Q4 2024 Canadian Imperial Bank of Commerce Earnings Call
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Speaker Change: Good evening and welcome to the CIBC quarterly financial results broadcast. Please be informed that the broadcast is in progress. I would now like to hand over to Geoffrey Weiss, Vice President of Investment and Relations. Please, Geoffrey.
Geoffrey Weiss: Thank you and good morning. We will begin our presentation this morning with opening remarks from Victor Dodig, our President and Chief Executive Officer, followed by Rob Sedran, our Chief Financial Officer, and Frank Guse, our Chief Risk Officer.
Speaker Change: Also present today are several of our coaching groups, including Sean Bieber from the American region, Harry Cullum from Capital Markets, Global Asset Management and Enterprise Strategy, Hratch Panossian,
Speaker Change: from Personal and Business Banking, from Canada and from Susan Rimmer, from Commercial Banking and Financial Management. They are all available to take questions following the prepared remarks.
Speaker Change: As mentioned on page 2 of our investor presentation, our comments may contain forward-looking statements that may involve assumptions and have inherent risks and uncertainties. Actual results may differ materially.
Speaker Change: I would also like to remind listeners that the Bank uses non-GAAP financial measures to arrive at adjusted results. Management reports both reported and adjusted performance measures and considers both to be useful for analyzing the company's performance. With that, I will now turn it over to Victor.
Victor Dodig: Thank you Geoffrey and hello everyone. I will start by highlighting three key messages that I want to share with you today. Number one, we are delivering strong and consistent financial performance.
Victor Dodig: These results reflect the CIBC team's intention to proactively manage our bank and consistently execute our strategy to serve our clients.
Victor Dodig: Secondly, we have the right strategy to improve our growth momentum in the year 2025 and beyond.
Victor Dodig: Our customer-focused strategy leverages the competitive advantages we have built over time and emphasizes high growth and profitable customer segments. It is a long-term journey and we are on the right path.
Victor Dodig: And number 3, we enter fiscal 2025 in a position of strength, with a robust capital position, strong credit quality, and a dedicated CIBC team that is the driving force behind our growth.
Now turning to our adjusted results for fiscal 2024.
Speaker Change: This morning, we announced revenues of 7.3 billion dollars, demonstrating the strength and resilience of our diversified platform.
Speaker Change: The revenue per share is $7.40, above 10% year over year.
Speaker Change: The revenues of 25.6 million euros were also above 10%, driven by robust margin expansion, selective balance growth, and higher price-based income in our market-based businesses.
Speaker Change: Pre-tax revenues of 11.3 million euros increased by 11%, supported by record revenue performance and a positive operational accelerator.
The quality of loans remains resilient across our portfolios.
Speaker Change: This quarter, underpinned by our capital capacity and our CET1 ratio of 13.3%, we bought 5 million shares, and we announced an increase of 8% or 7 cents in our daily dividend for common partners.
Speaker Change: This increase strengthens the confidence we have in delivering revenue growth within our public target of 7 to 10%.
Speaker Change: We delivered a ROE of 13.7%, which is increasingly higher than the previous year, despite the increase in capital.
Speaker Change: and we remain committed to delivering a premium ROE through the execution of our strategy from time to time.
Speaker Change: On this point, I would like to quickly recap our strategic priorities, which play to our strengths and reflect key opportunities for growth in the market.
Speaker Change: Our first strategic priority is to develop our mass influx and our private wealth franchise across Canada and the United States.
Speaker Change: In Canada, our imperial service has reached number one in the 2024 executive investment report on banks for the 9th time this year.
Speaker Change: In the United Kingdom, we have reached number 2 on Barron's list of the Top 100 RIA Companies, surpassing the previous year, and marking our fifth consecutive year in the top 10. We have established clear momentum to serve our clients in this segment, and we have the right talent and technology to win.
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Speaker Change: Our second strategic priority is to expand our digital banking offerings.
Speaker Change: For the seventh time in the last eight years, CIBC has been named number one by Service Corps for providing the best mobile banking experience among the major banks in Canada.
Speaker Change: We have a record of aligning innovation to meet customer needs, which allows us to gain more business through our digital channels.
Speaker Change: Our third strategic priority is to improve our connection platform to provide all our banks to our clients. Our connection and platform culture are a differentiator, and our strong customer experience scores reflect the benefits that our clients receive from this approach.
Speaker Change: We have the right platforms and the right culture to continue winning more business by building deep and profitable relationships with our clients.
Speaker Change: Finally, our fourth strategic priority is to enable, simplify, and protect our bank.
Speaker Change: Having the right technology, the right talent, and the right governance is critical for delivering consistent performance.
Speaker Change: We are excited about the potential of the new AI technology. Our progress here has been recognized in the latest rankings of the Evident AI Index, where CIBC achieved the best year-over-year improvement among all the banks in the Index.
Speaker Change: We are trying to find a balance with AI, taking a smart and responsible approach to innovation in ways that will help our CIBC clients and team members achieve their ambitions.
Speaker Change: We have therefore made the right investments to shape our bank for the future, and we will continue to invest strategically to mitigate risks.
and to maximize the opportunity.
Speaker Change: We will now move on to the key points of our sequence. In the field of personal banking and Canadian business, our efforts to improve relationships with existing clients and attract new clients support profitable growth in key areas.
Speaker Change: Over the past 12 weeks, we have welcomed more than 600,000 new net customers across our bank.
Speaker Change: Our welcome offers for new clients have prioritized multiproduct relationships and have led to market gains and significant application deposits over the year. This quarter, we have also expanded our card reward offers in partnership with Expedia and others, to enhance our growth.
Speaker Change: In the future, we hope that the growth of death and consumer discretionary spending will accelerate, by accelerating lower interests, increasing customer demand until 2025.
Speaker Change: When the future of long-term historical growth is forecasted, we will maintain our pricing discipline and focus on profitability.
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Speaker Change: and the North American sales representatives. Customer activities have slowed down due to the limited increase in interest rates over the past few years.
Speaker Change: In Canada, our team was there for our clients to help them navigate a changing market.
Speaker Change: In the United States, despite the slow environment, our High-Touch approach delivered growth above the market in tax and deposit volume in our U.S. CNI portfolio.
Speaker Change: Our performance approach based on disciplinary relationships has delivered strong credit metrics across our portfolios, including impaired PCLs which tend to decrease.
Speaker Change: In the future, we hope that the demand for Canadian and American leisure improves in line with the economic expectations for the year 2025 and beyond.
Speaker Change: We are therefore well positioned to capture the momentum of growth by maintaining the risk discipline that has served us so well during this credit cycle.
Speaker Change: Through our North American wealth management platform, we capture that the financial markets of new clients benefit from a more supportive interest environment.
Speaker Change: In Canada, the success of our investment ranking, the balance of good performance funds has propelled us to the top of the ranking for the IFIC, the good performance fund that operates among the six major banks, and we continue to gain market share in the AOM.
Speaker Change: In the United Kingdom, AUM inflows from new clients increased by 43%, which is a new record supported by the addition of new relationship managers.
Speaker Change: In advance, interest rate cuts are planned to drive fund flows to deposits abroad and to alternative risky investments in the face of price reductions.
Speaker Change: our wealth businesses are already benefiting from this trend and are well positioned to continue gaining momentum next year.
and Capital Markets.
Speaker Change: our diversified platform delivered another year of consistent execution and high growth.
Speaker Change: In Canada, we maintain a strong position in the market, with our strategic and focused clients, with robust trade volumes and record market capital revenues.
They are all driven by the strong activity of the planet.
Speaker Change: In the United Kingdom, we delivered a 21% growth in capital markets revenue, while continuing to expand our capabilities south of the border.
Speaker Change: Regarding the future, the path to lower interest rates is supported by tax issues and financial investment activity for the next year. We will continue to support our clients with a connected approach through our North American platform, as activity improves over the coming years.
Speaker Change: In closing, we enter 2025 with a goal, with energy, and with a well-founded confidence.
Speaker Change: Central banks continue to reduce fees. We expect a rebound in activity in the interesting sectors.
Speaker Change: Unlike this gap, our companies are well positioned. Our CIBC team focuses on consistent execution, and we have a strategy that delivers and will continue to deliver results.
Speaker Change: Before giving the floor to Rob, I would like to introduce Susan Rimmer, who has joined our CIBC executive committee to guide our Canadian banking and wealth management business.
Speaker Change: Susan's background in capital markets and client-focused approach will serve us well in advancing the connected culture that already differentiates our bank. Welcome, Susan, and she'll be available for Q&A following our prepared remarks. And with that, over to you, Rob, for a review of our financial results.
Rob Sedran: Thank you, Victor, and good morning everyone. I will start with three key points from our results of question 4.
Rob Sedran: Firstly, our focus on execution development and risk control continues to produce strong and consistent results, and we are confident that we can continue to build on this momentum in February 2025.
Rob Sedran: Secondly, we are repurchasing our partners by continuing to strengthen our balance plan, supported by disciplined capital allocation that balances volume and margin and prioritizes the growth of core customers.
Rob Sedran: And thirdly, we have succeeded in achieving a high number of positive operations during the fifth quarter by continuing to invest in growth, our infrastructure initiatives, and efficiency.
Rob Sedran: We will now move on to a detailed review. I am at table 10, unless the remarkable results are not compared with Q4 2023.
Speaker Change: We reported earnings per share of $1.90 for Q4'24 or $1.91 on an adjusted basis, with an ROE of 13.4%. We delivered record consolidated revenue and strong credit quality across all our business units.
Please return to page 11.
Speaker Change: Pre-tax earnings of $2.8 billion were up over 16%, and revenues of $6.6 billion were up over 13%, supported by improved spread income, higher trading revenues, and continued growth across our cost-based businesses.
Speaker Change: We continue to manage expenses relative to revenues, by investing to support our strategy, and we have added 180 basis points to operational deployment.
Speaker Change: Credit losses have, once again, decreased significantly from a year ago. Frank will discuss credit in detail in his presentation.
Speaker Change: The 12th chapter highlights the main drivers of net interest income.
Speaker Change: When excluding exports, the NII increased by 17% due to expansion margins and continued balance growth. The export of TotalBank NIMX increased by 20 basis points over the previous year and by 2 basis points sequentially, mainly due to tax margins and higher deposits.
Speaker Change: The P&C NIM of 269 basis points in Canada was also 269 basis points, driven by a favorable business mix and higher deposit and housing margins.
Speaker Change: For all banks and PNC margins, we maintain our expectation of a neutral to positive bias over time based on the assumptions of current interest rates embodied in the forward curve.
Speaker Change: In the American sector, the NIM of 363 basis points increased by 21 basis points since the previous quarter, mainly due to higher tax margins.
Speaker Change: When the FED cuts the rates due to contractual terms, there is a delay before the rates are repriced, which resulted in a temporary increase this quarter. Excluding this impact, the fundamental margins were 7 basis points.
Speaker Change: In advance, we expect that margins in the American segment will return to the 350 basis point mark, and that they will remain stable or slightly above from here, with the possibility of temporary assistance from time to time, if and when it becomes a significant impact.
Speaker Change: On table 13, the non-interest tax of 3 billion euros increased by 13% from the previous year, with strong growth in trade, as well as a 19% increase in taxes related to other markets.
Speaker Change: Taxes related to transactions were below 50%, 15%, and mainly represent the permanent change in income related to the B.A. in net interest.
Speaker Change: Table 14 shows our balanced approach to expense management.
Speaker Change: Excluding performance-based accounts, linked to stronger revenues, expenses increased by 4%. We continue to achieve efficiencies by investing for the future, including in the ongoing development of our AI capabilities around our bank.
Speaker Change: Chapter 15 starts the strength of our balance plan.
Speaker Change: Our CET1 ratio finished the quarter still at 13.3%, increasing by 5 basis points from the last quarter.
Speaker Change: The generation of a solid organic capital was partially offset by the increases in RWA and the approximately 5 million partnerships we repurchased during the quarantine. Our liquid position is strong, with an LCR of about 129%, above 126% last year.
Speaker Change: Starting on page 16, with the staff and the bank, we highlight the results of our strategic business unit.
Speaker Change: The net income of 748 million euros increased by 17% due to higher revenue growth and lower credit losses, partially offset by higher expenses.
Speaker Change: Revenues of 2.7 million euros increased by 9%, and pre-tax revenues increased by 13%, driven by an 18 basis point increase in margin, a volume increase on both sides of the balance sheet, and higher income.
Speaker Change: These results have been supported by strong customer growth and a successful breakthrough. Our focus on digital is to drive market gains to targeted segments.
Speaker Change: Expenses increased by 5% due to compensation related to employment and performance.
Speaker Change: On page 17, we show the Canadian commercial banking and wealth management, where the tax on debt was 5% and the pre-tax pre-provisioned income was 7% from a year earlier.
Speaker Change: Revenues of 1.5 billion are above 11%, driven by a strong 21% growth in wealth management, with assets based on a higher average due to increased client activity and market appreciation.
Speaker Change: Since the beginning of the year, CIBC Asset Management has been the first among the six major banks in terms of total sales and long-term mutual fund sales.
Speaker Change: The banking commercial income was stable the previous year, as higher volumes were largely offset by a lower interest margin.
Speaker Change: Expenses have increased by 16% over the past year, primarily due to higher compensation related to strong wealth management revenues and increased spending on strategic initiatives. Additional details on our Canadian personal and commercial banking franchise have been included in the appendix.
Speaker Change: Return to commercial banking and money management in the United States on page 18.
Speaker Change: The revenue of 150 million euros in the United States increased by 111 million euros from the previous year, mainly due to the enduring tax laws and an 11% increase in pre-tax revenues.
Speaker Change: Revenues increased by 9% due to higher interest income and higher tax income on all products.
Speaker Change: Our strategy and focus on connectivity have allowed us to grow and improve our customer franchise in the United States, generating growth in taxes and market taxes, and strong deposit growth.
Speaker Change: In the future, we hope for an increase in expenses in this segment, similar to what we experienced this quarter, and we remind you that the first quarter generally has higher costs, mainly due to seasonally high employment costs.
Speaker Change: Let's move to page 19, on capital markets and the DFS segment.
Speaker Change: The net income of 428 million euros increased by 12% year over year.
Speaker Change: Revenues of 1.4 billion are above 9%, driven by strong results from global markets and the continuity of our direct services business, as well as increasingly higher underwriting revenues.
Speaker Change: Expenses increased by 6% and included the impact of higher performance-based compensation linked to stronger revenues.
Speaker Change: Table 20 reflects the results of the Trade Unit and other businesses, showing a net loss of 7 million compared to a net loss of 48 million in the previous year, driven by an improvement in Treasury and higher revenues from CIDC Caribbean.
Speaker Change: On July 21, our performance and vision for the year begin. Our results from July 24 demonstrate our progress in executing our strategy.
Speaker Change: We have increased revenue, pre-provision income, and EPS by double digits to record levels, ahead of our medium-term targets.
Speaker Change: We have brought in positive operational dust while balancing continued investments to evolve and protect our bank, including through the high impact of AI on our bank.
Speaker Change: The ROE of 13.7% is above 30 basis points from the previous year, but below our medium-term target, due to the impact of capital tax conditions.
Speaker Change: Our medium-term objectives have not changed, except for the incorporation of the need for higher capital in our ROE target. Our conviction and confidence in our strategy and in the ROE target have, in fact, increased since we established our investment target in 2022.
Speaker Change: However, we must recognize the need to carry between 100 and 150 more basis points of CET-1 capital to meet regulatory minimums. As such, we will improve our ROE target by more than 15%, a level at which we will build, with the aspiration to lead to a premium ROE in Canada.
Speaker Change: In closing, we had a strong year in 2024 and we hope to build on this success from here. We strongly believe that we have the right strategy, the right investments supporting this strategy, and the right people, the connected culture, and the financial strength to execute on the opportunities we see ahead of us.
With that, I will move on to the subject of Franck.
Speaker Change: Thank you Rob and hello everyone. The performance of our credit portfolio for the year 2024 has been strong and ended the year at the end of our guidance, despite the challenging macro environment.
Speaker Change: We have maintained our focus on managing our expense portfolios with prudent and effective account management strategies to mitigate risks.
Speaker Change: We remain confident in the quality and resilience of our credit portfolios. Our alliance coverage has also remained high and is reflective of our sound risk management.
Speaker Change: Let's return to page 24. Our total provision for credit losses was 419 million in Q4, compared to 483 million last year, with our allowance remaining folded, quarter after quarter. Our performance provisions were modest, at 2 million this year.
Speaker Change: Over the course of the year, our allowance increased by 244.8 million euros annually, mainly due to additions to our Canadian and American commercial portfolios.
Speaker Change: This quarter, our provision on unearned loans was 417 million to 13 million quarter after quarter. This was due to higher provisions in the U.S. commercial portfolio, partially offset by lower provisions in Canadian banks and capital markets.
Speaker Change: Let's return to page 25. Our 4-year provision for credit losses and the laws that unfortunately have not been affected amounted to 32 basis points. Our sales portfolio experienced increasingly higher losses due to the high tax environment and the greater distance.
Speaker Change: Our teams are working with our clients in these difficult times to find solutions and mitigate potential losses.
Speaker Change: Our Canadian banking and capital markets portfolios performed very well, despite the macro challenges of the year, without any sectoral stress in the two portfolios.
Speaker Change: We also finished the year working through the challenges of our United States Office portfolio.
Speaker Change: I am proud of how our experience team proactively worked through the various issues today, resulting in lower losses during the second half of the year.
Speaker Change: When uncertainty remains in the market, we are satisfied with our credit performance in February 2024 and our team remains focused on risk mitigation for potential lives.
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Speaker Change: Chapter 26 summarizes our information on tax laws regarding growth and formations.
Speaker Change: The human rights laws have been raised by two basis points this quarter, mainly due to an increase in our American business portfolio. The new formations of American human rights laws are still in place, year after year, despite the increase this quarter.
Speaker Change: These mainly come from a package of laws in the U.S. multifamily sector, where we continue to see strength in the fundamentals and demand for disaster law.
Speaker Change: Law No. 27 summarizes the rates of removal of more than 90 days from our Canadian consumer portfolio, which remain stable from quarter to quarter. The rates of negatives and removal rates will continue to be a performance driver for our credit cards and unsecured personal imprisonment portfolios.
Speaker Change: In our book on death, we continue to see positive trends with death balances that are negatively amortized, decreasing from 38 billion dollars in Q1 to 18 billion euros this quarter, more recently driven by interest rate impacts.
Speaker Change: We remain comfortable with the credit quality of our Canadian portfolios.
Speaker Change: On page 28, we have updated our statement on the sensitivity to the renovation of Canadian mortar based on current market laws.
Speaker Change: With tax fees now between 4 and 5%, customers will be able to renovate at lower levels than those they initially qualified for, and experience less tax shock. In the outer annual maturity periods, some customers might see their monthly taxes decrease due to the renovation.
Speaker Change: Overall, our death portfolio performed well, with losses remaining at a breakeven point, despite rates remaining high over the past two years.
Stay confident in the continued resilience of this portfolio.
Speaker Change: At the end of the year, employment increased, interest rates rose, and sectoral pressures affected our portfolio.
Speaker Change: Despite these sales, we were able to deliver a good year of results.
Speaker Change: Cela not only highlights our team's ability to take decisive action to mitigate losses, but also underscores how our strategic choices have strengthened our credit portfolio.
Speaker Change: This gives us confidence in our ability to navigate the economic challenges that may arise in 2025.
Speaker Change: If we look ahead, we expect that impairment provisions in trade will increase slightly, while impairment provisions in American trade will decrease.
Speaker Change: They should move down in this direction if economic uncertainties occur.
Speaker Change: In conclusion, we are very satisfied with our solid risk performance in fiscal 2024 and we are confident in our strong alliance coverage in 2025. I will now hand over to the operator.
Thank you.
Speaker Change: Please press button 1 if you have any questions. There will be a brief pause while participants register for questions. We thank you for your patience.
Speaker Change: Our first question comes from Mathieu Lee of Canaccord Genuity. Please go ahead.
Speaker Change: Hello, thank you for taking my question. Perhaps we can start with a question about the death care industry. It seems that the market has been quite competitive on the price frontier. Maybe you can talk to us about how you balance your profitability goals while ensuring you maintain your market share, particularly with regard to the levels of renovation that are happening.
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Speaker Change: Hello Mathieu and hello everyone. Thank you for the question, I appreciate it. I would like to start by reminding everyone that we have a very customer-focused strategy.
Speaker Change: We distinctly focus on acquiring the right clients, where we can build long, long-lasting, deep relationships, and provide value to our clients and partners. So, when we look at the mortgage business, we have looked at it in this context, and it is truly a key product for our clients.
Speaker Change: However, we've been very surgical in how we've been operating in the mortgage business. We've talked openly about the fact that we're not chasing share and we're not competing on price.
Speaker Change: We are here to serve the needs of our customers and we have operated this way last year, balancing the needs of the customers against our revenue.
Speaker Change: When we looked at the beginning of the year, the economy was a bit more challenged, and we were more muted in our approach. So we served our clients. When we have a deep relationship, we compete hard to keep or consolidate the mortgage.
Speaker Change: and where we have fewer opportunities for a relationship with clients, we are more selective and we have more of an eye towards profitability. And so when you put all that together, for this year, we were at about 1% growth and the market moved a little higher than that.
But at the same time, we have significantly improved our influx.
and this allowed us to improve the portfolio spread.
Speaker Change: and it was one of the contributors to our margin increase during the year and to an 18-point improvement in the business.
We are satisfied with our operation.
Speaker Change: But we are also looking for opportunities to accelerate, and I think you see that towards the end of the year where we saw a better economy.
We are focusing more on this business.
Speaker Change: and we started to be in the mix and we were 3rd on a month-to-month basis and we are sharing as if we are closing the year. So, going forward, we see this market accelerating. We will keep the same surgical approach for the year 2025. We have seen very good movements and volumes going into the year.
Speaker Change: and we are ready to handle that. And so, from the point of view of renewals, there are a lot of activities coming to us, we have reported these figures, we expect about 70% renewal.
Speaker Change: We have technology in place, we have improved the processes, we are moving forward with the analysis.
Speaker Change: and we will be there to serve our clients and renew their rent through this period of time. We also consider the advantage of the flows around the market as other banks have rent needs and these have come for renewal. We will therefore count where it makes sense and where we could have a relationship.
Speaker Change: And recently, we have also increased the size of our team. We expect the new sales activity to be a bit better, and we also expect a certain volume from it. We are therefore ready to handle this with a team that is committed to serving our customers.
All right. That's great, Colin. I appreciate it.
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Speaker Change: Thank you. The next question is from Ibrahim Poonawalla of Bank of America. Please go ahead.
Speaker Change: Good evening, I might just want to follow up, Hratch, thank you for the color, but I think, Victor, that you said in your prepared remarks,
Speaker Change: The growth of mortgages and consumer discretionary spending is accelerating in 2025.
Speaker Change: We heard a more cautious comment from one of your colleagues yesterday. I think we are trying to find where the Canadian economy is going.
Speaker Change: Is it safe to say that the worst is behind us and that the cyclical rebound that the markets are discussing is already underway, and that we should feel confident about the progress moving in the right direction, regarding your base case and the comments you have made?
Speaker Change: Well, Ibrahim, good morning and thank you for your question. I can't tell you where the world is going, but I can tell you that I think...
Speaker Change: the regulatory environments in the United States in the banking sector will probably diverge. I hope our regulators are looking to level the playing field as much as possible so that we can continue to compete.
Speaker Change: The Bank of Canada is being constructive and we can see that rates are going in the right direction. This is good for all Canadians. It will help them recover. It will increase and improve business sentiment.
And I think that if we take all that together...
we consider this relatively constructive.
Speaker Change: It's clear that there are geopolitical clouds on the horizon, but we do not control these clouds. What we control is our strategy, and how we go to market, and how we build relationships with our customers. And as Hratch has very clearly articulated, we do not compete on price, we compete on relationships.
Speaker Change: What matters is the banking business today. The right technology, plus the right people, distributed in the right value proposition, helps you win. And in this sense, I think we are all positioned to benefit from other alternatives that the market delivers, and more than just keeping our own.
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Speaker Change: Is it a change or a change in the arrangement of the DSB buffer? How should we think about where regulators can level the playing field?
Speaker Change: I think our regulators have always been very capable in terms of managing our system. They are very comfortable with what is happening in the rest of the world, including in the regulatory environment outside. So I am not going to predict where this will go, but I think you can read both books from the United States.
Speaker Change: in terms of where things might go. And I think we will be given the opportunity to continue to matter for business in our own economy, as well as in the economy of the United States.
Perfect, thank you.
Speaker Change: Thank you. Our following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Hello. I don't know if it's Victor or Rob.
Speaker Change: Can you talk a bit more about your discussions on the reduction of the medium-term target ROE? You were talking about more regulatory capital, I understand. Can you talk about your idea of set-one today? Where do you think we can use it?
Speaker Change: Because when I read the mathematics, it seems to me that you need a 12.5 to 12% for the ROE to return to that level of 15-16%. So, I'm just trying to get a bit of context and see how much even the revenues can be part of that. Thank you.
Speaker Change: That's a very good question, Doug. We are quite clear that we believe that in the medium term, we could achieve 15% more.
Speaker Change: It's more than consistent with our forecasts for Investor's Day, based on the new capital. I'll let Rob answer that question, but I can tell you strategically that we are very, very focused.
Speaker Change: on the improvement of our ROE over the medium term, and you will see that, because we will continue to execute on the strategy, and we have done it correctly.
We are going to deliver this premium tomorrow, aren't we, Rob?
Victor Dodig: Thank you Victor and good morning Doug. We achieved 13.4% this week and 13.7% for the entire year, so there is work to be done to reach as close to 15% as possible.
Speaker Change: You know, there is no silver bullet. I will detail a number of things. So, you know, starting with the strategy, as we always do here at CIBC, it's about improving relationships across our bank. This should mean a better balance on both sides of the balance sheet.
Speaker Change: and this should mean additional tax revenue related to things like money management. We see better margin performance, as I suggested in my prepared remarks.
Speaker Change: Based on the advanced curve, we think that margins should be a challenge for us in the coming years. The opportunity for efficiency, we believe, is significant here at CIBC, and it's not about tactical expense cuts, it's about addressing structural costs.
Speaker Change: and let's invest some in the bottom line and others in growth.
Speaker Change: We think that the tax losses are a bit high and should decrease over time. And then, more management of the dynamic balance. You mentioned the reimbursements. We announced the reimbursements last year. We started using the reimbursements last year and we want to fully deploy this capital.
The 15% More
Speaker Change: You asked me the question about the assumption on the capital that last year was based on a ratio of 11.5% on the CET1.
Speaker Change: This guidance is close to 12.75% to 13%, which allows us to take our time. If OSPI decides to use the latest...
Speaker Change: and the 50 basis points available on the DSB. We do not need to change our direction for this, and if they decide, for any reason, to reduce this level of capital. So, when you put all that together, it really comes down to the discipline of executing our strategy.
Speaker Change: and we continue to do what we do, just more.
I appreciate the color. Thank you.
Speaker Change: Thank you. The next question is from Saurabh Movahedi of BMO Capital Markets. Please go ahead.
Speaker Change: I would like to quickly move on to Sean Bieber. Sean, your company, on an adjusted basis, pre-tax, pre-provision,
Speaker Change: is in the order of 2.30 or 2.40 billion euros. That is to say, a return level of nearly 1 billion euros. Is that a good number for you, looking to the future? Could you reach 2.40 billion euros? Is most of the investment
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Speaker Change: and should we start thinking about a bit more growth regarding your sector?
Speaker Change: Thank you for your questions, Orab. Our perspective on development is consistent with what you have already heard today. There is uncertainty today. We believe that we are very well positioned with our clients. Our team is ready to respond to the changing environment. But when we look at our pipeline,
It's strong.
Speaker Change: With uncertainty, it will take a little time to determine the timing of this growth.
Speaker Change: But I would say that from this point of view, we look at our performance from a PPPT perspective as a kind of stunning growth in the future.
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Thank you very much.
Speaker Change: Thank you. The next question is from Manny Grohman of Scotiabank. Please go ahead.
Speaker Change: Hello. Victor, during your Q3 call, I think you gave a very detailed response in terms of money deployment priorities. You talked about a bias towards organic money deployment and the return of money.
Speaker Change: The world has changed a lot since then. The outlook for the U.S. is very, very strong, and we have the question mark around tariffs and the impact on Canada. So the question is...
Speaker Change: Does this impact your thinking on capitalist deployment? And perhaps more directly, why not grow bigger in the United States, quickly, inorganically, to take advantage of what is probably a moving U.S. economy? You already have a base there, but why not become more aggressive right now?
Speaker Change: Hello everyone. Thank you for your question. There is clearly a lot of fluidity in the geopolitical environment. Our relationship with the United States is long and important, but it continues to evolve.
Speaker Change: I would like to make some comments on this, because people may want to know what is on our mind. What is on our mind is that we must control the controllables as a country.
Speaker Change: and our police officers must do everything possible to help drive GDP growth here, because it is as important as GDP growth in the United States.
Speaker Change: to the creation of a free trade agreement within our country, to the provision of incentives for entrepreneurs and capital to be deployed in areas that matter, including AI, technology, health, defense spending within our country in the national defense industry.
Speaker Change: and a clear regulatory strategy that allows businesses to grow and create jobs. That's my message to them.
Speaker Change: All our leaders must think about this. What we think as leaders of CIBC is to continue focusing on our clients. We believe that the Canadian market continues to grow.
Speaker Change: Yes, we have leadership positions in certain products and services and categories, but we're competing to win in the Canadian market.
Speaker Change: and we will deploy capital in the United States market, all in a very balanced manner.
Speaker Change: To be strong in the United States, you have to be strong at home. That's why we are going to focus on our Canadian and American business, and really serve these customers.
Speaker Change: which lead to our risk appetite and the value of having a relationship with a bank that helps them achieve their growth ambitions. Simple as that. And that means growth in Canada, in consumer markets, commerce, capital markets, and wealth management businesses, as well as our presence in the United States. A balanced growth.
Speaker Change: Just if I could recall, I think what you're saying is that you don't feel an added urgency to deploy money in the United States, is that correct? Your question about money allocation, I will return to our principles. Our principles are quite...
for organic investment and for our platform.
Organic with a capital O.
Secondly, we must continue to increase our dividends.
Speaker Change: with revenue. And I think we did it again this year.
from the beginning of the fiscal year.
Speaker Change: The third is to use the reimbursements, as Rob has already articulated, and when it comes to an inorganic strategy, I think we have been quite clear about preventing M&A from strengthening our businesses, particularly in the area of American wealth. It's something we intend to do, but it really is about an inorganic growth strategy and driving towards a premium ROE.
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Thank you, Victor. Thank you, Benny.
Thank you.
Speaker Change: The following question is from LĂ©onard Persaud of Cormark. Please, go ahead.
Speaker Change: Just a point of clarification, Rob, when you said earlier you see margin as a tailwind for the next couple of years. Are you talking about all bank net interest margins? Are you talking more along the lines of marginal growth? And then if I could squeeze another quick one in here, just the outlook for the tax rate moving forward.
Speaker Change: Thank you Lamar, good morning. We believe that the margin at the All Bank level and at the Canadian PNC level, which is able to gradually increase from here, continues to make sense. We have talked in the past about how we position our balance sheet.
Speaker Change: and the negotiation strategy and how it will unfold, how we hope it will unfold based on the advanced curve. This gradual and consistent trajectory is what we are looking for. On the tax, we were at 22% effect this year. We have stated in the MDNA the impact of the global minimum tax.
Speaker Change: are about 100 basis points for us, so the direction for next year on taxes will be in the range of 23 to 24%.
Thank you for your time.
Thank you.
Speaker Change: The last question comes from Gabrielle Deschaines of National Bank Financial, please go ahead. Hello. The first question concerns the credit direction, which has been reiterated. If I understand correctly, it's that the increase in losses will be higher at the beginning of the year and will decrease over the course of the year. This is consistent with what the other bank said, in contrast to what the other bank said. I wonder why your point of view might be different. I know there are portfolio trends that play a role. Is it because of the increase in losses from the Office CRE portfolio that continues to decline and will offset things over the course of the year?
Speaker Change: Thank you Gabriel, thank you for the question. I think that's part of it, but another part of it is also the strength we see in our Canadian commercial books, the strength we see in our corporate books.
Speaker Change: It is certainly what helps us maintain our guidance. As I mentioned in my previous remark, if some of the economic uncertainties dissipate, we hope to be at the end of the guidance.
Speaker Change: There are really a lot of things moving in this direction and a lot of analyses and scenarios. As you said, in part, we are waiting for the United States to move away.
Speaker Change: But we also hope that Canadian trade continues to improve slightly in connection with macroeconomic development, and that it improves in the latter half of the year.
OK, great.
Speaker Change: Your Tier 1 ratio target is that, as I mentioned, capital requirements can be reduced, but they can also be maintained. Because some might say that we should plan as if this maximum still has no effect.
Speaker Change: Gabriel, that's a good question. I will not speculate on what our regulator will do. I will tell you that we have a good regulator who manages our banking system for strength and stability. And we will react to all the policies they put in place. As I said before, I think it's really, really important for the police officers.
Speaker Change: across the spectrum to reflect on how to drive the economy in Canada with regard to the changing conditions in the United States.
Speaker Change: We do not want to diversify, we do not want to be in deficit, we do not want the GDP per capita in Canada to decline relative to the United States.
Speaker Change: Every decision that helps drive the economy is well received, and I can tell you that our CIBC administration team will respond to any decision to drive the economy in a continuous and positive manner for our clients.
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Speaker Change: Rob, is there something for you? Yes, I think that's the only thing, because Gabe mentioned it to you, you know, what do you do if this DSP changes? The reason why we said 12.75 to 13,
Speaker Change: and the highest demands are maintained. This can make managing your ROE objectives difficult, I think.
Speaker Change: In the medium term, this additional 15% is what we are working to deliver, regardless of the environment. I mean, if the environment becomes really negative for all banks, then it will be a difficult conversation for everyone.
Speaker Change: But if we assume a benign and constructive economic environment, the CIBC leadership team will work to achieve that additional 15%. Ok, great. Well, congratulations on the full year.
Speaker Change: Thank you. We have no further questions at the moment. I would not like to return the conference to Victor.
Speaker Change: Thank you, operator, and thank you for all the thoughtful questions you shared with us this morning. I hope the story of CIBC and today's key messages have amazed you. We are delivering strong results through the consistent execution of our strategy.
and we are well positioned for the years to come.
Speaker Change: The objective of our investor base has always been to provide sustainable performance relative to the eventuality of time. I believe, and we believe, that we are achieving this goal.
Speaker Change: Giving back to our communities is also deeply embedded in the CIBC culture. Yesterday was the 40th anniversary of Miracle Day here in Canada.
and our capital markets team.
and the investment advisors Woodgund have filed their taxes.
Speaker Change: and their commissions for a day to raise money for children in need. We have been doing it for four decades and have raised almost 300 million dollars for the children.
Speaker Change: It was a huge success yesterday, and it is a tradition that we are very proud to support, as it reflects the bank that we are.
Speaker Change: Finally, I would like to conclude by offering a sincere thank you to our entire CIBC team. I have always said that banking is a team sport and it is truly our entire team that drives the momentum to serve our clients.
Speaker Change: for our partners, our communities, and for each other in our bank. I want to wish you and all your families a wonderful birthday season. I hope you will have recharged your batteries. And we look forward to gathering again next year. Take care of yourselves.
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Speaker Change: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
Speaker Change: This conference is no longer being recorded.
Subtitles created by the Amara.org community
Subtitles created by the Amara.org community