fee income. If market retreats and assets under management comes down, obviously it's going to see a lower fee income. So, there are some external factors at play there, but those are the kinds of things that we'll look at going forward for CIBC.
Redmond: Okay. Lastly the question on everyone's mind, dividends. How is the CIBC dividend this quarter?
Werner: CIBC didn't increase dividends this quarter; but given the history and as well as the steady revenue streams and income that they've shown, they will probably raise dividends this quarter, even with the loss of the Aerogold credit cards, which was about $6 billion and almost 10% of their income. So they reached the agreement with Amia as well TD Bank. They would only transfer about $3 billion of that, which is a positive for them. They could have lost almost 10% of their income. So, given that that has been preserved, I would look for CIBC to raise dividends with their fourth quarter announcement.
Redmond: Great. Thanks so much Dan.
Werner: Thanks.
Redmond: To get more information on CIBC and all the big banks, go to stocks section of morningstar.ca.
