My coverage of the Canadian banking sector continues, as this time around, I will be deeply evaluating the the Canadian Imperial Bank of Commerce (USA) (NYSE:CM), commonly known as the CIBC, and what makes it a worthwhile investment.
The Canadian Imperial Bank of Commerce is the fifth-largest bank by deposits. The bank is headquartered at Commerce Court in Toronto, Ontario.
CIBC is an interesting choice for an investment. The bank possesses robust fundamentals and primarily operates in Canada, which claims to offer one of the safest financial infrastructures in the world.
The two strategic business units, Canadian Imperial Bank of Commerce (USA) (NYSE:CM) world markets and CIBC retail markets, have presence across the United States, Asia and some parts of Europe. Globally, CIBC serves more than 11 million customers with approximately 40,000 employees. It should be noted that Bloomberg’s Markets magazine named CIBC, as the strongest bank in North America and the third-strongest bank in the world.
Let’s examine the financials of the company in order to establish if it makes a worthwhile investment option.
Snapshot of the financials
Canadian Imperial Bank of Commerce (USA) (NYSE:CM) posted strong second-quarter results, as net income grew 8% year-over-year to $876 million. CIBC’s Basel III Common Equity Tier 1 ratio on April 30 stood at 9.7%. The Tier 1 capital ratio and total capital ratio stood at 12.2% and 15.5%, respectively.
When compared to a Basel III Common Equity Tier 1 ratio of 9.6%, a Tier 1 capital ratio of 12.0% and a total capital ratio of 15.3% in the previous quarter are indicative of its initiative to successfully manage its capital requirements, leverage ratio and liquidity requirements..
Furthermore, the bank reported strong growth in all of its core business verticals. Retail and business banking reported net income of $604 million during the second quarter, which is a 9% increase from same quarter in the previous year. The wealth-management business also posted strong performance clocking 16% year-over-year growth.
Wholesale banking was one of the best performing verticals, as the company reported revenue of $580 million, which is up 3% from the previous quarter. The growth witnessed was predominantly due to higher revenue in the structured credit run-off business and the U.S. real estate finance.
Strategic acquisitions to spur growth
Other than posting strong organic growth, the company is constantly on the lookout for alliances in order to increase its penetration in key segments.
In a bid to further penetrate the wealth-management vertical and expand its presence across the U.S. market, the bank acquired Atlantic Trust Private Wealth Management from Invesco for $210 million.
The acquisition is one of many made by the bank in the wealth-management segment. The company recently acquired MFS McLean Budden’s private wealth business, in addition to acquiring 41% stake in American Century Investments for $848 million during 2011.
The Canadian banking industry is certainly recognized as one of the world’s safest, however it also a highly competitive sector. CIBC faces stiff competition from banks such as, Toronto-Dominion Bank (USA) (NYSE:TD) and The Bank of Nova Scotia (USA) (NYSE:BNS). Other than these mega players, it also faces competition from smaller domestic banks present across the Canadian banking landscape.