TIDMBH29
RNS Number : 6391T
Canadian Imperial Bank of Commerce
08 December 2011
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Management's discussion and analysis
Management's discussion and analysis (MD&A) is provided to
enable readers to assess CIBC's results of operations and financial
condition for the year ended October 31, 2011, compared with prior
years.The MD&A should be read in conjunction with the audited
consolidated financial statements, which have been prepared in
accordance with Canadian generally accepted accounting principles
(GAAP). Unless otherwise indicated, all amounts in the MD&A are
expressed in Canadian dollars. Certain comparative amounts have
been reclassified to conform with the presentation adopted in the
current year. This MD&A is current as of November 30, 2011.
Additional information relating to CIBC is available on SEDAR at
www.sedar.com and on the U.S. Securities and Exchange Commission's
(SEC) website at www.sec.gov. No information on our website
(www.cibc.com) should be considered incorporated herein by
reference. A glossary of terms used in the MD&A and the
consolidated financial statements is provided on pages 230 to 234
of this Annual Report.
30 Overview
30 Vision, mission and values
30 Our first principle and strategic imperative
30 Performance against objectives
32 Economic and market environment
33 Financial performance overview
33 Financial highlights 2011
34 2011 financial performance
34 Net interest income and margin
34 Non-interest income
35 Trading activities
35 Provision for credit losses
36 Non-interest expenses
36 Taxes
37 Foreign exchange
37 Significant events
38 Outlook for calendar year 2012
38 Fourth quarter review
39 Quarterly trend analysis
40 Review of 2010 financial performance
42 Non-GAAP measures
44 Business line overview
45 Retail and Business Banking
47 Wealth Management
50 Wholesale Banking
56 Corporate and Other
57 Financial condition
57 Review of condensed consolidated balance sheet
58 Capital resources
63 Off-balance sheet arrangements
68 Management of risk
68 Risk overview
71 Credit risk
81 Market risk
87 Liquidity risk
90 Strategic risk
90 Operational risk
91 Reputation and legal risk
92 Regulatory risk
93 Environmental risk
93 Accounting and control matters
93 Critical accounting policies and estimates
101 Financial instruments
101 U.S. regulatory developments
101 Accounting developments
102 Transition to International Financial Reporting Standards
104 Related-party transactions
104 Controls and procedures
106 Supplementary annual financial information
A NOTE ABOUT FORWARD-LOOKING STATEMENTS: From time to time, we
make written or oral forward-looking statements within the meaning
of certain securities laws, including in this Annual Report, in
other filings with Canadian securities regulators or the U.S.
Securities and Exchange Commission and in other communications.
These statements include, but are not limited to, statements made
in the "Creating value for our shareholders", "Message from the
President and Chief Executive Officer", "Performance Against
Objectives", "Overview", "Financial Performance Overview - Taxes",
"Financial Performance Overview - Outlook for calendar year 2012",
"Business Line Overview - Retail and Business Banking", "Business
Line Overview - Wealth Management", "Business Line Overview -
Wholesale Banking", "Financial Condition - Capital Resources",
"Management of Risk - Liquidity Risk", "Accounting and Control
Matters - Risk Factors Related to Fair Value Adjustments" and
"Accounting and Control Matters - Contingent Liabilities" sections,
of this report and other statements about our operations, business
lines, financial condition, risk management, priorities, targets,
ongoing objectives, strategies and outlook for 2012 and subsequent
periods. Forward-looking statements are typically identified by the
words "believe", "expect", "anticipate", "intend", "estimate" and
other similar expressions of future or conditional verbs such as
"will", "should", "would" and "could." By their nature, these
statements require us to make assumptions, including the economic
assumptions set out in the "Financial Performance Overview -
Outlook for calendar year 2012" section of this report, and are
subject to inherent risks and uncertainties that may be general or
specific. A variety of factors, many of which are beyond our
control, affect our operations, performance and results, and could
cause actual results to differ materially from the expectations
expressed in any of our forward-looking statements. These factors
include: credit, market, liquidity, strategic, operational,
reputation and legal, regulatory and environmental risk discussed
in the "Management of Risk" section of this report; legislative or
regulatory developments in the jurisdictions where we operate,
amendments to, and interpretations of, risk-based capital
guidelines and reporting instructions; the resolution of legal
proceedings and related matters; the effect of changes to
accounting standards, rules and interpretations; changes in our
estimates of reserves and allowances; changes in tax laws; changes
to our credit ratings; political conditions and developments; the
possible effect on our business of international conflicts and the
war on terror; natural disasters, public health emergencies,
disruptions to public infrastructure and other catastrophic events;
reliance on third parties to provide components of our business
infrastructure; the accuracy and completeness of information
provided to us by clients and counterparties; the failure of third
parties to comply with their obligations to us and our affiliates;
intensifying competition from established competitors and new
entrants in the financial services industry; technological change;
global capital market activity; changes in monetary and economic
policy; currency value fluctuations; general business and economic
conditions worldwide, as well as in Canada, the U.S. and other
countries where we have operations; changes in market rates and
prices which may adversely affect the value of financial products;
our success in developing and introducing new products and
services, expanding existing distribution channels, developing new
distribution channels and realizing increased revenue from these
channels; changes in client spending and saving habits; our ability
to attract and retain key employees and executives; our ability to
successfully execute our strategies and complete and integrate
acquisitions and joint ventures; and our ability to anticipate and
manage the risks associated with these factors. This list is not
exhaustive of the factors that may affect any of our
forward-looking statements. These and other factors should be
considered carefully and readers should not place undue reliance on
our forward-looking statements. We do not undertake to update any
forward-looking statement that is contained in this report or in
other communications except as required by law.
Management's discussion and analysis
Overview
CIBC is a leading Canadian-based global financial institution
with a market capitalization of $30.1 billion and a Tier 1 capital
ratio of 14.7%. Through our three major businesses, Retail and
Business Banking, Wealth Management and Wholesale Banking, CIBC
provides a full range of financial products and services to 11
million individual, small business, commercial, corporate, and
institutional clients in Canada and around the world. We have more
than 42,000 employees dedicated to helping our clients achieve what
matters to them, delivering consistent and sustainable earnings for
our shareholders and giving back to our communities.
Vision, mission and values
CIBC's vision is to be the leader in client relationships. Our
mission is to fulfill the commitments we have made to each of our
stakeholders:
1. Help our clients achieve what matters to them
2. Create an environment where all employees can excel
3. Make a real difference in our communities
4. Generate strong total returns for our shareholders
Our vision and mission are driven by an organizational culture
based on core values of Trust, Teamwork and Accountability.
Our first principle and strategic imperative
CIBC's first principle is to be a lower risk bank. As a lower
risk bank, CIBC targets value creation for stakeholders by
delivering on its strategic imperative of consistent and
sustainable earnings over the long term. We will achieve this
by:
-- Cultivating deeper relationships with our clients across our
businesses;
-- Focusing on value for our clients through understanding their
needs;
-- Competing in businesses where we can leverage our expertise
to add differentiated value;
-- Pursuing risk-controlled growth in Canada and internationally
where our expertise can be exported; and
-- Continuously investing in our client base, people, and
infrastructure.
Performance against objectives
For many years, CIBC has reported a scorecard of financial
metrics that we use to measure and report on our progress to
external stakeholders. These measures are categorized into four key
areas of shareholder value - earnings growth, return on equity,
total shareholder return and balance sheet strength.
Earnings growth
As the primary driver of shareholder value, CIBC has regularly
reported an earnings per share (EPS) growth target as one of our
medium-term financial objectives. Our current target, which we set
at the end of 2007, is to deliver average annual EPS growth of 5%
to 10%.
In 2011, we reported cash EPS(1) on a fully diluted basis of
$7.39, up from $5.95 in 2010, $2.73 in 2009 and $(5.80) in 2008.
Despite the global credit crisis that developed in 2008 and the
difficult economic conditions that followed, we achieved our 5% to
10% target over the prior three-year period.
We are maintaining our 5% to 10% average annual EPS growth
target.
In support of our EPS target, we have objectives to maintain a
loan loss ratio between 50 and 65 basis points through the cycle
and to maintain our cash efficiency ratio(1) at the median position
among our industry peers.
Our loan loss ratio is defined as specific provision for credit
losses as a percentage of loans and bankers' acceptances, measured
on a managed basis(1) . Supported primarily by lower write-offs in
our cards and personal lending businesses, our loan loss ratio
improved to 48 basis points in 2011, down from the 56 basis points
we reported in 2010 and below our target range.
(1) For additional information, see the "Non-GAAP measures"
section.
Management's discussion and analysis
Our efficiency ratio is defined as non-interest expenses as a
percentage of revenue, measured on a cash and taxable equivalent
basis (TEB)(1) . CIBC has maintained its efficiency ratio objective
of being at the industry median. Given our business mix, we believe
this target provides the right balance between investment and
expense reduction. Our 2011 efficiency ratio was 58.8%, up from
57.6% in 2010.
We are maintaining our industry median target.
(1) For additional information, see the "Non-GAAP measures"
section.
n/m Not meaningful.
Return on equity
Return on equity (ROE) is another key measure of shareholder
value.
CIBC's target is to achieve ROE of 20% through the cycle. In
2011, we achieved this target with ROE of 21.3%, which was up from
19.4% in 2010, driven by strong earnings growth that more than
offset higher average common shareholders' equity.
We are maintaining our minimum ROE target, which continues to be
at the higher end of industry objectives.
Total shareholder return
CIBC's mission is to fulfill the commitments we have made to
each of our stakeholders, which includes generating strong
long-term total shareholder return (TSR).
We have two targets that support our shareholder mission:
1. We have had a consistent objective for many years of paying
out between 40% and 50% of our earnings in the form of dividends to
our common shareholders. In 2011 our dividend payout was within
this target range.
Our key criteria for considering dividend increases is our
current level of payout relative to our target and our view on the
sustainability of our current earnings level through the cycle. Our
confidence in our ability to generate consistent, sustainable
returns allowed us to increase our quarterly dividend by $0.03 to
$0.90 per share in the fourth quarter of 2011.
n/m Not meaningful.
2. We also have an objective to deliver a TSR that exceeds the
industry average, which we have defined as the S&P/TSX
Composite Banks Index. For the five years ended October 31, 2011,
CIBC delivered a TSR of 9.3%, compared with the Index return of
24.3%.
Management's discussion and analysis
Balance sheet strength
A strong balance sheet is a necessary foundation for our
strategic imperative of consistent and sustainable earnings.
Capital levels are a key component of balance sheet strength. In
this area, we have set targets for our Tier 1 and Total capital
ratios, which have been 8.5% and 11.5% for many years. Our strong
earnings this year have contributed to an industry-leading Tier 1
ratio of 14.7% at the end of 2011. We have also been focused on
positioning ourselves for emerging Basel III capital standards. Our
pro forma Basel III common equity ratio as at the end of 2011
already exceeds the 2019 minimum standard of 7%.
How we deploy our capital is also important. In this area, we
have defined a target retail/wholesale business mix, as measured by
the allocation of economic capital, that is consistent with the
type of earnings and risk profile we desire for CIBC. For the past
few years, our target has been to allocate at least 75% of our
economic capital to retail. At the end of 2011, our retail
allocation was 77%, up from 74% at the end of 2010.
We are maintaining our business mix target of 75% retail(1) and
25% wholesale(1) .
In addition to our capital and business mix objectives, we
remain focused on asset quality and a strong funding profile as key
underpinnings of a strong balance sheet.
Economic and market environment
CIBC operated in an environment of decelerating economic growth
in fiscal year 2011, while benefiting from continued healthy credit
quality. Economic activity leveled off in the spring as consumers
grew more cautious about additional debt-financed spending and
production difficulties adversely impacted the energy and auto
sectors, but the economy regained forward momentum in the third
calendar quarter as those two industries' impediments eased. A
continuation of very low mortgage rates led to high levels of home
building and rising house prices. Capital spending, particularly in
the energy sector, provided a lift to growth that helped offset a
softer environment for consumer spending.
Despite a tightening in mortgage insurance rules, mortgage
demand remained reasonably brisk, but consumer credit slowed
markedly after running well above income gains in the prior few
years, a trend that pushed debt loads, but not the cost of
servicing that debt, to a new high as a share of income. A lower
unemployment rate further improved household credit quality as the
lagged impacts of the earlier recession faded.
The Wholesale Banking business benefited from the improvement in
credit quality and a generally healthy overall tone to financial
markets in the first few quarters of the 2011 fiscal year.
Government deficit financing kept wholesale debt markets active, as
did growth in business capital spending, while equity issuance was
also brisk until global growth uncertainties challenged markets in
the third calendar quarter.
(1) For the purposes of calculating this ratio, retail includes
Retail and Business Banking, Wealth Management, and International
Banking operations (reported as part of Corporate and Other). The
ratio represents the amount of economic capital attributed to these
businesses as at the end of the year.
(2) Beginning in 2008, these measurements are based upon Basel
II framework, whereas 2007 was based upon Basel I methodology.
(3) For additional information, see the "Non-GAAP measures" section.
Management's discussion and analysis
Financial performance overview
Financial highlights 2011
As at or for the year ended October
31............................................................................................. 2011 2010 2009 2008 2007
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Financial results ($ millions)
Net interest
income............................................................................................
................................ $ 6,350 $ 6,204 $ 5,394 $ 5,207 $ 4,558
Non-interest
income............................................................................................
.............................. 5,899 5,881 4,534 (1,493) 7,508
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Total
revenue...........................................................................................
........................................... 12,249 12,085 9,928 3,714 12,066
Provision for credit
losses............................................................................................
..................... 841 1,046 1,649 773 603
Non-interest
expenses..........................................................................................
............................. 7,350 7,027 6,660 7,201 7,612
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Income (loss) before taxes and non-controlling
interests............................................................... 4,058 4,012 1,619 (4,260) 3,851
Income tax expense
(benefit).........................................................................................
.................... 969 1,533 424 (2,218) 524
Non-controlling
interests.........................................................................................
......................... 10 27 21 18 31
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Net income
(loss)............................................................................................
.................................. $ 3,079 $ 2,452 $ 1,174 $ (2,060) $ 3,296
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Financial measures
Efficiency
ratio.............................................................................................
....................................... 60.0% 58.1% 67.1% n/m 63.1%
Cash efficiency ratio (TEB)(1)
..................................................................................................
......... 58.8% 57.6% 66.4% n/m 61.3%
Return on
equity............................................................................................
..................................... 21.3% 19.4% 9.4% (19.4)% 28.7%
Net interest
margin............................................................................................
................................ 1.74% 1.79% 1.54% 1.51% 1.39%
Total shareholder
return............................................................................................
........................ 0.4% 32.4% 21.1% (43.5)% 20.2%
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Common share information
Per
share...........
.... - basic earnings (loss) $ 7.32 $ 5.89 $ 2.65 $ (5.89) $ 9.30
- diluted earnings (loss)(2) 7.31 5.87 2.65 (5.89) 9.21
- cash diluted earnings (loss)(1) 7.39 5.95 2.73 (5.80) 9.30
- dividends 3.51 3.48 3.48 3.48 3.11
Share price
........ - closing 75.10 78.23 62.00 54.66 102.00
Shares outstanding (thousands) - end of
period............................................................................. 400,534 392,739 383,982 380,805 334,989
Market capitalization ($
millions).........................................................................................
............. $ 30,080 $ 30,724 $ 23,807 $ 20,815 $ 34,169
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Value measures
Dividend yield (based on closing share
price)................................................................................. 4.7% 4.4% 5.6% 6.4% 3.0%
Dividend payout
ratio.............................................................................................
............................. 47.9% 59.1% >100% n/m 33.4%
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Balance sheet information ($ millions)
Cash, deposits with banks and
securities........................................................................................
. $ 88,370 $ 89,660 $ 84,583 $ 88,130 $ 100,247
Loans and acceptances, net of
allowance......................................................................................... 194,379 184,576 175,609 180,323 170,678
Total
assets............................................................................................
............................................ 353,699 352,040 335,944 353,930 342,178
Deposits..........................................................................................
................................................... 255,409 246,671 223,117 232,952 231,672
Common shareholders'
equity............................................................................................
.............. 14,584 12,634 11,119 11,200 11,158
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Balance sheet quality measures
Risk-weighted assets ($ billions)(3)
.................................................................................................. $ 110.0 $ 106.7 $ 117.3 $ 117.9 $ 127.4
Tangible common equity ratio(1)(3)
..................................................................................................
.. 11.4% 9.9% 7.6% 7.5% 7.1%
Tier 1 capital ratio(3)
..................................................................................................
........................ 14.7% 13.9% 12.1% 10.5% 9.7%
Total capital ratio(3)
..................................................................................................
.......................... 18.4% 17.8% 16.1% 15.4% 13.9%
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
Other information
Retail/wholesale ratio(1)(4)
..................................................................................................
............... 77%/23% 74%/26% 69%/31% 64%/36% 73%/27%
Full-time equivalent employees(5)
..................................................................................................
... 42,239 42,354 41,941 43,293 44,906
--------------------------------------------------------------------------------------------------- -------------------------------- --------------------------------- --------------------------------- --------------------------------- ---------------------------------
(1) For additional information, see the "Non-GAAP measures" section.
(2) In the case of a loss, the effect of stock options potentially exercisable on diluted EPS is anti-dilutive; therefore, basic and diluted EPS will be the same.
(3) Beginning in 2008, these measures are based upon Basel II
framework, whereas 2007 was based upon Basel I methodology.
(4) For the purposes of calculating this ratio, Retail includes
Retail and Business Banking, Wealth Management, and International
Banking operations (reported as part of Corporate and Other). The
ratio represents the amount of economic capital attributed to these
businesses as at the end of the year.
(5) Full-time equivalent headcount is a measure that normalizes
the number of full-time and part-time employees, base plus
commissioned employees, and 100% commissioned employees into
equivalent full-time units based on actual hours of paid work
during a given year.
n/m Not meaningful.
Management's discussion and analysis
2011 financial performance
Net income for the year was $3,079 million, compared to $2,452
million in 2010. The results for the current and prior years were
affected by certain significant items reported during the years as
follows:
2011
-- $170 million ($122 million after-tax) loss from the
structured credit run-off business;
-- $90 million ($46 million after-tax) gain on sale of a
merchant banking investment, net of associated expenses;
-- $43 million ($37 million after-tax) gain on sale of CIBC
Mellon Trust Company's (CMT) Issuer Services business;
-- $37 million ($27 million after-tax) reduction in the general
allowance; and
-- $25 million ($18 million after-tax) loan losses in our exited
European leveraged finance business.
In addition to the above items, EPS for the year was also
impacted by:
-- $12 million ($12 million after-tax) premium paid on preferred
share redemptions.
2010
-- $232 million ($161 million after-tax) loss from the
structured credit run-off business;
-- $411 million ($117 million loss after-tax) of foreign
exchange gains on capital repatriation activities;
-- $141 million ($98 million after-tax) reduction in the general
allowance;
-- $25 million future tax asset write-down resulting from the
enactment of lower Ontario corporate tax rates;
-- $30 million ($17 million after-tax) reversal of interest
expense related to the favourable conclusion of prior years' tax
audits; and
-- $17 million ($12 million after-tax) negative impact of
changes in credit spreads on the mark-to-market (MTM) of credit
derivatives in our corporate loan hedging program.
Net interest income and margin
$ millions, for the year ended October 31 2011 2010 2009
---------------------------------------------------------------------- --------------- --------------- ------------
Average interest-earning assets..................... $ 316,533 $ 294,428 $ 285,563
Net interest income....................................... 6,350 6,204 5,394
Net interest margin on average interest-earning
assets....................................................... 2.01 % 2.11 % 1.89%
---------------------------------------------------------------------- --------------- --------------- ------------
Net interest income was up $146 million or 2% from 2010,
primarily due to volume growth in most retail products, including
the impact of the acquisition of the MasterCard portfolio completed
on September 1, 2010, partially offset by
narrower spreads. In addition, trading-related net interest
income was higher in the year. These factors were partially offset
by lower interest income from FirstCaribbean International Bank
Limited (CIBC FirstCaribbean), lower treasury-related net interest
income, and lower interest income on tax reassessments.
Additional information on net interest income and margin is
provided in the "Supplementary annual financial information"
section.
Non-interest income
$ millions, for the year ended October 31 2011 2010 2009
-------------------------------------------------------------------- ------------ ----------- ------------
Underwriting and advisory fees....................... $ 514 $ 426 $ 478
Deposit and payment fees.............................. 756 756 773
Credit fees...................................................... 381 341 304
Card fees........................................................ 99 304 328
Investment management and custodial fees... 486 459 419
Mutual fund fees............................................. 849 751 658
Insurance fees, net of claims........................... 320 277 258
Commissions on securities transactions........... 496 474 472
Trading income (loss)..................................... (74) 603 (531)
AFS securities gains, net................................. 407 400 275
FVO losses, net............................................... (134) (623) (33)
Income from securitized assets........................ 1,063 631 518
Foreign exchange other than trading.............. 237 683 496
Other.............................................................. 499 399 119
-------------------------------------------------------------------- ------------ ----------- ------------
$ 5,899 $ 5,881 $ 4,534
-------------------------------------------------------------------- ------------ ----------- ------------
Non-interest income was up $18 million or less than 1% from
2010.
Underwriting and advisory fees were up $88 million or 21%,
primarily due to higher equity new issuances and advisory fees.
Credit fees were up $40 million or 12%, primarily due to higher
fees related to acceptances and committed corporate lending
facilities.
Card fees were down $205 million or 67%, primarily due to higher
securitization activity. Offsetting the decrease was an increase to
income from securitized assets noted below.
Investment management and custodial fees were up $27 million or
6% and mutual fund fees were up $98 million or 13%, primarily due
to higher average client assets.
Commissions on securities transactions were higher by $22
million or 5%, primarily on higher trading volumes.
Trading loss was $74 million compared to income of $603 million,
driven largely by higher losses in the structured credit run-off
business. Largely offsetting these losses were lower designated at
fair value (FVO) losses noted below. See the "Trading activities"
section which follows for further details.
Management's discussion and analysis
$ millions, for
the year ended
October 31 2011 2010 2009
-------------------------------------------------------------- ----------- ----------- ----------
Specific.....................................................
Consumer............................................. $ 762 $ 943 $ 1,020
Business and government.................... 163 258 392
-------------------------------------------------------------- ----------- ----------- ----------
925 1,201 1,412
General..................................................... (84) (155) 237
-------------------------------------------------------------- ----------- ----------- ----------
$ 841 $ 1,046 $ 1,649
-------------------------------------------------------------- ----------- ----------- ----------
Available-for-sale (AFS) securities gains, net, include realized
gains and losses on disposals, net of write-downs to reflect
other-than-temporary impairments (OTTI) in the value of securities
and limited partnerships. Net gains were up $7 million or 2%,
primarily due to higher gains net of write-downs. The current year
included the gain on the sale of a merchant banking investment
noted above, while the prior year included higher gains on bond
sales.
FVO losses, net, represent revenue from financial instruments
designated at fair value and related hedges. FVO losses were down
$489 million or 78%, primarily due to lower losses in the
structured credit run-off business, resulting from a previously
issued limited recourse note. As noted below, largely offsetting
these lower losses were higher trading losses on the underlying
securities. Further details on the composition of our FVO income
(loss) are provided in Note 13 to the consolidated financial
statements.
Income from securitized assets was higher by $432 million or
68%, primarily due to a higher level of securitized assets.
Partially offsetting this increase were lower card fees noted
above. Other offsets are in net interest income and provision for
credit losses related to the securitized portfolio.
Foreign exchange other than trading (FXOTT) was down $446
million or 65%, as the prior year included higher foreign exchange
gains on capital repatriation activities.
Other mainly includes income and losses on equity-accounted
investments, gains and losses on MTM of non-trading derivatives
related to economic hedges, and other commissions and fees.
Trading activities
$ millions, for
the year ended
October 31 2011 2010 2009
------------------------------------------- ----------- ------------- ----------
Trading income
(loss) consists
of:................
Net interest
income............................... $ 343 $ 218 $ 237
Non-interest
income.............................. (74) 603 (531)
------------------------------------------- ----------- ------------- ----------
$ 269 $ 821 $ (294)
------------------------------------------- ----------- ------------- ----------
Income from trading activities was lower by $552 million,
primarily due to higher trading losses in the structured credit
run-off business. Offsetting this decrease were lower losses in the
FVO income (loss) noted above. For a more detailed discussion of
the structured credit losses, refer to the "Structured credit
run-off business" section.
Further details on the composition of our trading income by
product type are provided in Note 12 to the consolidated financial
statements.
Provision for credit losses
The total provision for credit losses was down $205 million or
20% from 2010.
The specific provision for credit losses in consumer portfolios
was down $181 million. The decrease was mainly due to lower
write-offs across most products and the favourable impact of higher
credit card securitizations in 2011. This was partially offset by
losses, as expected, arising from the acquired MasterCard
portfolio.
The specific provision for credit losses in the business and
government lending portfolios was down $95 million, primarily due
to the improvement in credit quality of our portfolios in Canada
and in our U.S. real estate finance business, partially offset by
higher provisions in CIBC FirstCaribbean and in our exited
leveraged finance business in Europe.
The change in the general provision for credit losses was
unfavourable by $71 million from 2010. This was primarily due to a
slowing improvement in the Visa cards portfolio compared to the
prior year, partially offset by a decrease in provision in the
personal loans portfolio. Starting in the last quarter of 2010,
there was a refinement in the calculation of the allowance related
to the small business portfolio. The refinement which was based on
internal data and other external benchmarks, shortened the loss
identification period for small business, and led to a reduction of
$44 million in the general allowance. However, this reduction was
largely offset by the allowance that we established on acquisition
of the MasterCard portfolio in September 2010.
Management's discussion and analysis
Non-interest expenses
$ millions, for
the year ended
October 31 2011 2010 2009
-------------------------------------------------------------- ----------- ----------- ----------
Employee compensation
and benefits.....
Salaries............................................... $ 2,276 $ 2,202 $ 2,180
Performance-based
compensation...... 1,229 1,103 995
Benefits............................................... 658 566 435
-------------------------------------------------------------- ----------- ----------- ----------
4,163 3,871 3,610
Occupancy costs....................................... 664 648 597
Computer, software
and office equipment 994 1,003 1,010
Communications...................................... 297 290 288
Advertising and
business development..... 214 197 173
Professional
fees...................................... 179 210 189
Business and
capital taxes........................ 38 88 117
Other........................................................ 801 720 676
-------------------------------------------------------------- ----------- ----------- ----------
$ 7,350 $ 7,027 $ 6,660
-------------------------------------------------------------- ----------- ----------- ----------
Non-interest expenses were higher by $323 million or 5% from
2010.
Employee compensation and benefits increased by $292 million or
8%, primarily due to higher performance-based compensation, higher
pension expense resulting from changes in certain assumptions and
the market value of our plan assets, and higher salaries.
Occupancy costs increased by $16 million or 2%, largely due to
higher rental expenses.
Advertising and business development increased by $17 million or
9%, mainly due to higher spending.
Professional fees decreased by $31 million or 15%, mainly due to
lower consulting and legal expenses.
Business and capital taxes decreased by $50 million or 57%,
mainly as a result of lower tax rates, as discussed in the "Taxes"
section.
Other, mainly comprising operational losses, outside services,
and other variable expenses increased by $81 million or 11 %,
mainly due to servicing fees in relation to the acquisition of the
MasterCard portfolio and expenses related to the sale of a merchant
banking investment. The prior year included expenses for a
settlement with the Ontario Securities Commission (OSC) relating to
the asset-backed commercial paper (ABCP).
The harmonized sales tax (HST), which was implemented in Ontario
and British Columbia on July 1, 2010, had a full year impact in
2011, which resulted in higher expenses in various categories noted
above (other than employee compensation and benefits and business
and capital taxes).
Taxes
$ millions, for
the year ended
October 31 2011 2010 2009
------------------------------------------------------------ ----------- ----------- ----------
$
Income tax expense.................................. $ 969 $ 1,533 424
------------------------------------------------------------ ----------- ----------- ----------
Indirect taxes(1)
..........................................
GST, HST and
sales taxes................... 316 211 208
Payroll taxes........................................ 189 180 155
Capital taxes........................................ 26 73 106
Property and
business taxes................. 46 52 51
------------------------------------------------------------ ----------- ----------- ----------
Total indirect
taxes................................... 577 516 520
------------------------------------------------------------ ----------- ----------- ----------
$
Total taxes................................................ $ 1,546 $ 2,049 944
------------------------------------------------------------ ----------- ----------- ----------
Income taxes
as a percentage
of net income
before income
taxes and non-controlling
interests.............................. 23.9% 38.2% 26.2%
Total taxes as
a percentage
of net income
before deduction
of total taxes
and non-controlling
interests....................... 33.4% 45.3% 44.1%
------------------------------------------------------------ ----------- ----------- ----------
(1) Certain amounts in this table are based on a paid or payable
basis and do not factor in capitalization and subsequent
amortization.
Income taxes include those imposed on the CIBC parent bank, as
well as on our domestic and foreign subsidiaries. Indirect taxes
comprise goods and services tax (GST), HST, and sales, payroll,
capital, property and business taxes. Indirect taxes are included
in non-interest expenses.
Total taxes were down $503 million from 2010.
Income tax expense was $969 million, compared to $1,533 million
in 2010. This change was primarily due to higher tax expense in the
prior year related to foreign exchange gains on capital
repatriation activities. Also, income tax expense was favourably
impacted in the current year by higher tax-exempt dividends and a
lower domestic statutory income tax rate.
Indirect taxes were up $61 million, or 12%. An increase in GST,
HST, and sales taxes was partially offset by a decrease in capital
taxes. GST, HST, and sales taxes were up primarily due to the full
year impact of the July 1, 2010 enactment of Ontario and British
Columbia HST to replace provincial sales tax. Capital taxes were
down due to the full year impact of the elimination of capital
taxes in certain provinces.
At October 31, 2011, our future income tax asset was $219
million, including $114 million related to our U.S. operations.
In prior years, the Canada Revenue Agency issued reassessments
disallowing the deduction of approximately $3.0 billion of the 2005
Enron settlement payments and related legal expenses. The matter is
currently in litigation. We believe that we will be successful in
sustaining at least the amount of the accounting tax benefit
recognized to date.
Management's discussion and analysis
Should we successfully defend our tax filing position in its
entirety, we would be able to recognize an additional accounting
tax benefit of $214 million and taxable refund interest of
approximately $175 million. Should we fail to defend our position
in its entirety, additional tax expense of approximately $862
million and non-deductible interest of approximately $123 million
would be incurred.
The Ontario Government will reduce Ontario corporate tax rates
to 10% by 2013. These reductions were substantively enacted for
accounting purposes as at November 16, 2009. As a result, we wrote
down our future tax assets by approximately $25 million in the
prior year. The statutory income tax rate applicable to the CIBC
parent bank was 28.2% in 2011. The rate will be reduced to 26.4% in
2012 and further reduced to 25.3% by 2014.
Final closing agreements for leveraged leases were executed with
the Internal Revenue Service (IRS) in 2009. In 2010, final taxable
amounts and interest charges were agreed with the IRS and payments
were applied to the various affected tax years.
For a reconciliation of our income taxes in the consolidated
statement of operations with the combined Canadian federal and
provincial income tax rate, see Note 22 to the consolidated
financial statements.
Foreign exchange
The estimated impact of U.S. dollar translation on the
consolidated statement of operations was as follows:
2011 2010
vs. vs.
$ millions, for the
year ended October
31 2010 2009
------------------------------------------------------------------ ---------------- ---------------
Estimated decrease
in:
Total revenue............................................... $ 102 $ 205
Provision for credit
losses.............................. 6 19
Non-interest expense..................................... 39 79
Income taxes and
non-controlling interest..... 8 15
Net income................................................... 49 92
------------------------------------------------------------------ ---------------- ---------------
C$ vs. US$ - average
appreciation.................... 6% 11%
------------------------------------------------------------------ ---------------- ---------------
Significant events
Investment in American Century Investments
On August 31, 2011 we completed our acquisition of a minority
interest in American Century Investments (ACI), a U.S. asset
management firm, for total cash consideration of $831 million
(US$848 million). As a result of the transaction, we acquired JP
Morgan Chase & Co.'s entire interest in ACI, which represents
approximately 41 % of ACI's equity. In addition, we hold 10.1% of
ACI's voting rights and have nominated 2 directors to ACI's
10-person board.
Our equity investment in ACI is accounted for using the equity
method and our share in the results of ACI is included in the
Wealth Management strategic business unit (SBU) for the period
subsequent to the acquisition.
TMX Group Inc.
During the year, Maple Group Acquisition Corporation (Maple), a
corporation whose investors comprise CIBC and other leading
Canadian financial institutions and pension funds, commenced an
offer to acquire 100% of the TMX Group Inc. (TMX Group). As part of
the proposed transaction, CIBC has made an equity commitment of a
maximum of $192 million. In addition, CIBC and certain other
financial institutions have provided a commitment letter to Maple
for $1.9 billion in credit facilities, which would also support the
acquisitions of Alpha Group and The Canadian Depository for
Securities Limited.
The offer is set to expire on January 31, 2012 and is subject to
obtaining the required regulatory approvals, including from
securities regulatory authorities and the Competition Bureau. On
October 30, 2011, Maple and the TMX Group jointly announced the
execution of an agreement whereby the TMX Group's board unanimously
supported Maple's proposal. Sale of CIBC Mellon Trust Company's
Issuer Services business
Effective November 1, 2010, CMT, a 50/50 joint venture between
CIBC and The Bank of New York Mellon, sold its Issuer Services
business (stock transfer and employee share purchase plan
services). As a result of the sale, CIBC recorded an after-tax gain
of $37 million in the first quarter of 2011, which is net of
estimated claw-back and post-closing adjustments that will be
settled in the first quarter of 2012. CMT's Issuer Services
business results were reported in CIBC's Corporate and Other
reporting segment and the results of its operations were not
considered significant to CIBC's consolidated results.
Management's discussion and analysis
Outlook for calendar year 2012
Economic growth is likely to stay relatively slow in both Canada
and the U.S. in 2012. Real GDP gains are likely to be in the
vicinity of 2% in each country in the face of fiscal restraint and
a deceleration in economic activity overseas, including a likely
recession in Europe and slower growth in China. We expect European
governments will show further resolve in preventing sovereign debt
troubles from spilling over into a larger Eurozone banking crisis
and a deeper recession.
In the U.S., the extent of fiscal tightening is still to be
determined, with downside risks to growth if existing payroll tax
cuts and extended unemployment benefits are allowed to expire at
the end of calendar year 2011. U.S. exports and related capital
spending have been helped by a weaker U.S. dollar, but home
building is unlikely to pick up until a further reduction in excess
inventories has been achieved.
Canada's economy faces a deceleration in global demand due to a
likely recession in Europe, a slower pace of growth in emerging
markets, and the challenges of competing in the U.S. market at a
near par exchange rate. Government spending will shift to a
negative contribution to growth as federal and provincial fiscal
policy begins to tighten, but consumer spending power will be
enhanced by softer inflation. Although consumer credit growth has
slowed, moderate growth in consumer spending will be sustained by
continued low interest rates, with the Bank of Canada
keeping interest rates at current low levels until at least the
second half of calendar year 2012.
Retail and Business Banking is expected to face slightly slower
growth in demand for mortgages, while consumer credit growth will
continue to run at the more modest pace seen in the latter half of
calendar year 2011. Demand for business credit should continue to
grow due to reduced activity in Canada's domestic market by foreign
banks. Slightly slower economic growth is unlikely to result in
deterioration in household credit quality, with the unemployment
rate holding nearly steady.
Wealth Management should see continued investor interest in
safer, yield-bearing assets given current global uncertainties.
Equity activity should pick up as the calendar year 2012
progresses, assuming governments successfully deal with sovereign
debt troubles in Europe and the U.S. avoids a recession.
Wholesale Banking should benefit from a healthy pace of bond
issuance with governments remaining heavy borrowers and businesses
taking advantage of low interest rates. Equity issuance could
rebound as global uncertainties are resolved over the course of the
calendar year 2012, a development that could also support merger
activity. Corporate credit demand should be supported by growth in
capital spending, although the public debt market and internal cash
flows will be a competitive source of funding.
Fourth quarter review
$ millions, except per share amounts, for
the three months ended 2011 2010(1)
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Oct. 31 Jul. 31 Apr. 30 Jan. 31 Oct. 31 Jul. 31 Apr. 30 Jan. 31
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Revenue..................................
..................................
Retail and Business
Banking.............................
... $ 2,061 $ 2,019 $ 1,905 $ 1,980 $ 1,961 $ 1,962 $ 1,789 $ 1,861
Wealth
Management..........................
................. 396 404 420 416 378 360 370 371
Wholesale
Banking.............................
................. 557 454 393 471 238 315 548 613
Corporate and
Other...............................
............. 188 180 171 234 677 212 214 216
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Total
revenue.................................
........................... $ 3,202 $ 3,057 $ 2,889 $ 3,101 $ 3,254 $ 2,849 $ 2,921 $ 3,061
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Net interest
income..................................
................. $ 1,605 $ 1,607 $ 1,528 $ 1,610 $ 1,645 $ 1,548 $ 1,497 $ 1,514
Non-interest
income..................................
................ 1,597 1,450 1,361 1,491 1,609 1,301 1,424 1,547
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Total
revenue.................................
........................... 3,202 3,057 2,889 3,101 3,254 2,849 2,921 3,061
Provision for credit
losses..................................
......... 243 195 194 209 150 221 316 359
Non-interest
expenses................................
................ 1,914 1,820 1,794 1,822 1,860 1,741 1,678 1,748
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Income before taxes and non-controlling
interests..... 1,045 1,042 901 1,070 1,244 887 927 954
Income
taxes...................................
.......................... 249 231 221 268 742 244 261 286
Non-controlling
interests...............................
............. 2 3 2 3 2 3 6 16
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Net
income..................................
.............................. $ 794 $ 808 $ 678 $ 799 $ 500 $ 640 $ 660 $ 652
Preferred share dividends and
premiums................... 38 55 42 42 42 42 43 42
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Net income applicable to common
shares................. $ 756 $ 753 $ 636 $ 757 $ 458 $ 598 $ 617 $ 610
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
Earnings per share -
basic...................................
. $ 1.90 $ 1.90 $ 1.61 $ 1.92 $ 1.17 $ 1.54 $ 1.60 $ 1.59
* diluted.
..............
..............
..... $ 1.89 $ 1.89 $ 1.60 $ 1.92 $ 1.17 $ 1.53 $ 1.59 $ 1.58
----------------------------------------- ---------------- --------------- ---------------- ---------------- --------------- -------------- --------------- --------------
(1) Certain prior period information has been reclassified to
conform to the presentation adopted in the current period.
Management's discussion and analysis
Compared with Q4/10
Net income was up $294 million or 59% from the fourth quarter of
2010.
Net interest income was down $40 million or 2%. This was largely
due to narrower spreads offset in part by volume growth in most
retail products including the impact of the MasterCard portfolio
and higher trading-related net interest income. The current quarter
also had lower interest income on tax reassessments.
Non-interest income was down $12 million or 1% as the prior year
quarter included foreign exchange gains of $411 million on capital
repatriation activities. The current quarter benefited from lower
FVO losses in the structured credit run-off business, higher gains
net of write-downs on AFS securities, and higher income from
securitization activities, partially offset by lower card fees.
The total provision for credit losses was up $93 million or 62%.
The specific provision for credit losses in the consumer portfolio
was comparable to the prior year quarter as lower write-offs across
most products and the favourable impact of higher credit card
securitizations were mostly offset by losses, as expected, arising
from the acquired MasterCard portfolio. The specific provision for
business and government portfolios was higher by $46 million,
mainly due to higher provisions in CIBC FirstCaribbean and our
exited leveraged finance business in Europe. Compared to the prior
year quarter, the change in the general provision for credit losses
was unfavourable by $51 million. This was primarily due to a
stabilization of loss rates in the Visa cards portfolio. The prior
year quarter included the establishment of an allowance related to
the acquired MasterCard portfolio, however, that was more than
offset by the impact of a refinement in the calculation of
allowance related to the small business portfolio. The refinement
which was based on internal data and other external benchmarks,
shortened the loss identification period for small business, which
led to a reduction of $44 million in the general allowance in the
prior year quarter.
Non-interest expenses were up $54 million or 3%, primarily due
to higher performance-based compensation, expenses related to the
sale of a merchant banking investment, and higher pension expense,
partially offset by lower capital taxes.
Income tax expense was down by $493 million, primarily due to
the tax expense of $528 million on capital repatriation activities
during the prior year quarter.
Compared with Q3/11
Net income was down $14 million or 2% from the prior
quarter.
Net interest income was down $2 million. Across retail products,
narrower spreads were partially offset by volume growth.
Trading-related net interest income was higher in the quarter.
Non-interest income was up $147 million or 10%, primarily due to
higher gains net of write-downs on AFS securities and higher income
from securitization activities, partially offset by lower
underwriting and advisory fees.
The total provision for credit losses was up $48 million or 25%.
The specific provision for credit losses in the consumer portfolio
was comparable to the prior quarter. The specific provision for
business and government portfolios was up $20 million, primarily
driven by a higher provision in CIBC FirstCaribbean and our exited
leveraged finance business in Europe, partially offset by an
improvement in our portfolios in Canada. The change in the general
provision for credit losses was unfavourable by $23 million, mainly
driven by a securitization of our Visa cards portfolio in the prior
quarter. This was partially offset by an improving credit risk
profile in the business and government loan portfolios.
Non-interest expenses were up $94 million or 5%, primarily due
to expenses related to the sale of a merchant banking investment,
and higher occupancy costs and professional fees.
Income tax expense was higher by $18 million primarily due to
the tax expense on the capital repatriation activities during the
quarter.
Quarterly trend analysis
Our quarterly results are modestly affected by seasonal factors.
The first quarter is normally characterized by increased credit
card purchases over the holiday period. The second quarter has
fewer days as compared with the other quarters, generally leading
to lower earnings. The summer months (July - third quarter and
August - fourth quarter) typically experience lower levels of
capital markets activity, which affects our brokerage, investment
management, and wholesale banking activities.
Revenue
Retail and Business Banking revenue was up over the period in
the table above reflecting volume growth, offset to some extent by
spread compression. The acquisition of the MasterCard portfolio in
September 2010 benefited revenue starting in the fourth quarter of
2010.
Wealth Management revenue has grown over the period on improved
capital market conditions, higher net sales of long-term mutual
funds, and higher trading activity. The fourth quarter of 2011
includes revenue from our investment in ACI.
Management's discussion and analysis
Wholesale Banking revenue is influenced to a large extent by
capital market conditions. In the second half of 2010 and the first
half of 2011, Wholesale Banking revenue was adversely affected by
losses in the structured credit run-off business.
Corporate and Other revenue included foreign exchange gains on
capital repatriation activities in the fourth quarter of 2010. The
gain on sale of CMT's Issuer Services business was included in the
first quarter of 2011. Revenue from CIBC FirstCaribbean has
declined over the period mainly due to the impact of a stronger
Canadian dollar and challenging economic conditions in the
region.
Provision for credit losses
The provision for credit losses is dependent upon the credit
cycle in general and on the credit performance of the loan
portfolio. Losses in the cards (excluding the MasterCard portfolio
acquired in the fourth quarter of 2010) and personal lending
portfolios improved in 2010 and 2011. Starting in the fourth
quarter of 2010, we had loan losses on the acquired MasterCard
portfolio. Wholesale Banking provisions also declined in 2010 and
2011, reflecting improved economic conditions in both the U.S. and
Europe. The fourth quarter of 2011 had higher provisions relating
to CIBC FirstCaribbean and our exited leveraged finance business in
Europe.
Non-interest expenses
Non-interest expenses have fluctuated over the period largely
due to changes in employee compensation and benefit expense,
including pension expense, and the implementation of HST in Ontario
and British Columbia in July 2010. The fourth quarter of 2011
included expenses related to the sale of a merchant banking
investment.
Income taxes
Income taxes vary with changes in income subject to tax and the
jurisdictions in which the income is earned. It can also be
affected by the impact of significant items. Tax-exempt income has
been trending higher since the fourth quarter of 2010. Income tax
expense on capital repatriation activities was included in the
fourth quarters of 2011 and 2010 and a write-down of future tax
assets was included in the first quarter of 2010.
Non-controlling interests
The first quarter of 2010 included the minority interest related
to the gain on the sale of a U.S. investment.
Review of 2010 financial performance
Retail
and Corporate
$ millions, for the year Business Wealth Wholesale and CIBC
ended October 31 Banking Management Banking Other Total
-------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
Net interest
income.........
...............
...............
2010(1) ............... $ (82
..... ..... $ 5,475 $ 160 $ 651 ) $ 6,204
Non-interest
income..................
........................
................ 1,829 1,588 1,063 1,401 5,881
Intersegment
revenue.................
........................ (269
.............. 269 ) - - -
------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
Total
revenue.................
........................
........................
.. 7,573 1,479 1,714 1,319 12,085
Provision for credit
losses..................
........................ (229
........ 1,186 1 88 ) 1,046
Non-interest
expenses................
........................
............... 3,842 1,163 1,147 875 7,027
------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
Income before taxes and
non-controlling
interests............ 2,545 315 479 673 4,012
Income
taxes...................
........................
........................
.. 702 90 125 616 1,533
Non-controlling
interests...............
........................
............. - - 12 15 27
------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
Net
income..................
........................
........................
..... $ 1,843 $ 225 $ 342 $ 42 $ 2,452
------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
Net interest
income.........
...............
...............
2009(1) ...............
..... ..... $ 4,669 $ 174 $ 430 $ 121 $ 5,394
Non-interest
income..................
........................
................ 2,224 1,438 82 790 4,534
Intersegment
revenue.................
........................ (228
.............. 230 ) - (2 ) -
------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
Total
revenue.................
........................
........................
.. 7,123 1,384 512 909 9,928
Provision for credit
losses..................
........................
........ 1,329 3 218 99 1,649
Non-interest
expenses................
........................
............... 3,670 1,097 1,060 833 6,660
------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
Income (loss) before
taxes and
non-controlling (766 (23
interests.... 2,124 284 ) ) 1,619
Income
taxes...................
........................
........................ (294
.. 607 95 ) 16 424
Non-controlling
interests...............
........................
............. - - - 21 21
------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
Net income
(loss)..................
........................ $ (472 $ (60
..................... $ 1,517 $ 189 ) ) $ 1,174
------------------------- -------------------- ------------------------- --------------------- ---------------------- -------------------
(1) Certain information has been reclassified to conform to the
presentation adopted in the current year.
Management's discussion and analysis
The following discussion provides a comparison of our results of
operations for the years ended October 31, 2010 and 2009.
Overview
Net income for 2010 was $2,452 million, compared to $1,174
million in 2009. This was due to higher revenue driven mainly by
lower structured credit run-off business losses and lower provision
for credit losses, offset in part by higher income taxes and
non-interest expenses.
Revenue by segments
Retail and Business Banking
Revenue was up $450 million or 6% due to volume growth across
most products, wider spreads in lending products, the impact of the
acquisition of the MasterCard portfolio, and higher commercial
banking fees, partially offset by narrower spreads in personal
banking deposits.
Wealth Management
Revenue was up $95 million or 7% due to higher fee-based income
as a result of increased retail brokerage volumes, strong mutual
fund sales and market-driven increases in asset values.
Wholesale Banking
Revenue was up $1,202 million from 2009, primarily due to lower
losses in the structured credit and other run-off businesses, lower
MTM losses on corporate loan hedges, and higher merchant banking
gains, partially offset by lower revenue from capital markets and
real estate finance.
Corporate and Other
Revenue was up $410 million or 45% from 2009, mainly due to
higher foreign exchange gains on capital repatriation activities
and higher unallocated treasury revenue. These increases were
partially offset by lower revenue from international banking due to
the impact of a stronger Canadian dollar and lower volumes and
narrower spreads in CIBC FirstCaribbean. Interest income from
income tax reassessments was lower during 2010.
Consolidated CIBC
Net interest income
Net interest income was up $810 million or 15% from 2009,
primarily due to higher treasury interest income, volume growth in
most retail products, wider spreads in lending products, and
interest income in the structured credit run-off business compared
to interest expense in 2009. These factors were partially offset by
narrower spreads in deposits, volume driven decreases in corporate
lending, and lower income from U.S. real estate finance. Losses
relating to interest rate hedges for the leveraged lease portfolio
that did not qualify for hedge accounting were included in
2009.
Non-interest income
Non-interest income was up $1,347 million or 30% from 2009,
largely due to lower losses from the structured credit run-off
business, and lower MTM losses associated with the corporate loan
hedging program. In addition, foreign exchange gains on capital
repatriation activities, realized gains on AFS securities net of
write-downs, income from securitized assets, mutual fund fees,
investment management and custodial fees, and credit fees were
higher during 2010. These increases were partially offset by lower
underwriting and advisory fees, card fees, and lower FVO gains from
U.S. real estate finance. Gain on sale of a U.S. investment was
included in 2010.
Provision for credit losses
The provision for credit losses was down $603 million or 37%
from 2009. Specific provision decreased $211 million or 15%,
primarily due to lower losses in the structured credit run-off and
the U.S. real estate finance portfolios, and lower writeoffs in the
cards and personal lending portfolios.
The change in the general provision was favourable by $392
million mainly due to improved economic conditions related to the
cards and business and government lending portfolios. This was
offset in part by the general allowance established for the
acquisition of the MasterCard portfolio.
Non-interest expenses
Non-interest expenses increased by $367 million or 6% from 2009,
primarily due to higher employee compensation and benefits,
occupancy costs, advertising and business development spending, and
professional fees, partially offset by lower capital taxes.
Expenses for the settlement with the OSC relating to our
participation in the ABCP market and the servicing fees in relation
to the acquisition of the MasterCard portfolio were included in
2010.
Income taxes
Income tax expense was $1,533 million, compared to $424 million
in 2009. This change was primarily due to higher income in 2010.
Income tax expense in 2010 included increased taxes related to
foreign exchange gains on capital repatriation activities.
Management's discussion and analysis
Non-GAAP measures
We use a number of financial measures to assess the performance
of our business lines. Some measures are calculated in accordance
with GAAP, while other measures do not have a standardized meaning
under GAAP and, accordingly, these measures, described below, may
not be comparable to similar measures used by other companies.
Investors may find these non-GAAP financial measures useful in
analyzing financial performance. We do not believe there are any
material inherent limitations on the usefulness of these non-GAAP
measures.
Net interest income (TEB)
We evaluate net interest income on an equivalent before-tax
basis. In order to arrive at the TEB amount, we gross up tax-exempt
income on certain securities to the equivalent level that would
have incurred tax at the statutory rate. Meanwhile the
corresponding entry is made in the income tax expense. This measure
enables comparability of net interest income arising from both
taxable and tax-exempt sources. Net interest income (TEB) is used
to calculate the efficiency ratio (TEB) and trading income (TEB).
We believe these measures permit uniform measurement, which may
enable users of our financial information to make comparisons more
readily.
Economic capital
Economic capital provides the financial framework to evaluate
the returns of each business line, commensurate with the risk
taken. See the "Capital resources" section for details on the
definition and calculation of economic capital. Economic capital is
a non-GAAP measure and there is no comparable GAAP measure.
Economic profit
Net income, adjusted for a charge on capital, determines
economic profit. This measures the return generated by each
business line in excess of our cost of capital, thus enabling users
of our financial information to identify relative contributions to
shareholder value.
Segmented return on equity
We use ROE on a segmented basis as one of the measures for
performance evaluation and resource allocation decisions. While ROE
for total CIBC provides a measure of return on common equity, ROE
on a segmented basis provides a similar metric relating to the
capital allocated to the segments. As a result, segmented ROE is a
non-GAAP measure.
Cash basis measures
Cash basis measures are calculated by adjusting the amortization
of other intangible assets to net income and non-interest expenses.
We use these measures as performance measures and not as liquidity
measures. These performance measures provide greater consistency
and comparability between our results and those of some of our
Canadian peer banks who make similar adjustments in their public
disclosure. In addition, these performance measures are used by
some analysts to develop their earnings forecasts. Presenting these
performance measures may assist them in their analysis.
Managed loans
We securitize loans and sell resulting securities or loans to
variable interest entities (VIEs), that in turn issue securities to
investors. These loans and securities are removed from the
consolidated balance sheet upon sale. Loans on a managed basis
include securitization inventory as well as loans and securities
sold. We use this measure to evaluate the credit performance and
the overall financial performance of the underlying loans.
Tangible common equity
Tangible common equity (TCE) comprises the sum of common shares
excluding short trading positions in our own shares, retained
earnings, contributed surplus, non-controlling interests, and
accumulated other comprehensive income, less goodwill and
intangible assets other than software. The TCE ratio is calculated
by dividing TCE by risk-weighted assets (RWAs).
Management's discussion and analysis
The following table provides a reconciliation of non-GAAP to
GAAP measures related to consolidated CIBC. The reconciliations of
non-GAAP measures of our SBUs are provided in their respective
sections.
Statement of operations measures
$ millions, for the
year ended October 31 2011 2010 2009 2008 2007
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Net interest
income..........................
................ $ 6,350 $ 6,204 $ 5,394 $ 5,207 $ 4,558
Non-interest
income..........................
............... 5,899 5,881 4,534 (1,493 ) 7,508
--------------------------------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Total revenue per financial
statements............ 12,249 12,085 9,928 3,714 12,066
TEB
adjustment......................
......................... 189 53 42 188 297
--------------------------------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Total revenue (TEB)(1)
.....................
................. A $ 12,438 $ 12,138 $ 9,970 $ 3,902 $ 12,363
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Trading
revenue.........................
..................... $ 269 $ 821 $ (294 ) $ (7,239 ) $ (310 )
TEB
adjustment......................
......................... 187 49 38 183 292
--------------------------------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Trading revenue (TEB)(1)
................................
.. $ 456 $ 870 $ (256 ) $ (7,056 ) $ (18 )
--------------------------------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Non-interest expenses per
financial statements $ 7,350 $ 7,027 $ 6,660 $ 7,201 $ 7,612
Less: amortization of other
intangible assets.... 42 39 43 42 39
--------------------------------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Cash non-interest
expenses(1)
.....................
...... B $ 7,308 $ 6,988 $ 6,617 $ 7,159 $ 7,573
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Net income (loss) applicable to
common
shares..........................
............................... $ 2,902 $ 2,283 $ 1,012 $ (2,179 ) $ 3,125
Add: after-tax effect of
amortization of other intangible
assets..........................
............... 33 30 33 32 29
--------------------------------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Cash net income (loss)
applicable to common
shares(1)
.....................
.....................
............. C $ 2,935 $ 2,313 $ 1,045 $ (2,147 ) $ 3,154
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Loans and acceptances (net of
allowance for credit
losses).........................
...................... $ 194,379 $ 184,576 $ 175,609 $ 180,323 $ 170,678
Add: loans
securitized.....................
................. 56,317 53,669 51,826 43,409 29,983
--------------------------------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Managed loans and
acceptances(1)
.................. D $ 250,696 $ 238,245 $ 227,435 $ 223,732 $ 200,661
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Specific provision for credit
losses.................... $ 925 $ 1,201 $ 1,412 $ 700 $ 614
Add: losses on securitized
portfolio(3) ................ 270 135 193 140 151
--------------------------------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Specific provision for
credit losses on a
managed basis(3)
.....................
.................... E $ 1,195 $ 1,336 $ 1,605 $ 840 $ 765
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Insured domestic
residential mortgages
- on-balance
sheet................
.....................
........ F $ 63,351 $ 60,347
Insured domestic residential
mortgages
securitized.....................
............................. 49,965 48,788
--------------------------------- ---------------------- --------------------------
Managed insured
domestic residential
mortgages(1)
.....................
.....................
...... G $ 113,316 $ 109,135
---------------------- --------- ---------------------- --------------------------
Domestic residential
mortgages -
on-balance
sheet................
.....................
..................... H $ 96,438 $ 90,430
Domestic residential mortgages
securitized..... 50,607 49,435
--------------------------------- ---------------------- --------------------------
Managed domestic
residential
mortgages(1) ..... I $ 147,045 $ 139,865
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Basic weighted average
of common shares
(thousands)..........
.....................
.................. J 396,233 387,802 381,677 370,229 336,092
Diluted weighted
average of common
shares
(thousands)..........
.....................
.................. K 397,097 388,807 382,442 371,763 339,316
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
Cash efficiency ratio
(TEB)(1)
.....................
....... B/A 58.8 % 57.6 % 66.4 % n/m 61.3 %
Cash basic EPS(1)
.....................
.....................
... C/J $ 7.41 $ 5.96 $ 2.74 $ (5.80) $ 9.38
Cash diluted EPS(1)(2)
.....................
................... C/K $ 7.39 $ 5.95 $ 2.73 $ (5.80) $ 9.30
Loan loss ratio (on
managed basis)(1)
............... E/D 0.48 % 0.56 % 0.70 % 0.38 % 0.38 %
Insured mortgages -
on-balance
sheet............ F/H 66 % 67 %
Insured mortgages (on
managed basis)(1)
......... G/I 77 % 78 %
---------------------- --------- ---------------------- -------------------------- ------------------------- ------------------------- -------------------------
(1) Non-GAAP measure.
(2) In the case of a loss, the effect of stock options potentially exercisable on diluted EPS is anti-dilutive; therefore cash basic and cash diluted EPS is the same.
(3) Certain prior year information has been restated to conform
to the presentation adopted in the current year.
n/m Not meaningful.
Management's discussion and analysis
Business line overview
New organizational structure
On March 28, 2011, we announced a new organizational structure
to build on the progress of implementing our business strategy and
delivering strong financial performance. Beginning in the third
quarter of 2011, wealth management and international banking
operations (including CIBC FirstCaribbean) have been reported
separately from CIBC Retail Markets and included in the newly
created Wealth Management SBU and Corporate and Other,
respectively. Following these changes, CIBC Retail Markets, which
includes the remaining businesses, was renamed Retail and Business
Banking. Under the new organizational structure, CIBC now has three
SBUs - Retail and Business Banking, Wealth Management and Wholesale
Banking. Prior period information has been restated.
Other segment reporting changes
In the third quarter of 2011, we realigned certain items from
Other to Capital markets and Corporate and investment banking
business lines within Wholesale Banking to better reflect the
nature and management of the activities. Prior period information
has been restated.
Beginning in the first quarter of 2011, general allowance for
credit losses related to CIBC FirstCaribbean has been included
within Corporate and Other. This allowance was previously reported
within CIBC Retail Markets. Prior period information has been
restated.
Business unit allocations
Treasury activities impact the reported financial results of the
SBUs. Each line of business within our SBUs is charged or credited
with a market-based cost of funds on assets and liabilities,
respectively, which impacts the revenue performance of the SBUs.
Once the interest and liquidity risk inherent in our
customer-driven assets and liabilities is transfer priced into
Treasury, it is managed within CIBC's risk framework and limits.
The majority of the revenue from these Treasury activities is then
allocated to the "Other" line of business within relevant SBUs.
Treasury also allocates capital to the SBUs in a manner that is
intended to consistently measure and align economic costs with the
underlying benefits and risks associated with SBU activities.
Earnings on unallocated capital remain in Corporate and Other. We
review our transfer pricing and treasury allocations methodologies
on an ongoing basis to ensure they reflect changing market
environments and industry practices.
To measure and report the results of operations of the lines of
business within our Retail and Business Banking and Wealth
Management SBUs, we use a Manufacturer/Customer Segment/Distributor
Management Model. The model uses certain estimates and allocation
methodologies in the preparation of segmented financial
information. Under this model, internal payments for sales and
trailer commissions and distribution service fees are made among
the lines of business and SBUs. Periodically, the sales and trailer
commission rates paid to customer segments for certain products are
revised and applied prospectively.
Non-interest expenses are attributed to the SBUs to which they
relate based on appropriate criteria. Specific allowances for
credit losses and related provisions are reported in the respective
business segments, while the general allowance and related
provision are reported in Corporate and Other.
Revenue, expenses, and balance sheet resources relating to
certain activities are fully allocated to the lines of business
within SBUs. The impact of the securitization activities on the net
income including provision for credit losses is reported in
Corporate and Other.
Management's discussion and analysis
Retail and Business Banking
Retail and Business Banking provides clients across Canada with
financial advice, products and services through a strong team of
advisors and nearly 1,100 branches, as well as our ABMs, mobile
sales force, telephone banking, online and mobile banking.
Across Retail and Business Banking, we are focused on our
priorities which are: to build deeper relationships with our
clients; improve our sales and service capabilities; and acquire
and retain clients who seek deeper and more rewarding
relationships.
In 2011, we invested in delivering greater access and choice to
our clients in how they do their everyday banking:
-- We were recognized by Global Finance magazine as "Best in
Mobile Banking" among banks globally, the first time this award has
been given, reflecting the rapid growth of this channel. This
recognition was based on criteria including strength of strategy
for attracting and servicing customers, success in driving usage of
mobile apps, and overall functionality;
-- We became the first bank to bring a mobile brokerage App to
Canadian investors enabling them to execute trades using their
mobile device;
-- We added Visa payWave, a contactless payment feature, on all
newly issued and renewing credit cards in the Aerogold family, as
well as on the CIBC Classic credit card, to further enhance the
client experience; and
-- We completed the successful transition of more than 600,000
accounts to CIBC as part of the Citi MasterCard acquisition.
Priorities
-- Deepen client relationships
-- Improve sales and service capabilities
-- Acquire and retain clients
2011 in review
Personal banking
-- Completed the successful transition of the Citi MasterCard acquisition, becoming the largest
dual issuer of Visa and MasterCard credit cards in Canada
-- Integrated our sales and service and distribution organization into a single team to increase
our focus on our clients
-- Celebrated a milestone with more than 100 new branches opened in the past four years
-- Introduced a continuous process improvement working across all products and sales channels
Business banking
-- Strong growth in business lending and core deposits
-- Integrated business sales forces to create a better client experience within Commercial Banking
-- Established a new integrated Global Transaction Banking team
-- Recruited strong new executive talent in Business Banking
Management's discussion and analysis
Results(1)
$ millions, for the year ended October 31 2011 2010 (2) 2009 (2)
----------------------------------------------------- ------------------- -------------------- --------------------
Revenue..............................................
.....................................................
............................
Personal
banking.........................................
................................................
.................... $ 6,463 $ 6,260 $ 5,753
Business
banking.........................................
................................................
.................... 1,403 1,370 1,299
Other...........................................
................................................
.................................... 99 (57 ) 71
----------------------------------------------------- ------------------- -------------------- --------------------
Total revenue
(a).................................................
....................................................
............. 7,965 7,573 7,123
Provision for credit
losses..............................................
....................................................
.... 1,072 1,186 1,329
Non-interest expenses
(b).................................................
....................................................
. 4,062 3,842 3,670
----------------------------------------------------- ------------------- -------------------- --------------------
Income before
taxes...............................................
....................................................
.......... 2,831 2,545 2,124
Income tax
expense.............................................
....................................................
............. 706 702 607
----------------------------------------------------- ------------------- -------------------- --------------------
Net income
(c).................................................
....................................................
................. $ 2,125 $ 1,843 $ 1,517
----------------------------------------------------- ------------------- -------------------- --------------------
Efficiency ratio
(b/a)...............................................
....................................................
........... 51.0 % 50.7 % 51.5 %
Amortization of other intangible assets
(d).................................................
........................... $ 11 $ 2 $ -
Cash efficiency ratio(3)
((b-d)/a)...........................................
................................................... 50.9 % 50.7 % 51.5 %
Return on equity(3)
....................................................
....................................................
......... 61.2 % 59.6 % 54.3 %
Charge for economic capital(3)
(e).................................................
........................................ $ (464 ) $ (428 ) $ (384 )
Economic profit(3)
(c+e)...............................................
....................................................
...... $ 1,661 $ 1,415 $ 1,133
Average assets ($
billions)...........................................
....................................................
...... $ 255.0 $ 253.5 $ 248.4
Full-time equivalent
employees...........................................
................................................ 21,658 21,622 21,457
----------------------------------------------------- ------------------- -------------------- --------------------
(1) For additional segmented information, see Note 29 to the consolidated financial statements.
(2) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
(3) For additional information, see the "Non-GAAP measures" section.
Financial overview
Net income was up $282 million or 15% from 2010. Revenue
increased as a result of volume growth across most lines of
business, and higher treasury allocations and fees, partially
offset by narrower spreads. Provision for credit losses was lower
resulting from an improved economic environment while non-interest
expenses were higher.
Revenue
Revenue was up $392 million or 5% from 2010.
Personal banking revenue was up $203 million or 3%, primarily
due to the impact of the acquisition of the MasterCard portfolio
and volume growth across most products, partially offset by
narrower spreads.
Business banking revenue was up $33 million or 2%, primarily due
to volume growth in lending and deposits and higher commercial
banking fees, partially offset by narrower spreads.
Other revenue was up $156 million, primarily due to higher
treasury allocations.
Provision for credit losses
Provision for credit losses was down $114 million or 10% from
2010. Lower losses were mainly driven by lower delinquencies,
bankruptcies, and write-offs across most products, partially offset
by the expected losses in the acquired MasterCard portfolio.
Non-interest expenses
Non-interest expenses were up $220 million or 6% from 2010,
primarily as a result of higher pension expense, the impact of HST,
higher corporate support costs, and servicing fees related to the
MasterCard portfolio.
Income taxes
Income taxes were up $4 million or 1% from 2010, due to an
increase in income, largely offset by a lower effective tax
rate.
Average assets
Average assets were marginally higher by $1.5 billion or 1% from
2010.
Management's discussion and analysis
Wealth Management
Wealth Management comprises asset management, retail brokerage
and private wealth management businesses. Combined, these
businesses offer an extensive suite of leading investment and
relationship-based advisory services to meet the needs of
institutional, retail, and high net worth clients.
Our objective is to be a leader in wealth management solutions
in markets where we offer advice and to be a leading global asset
manager by delivering exceptional value for our clients, our
shareholders, our employees and our communities.
Deepening relationships with our clients and achieving what
matters to them are at the core of our business and underpins our
organizational and leadership focus.
Priorities
-- Provide advice and solution innovation to meet the current
and evolving needs of our clients
-- Deliver superior investment performance for our clients
through a disciplined process
-- Enhance the client experience by simplifying processes and
building on the value that we provide each and every day
2011 in review
Retail brokerage
-- Introduced innovative loyalty pricing for self-directed clients
-- Leadership in mobile brokerage with first Canadian mobile brokerage App
-- Enhancing value for our CIBC Wood Gundy clients with the introduction of Financial Planners
-- New advisor training program launched to build advisory capabilities
Asset management
-- Investment performance consistently ranked amongst the Canadian leaders
-- Record net sales of long-term mutual funds
-- Fastest growing Top 40 Canadian Money Manager
-- Enhanced our investment and research capabilities with key hires
-- Leader in managed solutions, as measured by assets
-- Completed the acquisition of a minority interest of 41% in ACI (the assets under management
do not include assets of ACI)
Private wealth management
-- Funds managed growth of 14%
-- Expanded or opened offices in four locations across the country
-- CIBC Private Investment Counsel fastest growing investment counselor amongst its peers
Management's discussion and analysis
Results(1)
$ millions, for the year ended October 31 2011 2010 2009
------------------------------------------------------- ------------------- ------------------- -------------------
Revenue................................................
.......................................................
........................
Retail
brokerage.........................................
..................................................
................... $ 1,082 $ 987 $ 919
Asset
management........................................
..................................................
................ 456 392 366
Private wealth
management........................................
..................................................
. 98 100 99
------------------------------------------------------- ------------------- ------------------- -------------------
Total revenue
(a)...................................................
......................................................
......... 1,636 1,479 1,384
Provision for credit
losses................................................
...................................................... 4 1 3
Non-interest expenses
(b)...................................................
................................................... 1,241 1,163 1,097
------------------------------------------------------- ------------------- ------------------- -------------------
Income before
taxes.................................................
......................................................
...... 391 315 284
Income tax
expense...............................................
......................................................
......... 112 90 95
------------------------------------------------------- ------------------- ------------------- -------------------
Net income
(c)...................................................
......................................................
............. $ 279 $ 225 $ 189
------------------------------------------------------- ------------------- ------------------- -------------------
Efficiency ratio
(b/a).................................................
......................................................
....... 75.8 % 78.6 % 79.2 %
Amortization of other intangible assets
(d)...................................................
......................... $ 1 $ 1 $ 1
Cash efficiency ratio (TEB)(2)
((b-d)/a).............................................
....................................... 75.7 % 78.5 % 79.1 %
Return on equity(2)
......................................................
......................................................
..... 31.3 % 26.3 % 21.5 %
Charge for economic capital(2)
(e)...................................................
...................................... $ (116 ) $ (115 ) $ (116 )
Economic profit (loss)(2)
(c+e).................................................
................................................ $ 163 $ 110 $ 73
Average assets ($
billions).............................................
......................................................
.. $ 3.4 $ 3.0 $ 2.9
Assets under administration ($
billions).............................................
.................................... $ 202.9 $ 198.9 $ 179.6
Full-time equivalent
employees.............................................
.............................................. 3,731 3,547 3,570
------------------------------------------------------- ------------------- ------------------- -------------------
(1) For additional segmented information, see Note 29 to the consolidated financial statements.
(2) For additional information, see the "Non-GAAP measures" section.
Financial overview
Net income was up $54 million or 24% from 2010, primarily due to
higher revenue from retail brokerage and asset management,
partially offset by higher non-interest expenses.
Revenue
Revenue was up $157 million or 11% from 2010.
Retail brokerage revenue was up $95 million or 10%, primarily
due to higher fee-based revenue, wider spreads, and higher
commissions from new issues.
Asset management revenue was up $64 million or 16%, primarily
due to higher client assets under management driven by higher net
sales of long-term mutual funds and improved capital markets.
Starting in the fourth quarter of 2011, it also includes revenue
from our investment in ACI.
Private wealth management revenue was comparable to 2010.
Non-interest expenses
Non-interest expenses were up $78 million or 7%, primarily due
to higher performance-based compensation and pension expense.
Income taxes
Income taxes were up $22 million or 24% from 2010, mainly due to
an increase in income.
Assets under administration
Assets under administration were up $4.0 billion or 2% from
2010, primarily due to higher net sales of long-term mutual funds
and higher average balances in client assets.
Management's discussion and analysis
Wholesale Banking
Wholesale Banking provides a wide range of credit, capital
markets, investment banking, merchant banking and research products
and services to government, institutional, corporate and retail
clients in Canada and in key markets around the world.
Our objective is to be the premier client-focused wholesale bank
centred in Canada with a reputation for consistent and sustainable
earnings, for risk-controlled growth and for being a well-managed
firm known for excellence in everything we do.
In 2011, CIBC participated in a number of key transactions
as:
-- financial advisor to Equinox Minerals Limited on its $7.3
billion sale to Barrick Gold;
-- lead manager of Intact Financial Corporation's (Intact) $962
million common equity offering - the largest Canadian bought deal
in 2011 - and lead arranger of $1.6 billion in credit facilities
for Intact;
-- financial advisor to Ontario Power Generation's award-winning
$1.9 billion debt financing program to fund the redevelopment and
expansion of four hydroelectric generating stations on the Lower
Mattagami River; mandate included acting as joint bookrunner on the
program's inaugural $475 million bond transaction;
-- joint bookrunner on two unsecured debenture offerings for
Bell Canada totalling $2.0 billion;
-- sole lead arranger for a $1.5 billion revolving credit
facility for TransAlta; and
-- lead manager of the Whistler Blackcomb Holdings Inc.,
Parallel Energy Trust and Pretium Resources Inc., Initial Public
Offerings (IPO), as well as senior co-manager of the General Motors
IPO.
Priorities
-- Client-focused strategy
-- Profitable leadership in core businesses
-- Grow with CIBC
2011 in review
Capital markets
-- Participated in 250 deals, more than any other Canadian
dealer
-- Ranked #1 in market share (up from #2 in 2010),
maintaining our status as the #1 or #2 equity
underwriter in Canada since 2003
-- Led several large offerings, most notably Intact's $962
million offering and Brookfield Asset
Management's $578 million offering
-- #1 in market share in equity trading by both volume and
value
-- Broadened client-focused product capabilities,
including the delivery of the CORE platform
-- Improved foreign exchange market share
(1) Prior year information has been restated to conform
to the presentation adopted in the
current year.
Corporate and investment banking
-- Maintained strong position in mergers and acquisitions,
debt underwriting, and syndicated
lending, and improved market position in equity
underwriting
-- Improved Canadian lending market share; global
authorized loan commitments up 21%
-- Expanded our U.S. Energy lending capabilities, to more
effectively serve both existing and
new clients
-- Increased focus on Infrastructure, with our Project
Finance team leading, co-leading, or participating
in debt financing for a number of power projects across
a variety of industries including
renewable power, conventional power, transmission,
health-care, justice, and transportation
(1) Prior year information has been restated to conform
to the presentation adopted in the
current year.
Management's discussion and analysis Results(1)
$ millions, for the year ended October 31 2011 2010 2009
---------------------------------------------------------- ----------------- ------------------- ------------------
Revenue (TEB)(2)(3)
..........................................................
..........................................................
..
Capital
markets..............................................
.....................................................
................... $ 1,111 $ 1,051 $ 1,291
Corporate and investment
banking..............................................
.......................................... 952 718 694
Other................................................
.....................................................
................................ 1 (2 ) (1,431 )
---------------------------------------------------------- ----------------- ------------------- ------------------
Total revenue (TEB)(3)
(a)......................................................
...................................................... 2,064 1,767 554
TEB
adjustment...............................................
.........................................................
.................. 189 53 42
---------------------------------------------------------- ----------------- ------------------- ------------------
Total revenue
(b)......................................................
.........................................................
......... 1,875 1,714 512
Provision for credit
losses...................................................
......................................................... 32 88 218
Non-interest expenses
(c)......................................................
...................................................... 1,198 1,147 1,060
---------------------------------------------------------- ----------------- ------------------- ------------------
Income (loss) before taxes and non-controlling
interests................................................
............. 645 479 (766 )
Income tax expense
(benefit)................................................
...................................................... 79 125 (294 )
Non-controlling
interests................................................
.........................................................
.... 1 12 -
---------------------------------------------------------- ----------------- ------------------- ------------------
Net income (loss)
(d)......................................................
.........................................................
.... $ 565 $ 342 $ (472 )
---------------------------------------------------------- ----------------- ------------------- ------------------
Efficiency ratio
(c/b)....................................................
.........................................................
....... 63.9 % 66.9 % n/m
Amortization of other intangible assets
(e)......................................................
............................ $ - $ 1 $ 2
Cash efficiency ratio (TEB)(3)
((c-e)/a)................................................
.......................................... 58.1 % 64.9 % n/m
Return on equity(3)
.........................................................
.........................................................
..... 31.2 % 17.6 % (20.6 )%
Charge for economic capital(3)
(f)......................................................
.......................................... $ (237 ) $ (254 ) $ (347 )
Economic profit (loss)(3)
(d+f)....................................................
................................................... $ 328 $ 88 $ (819 )
Average assets ($
billions)................................................
.........................................................
.. $ 112.3 $ 105.1 $ 110.8
Full-time equivalent
employees................................................
................................................. 1,206 1,159 1,077
---------------------------------------------------------- ----------------- ------------------- ------------------
(1) For additional segmented information, see Note 29 to the consolidated financial statements.
(2) Certain prior year information has been restated to conform
to the presentation adopted in the current year.
(3) For additional information, see the "Non-GAAP measures" section.
n/m Not meaningful.
Financial overview
Net income was up $223 million or 65% from 2010. This was
primarily due to higher revenue from corporate and investment
banking, a lower provision for credit losses, and a lower effective
tax rate, partially offset by higher non-interest expenses.
Revenue (TEB)(3)
Revenue was up $297 million or 17% from 2010.
Capital markets revenue was up $60 million or 6%, driven by
higher tax-exempt revenue and higher equity sales and new issuances
revenue, partially offset by lower fixed income revenue. The prior
year included a reversal of credit valuation adjustment (CVA)
charges against credit exposures to derivative counterparties
(other than financial guarantors) whereas the current year included
an expense.
Corporate and investment banking revenue was up $234 million or
33%, primarily due to higher merchant banking gains and higher
revenue from corporate credit and advisory, partially offset by
lower revenue from U.S. real estate finance.
Other revenue was up $3 million, primarily due to lower MTM
losses on corporate loan hedges, and lower losses in the structured
credit run-off business. The prior year included the reversal of
interest expense on tax reassessments.
Provision for credit losses
Provision for credit losses was down $56 million or 64% from
2010, mainly due to lower losses in the U.S. real estate finance
portfolio as a result of relative stabilization in the U.S.
commercial real estate market.
Non-interest expenses
Non-interest expenses were up $51 million or 4%, primarily due
to higher performance-based compensation and expenses related to
the sale of a merchant banking investment, higher employee salaries
and benefits, and communication expenses, partially offset by lower
capital taxes. The prior year included expenses related to the ABCP
settlement with the OSC.
Income taxes
Income tax expense was down $46 million or 37% from 2010,
largely due to higher tax-exempt income, partially offset by an
increase in the relative proportion of income earned in
jurisdictions subject to higher income tax rates.
Average assets
Average assets were up $7.2 billion or 7% from 2010, primarily
due to increased trading activity.
Management's discussion and analysis
Structured credit run-off business
Results
$ millions, for the year ended October 31 2011 2010 2009
-------------------------------------------------- -------------------- -------------------- ----------------------
Net interest income
(expense)........................................
.................................................
.. $ (31 ) $ 3 $ (117 )
Trading income
(loss)...........................................
.................................................
............ (201 ) 188 (1,047 )
FVO gains
(losses).........................................
.................................................
................... 119 (354 ) 205
Other
income...........................................
.................................................
........................ 12 30 1
-------------------------------------------------- -------------------- -------------------- ----------------------
Total
revenue..........................................
.................................................
........................ (101 ) (133 ) (958 )
Non-interest
expenses.........................................
.................................................
............. 69 99 45
-------------------------------------------------- -------------------- -------------------- ----------------------
Loss before
taxes............................................
.................................................
.................. (170 ) (232 ) (1,003 )
Income tax
benefit..........................................
.................................................
................. 48 71 319
-------------------------------------------------- -------------------- -------------------- ----------------------
Net
loss.............................................
.................................................
............................... $ (122 ) $ (161 ) $ (684 )
-------------------------------------------------- -------------------- -------------------- ----------------------
The results of the structured credit run-off business are
included in the Wholesale Banking SBU.
The net loss for the year was $122 million, compared with $161
million in the prior year.
The loss for the year was mainly due to a decrease in the value
of receivables net of CVA related to protection purchased from
financial guarantors (on loan assets that are carried at amortized
cost), resulting from an increase in the MTM of the underlying
positions, non-interest and net interest expenses. The total CVA
loss for financial guarantors was $3 million (US$3 million) for the
year.
During the year, we reduced our overall notional positions by
US$18.5 billion, from US$48.7 billion to US$30.2 billion. This
included US$16.3 billion of sales and terminations discussed below,
which resulted in a net gain of $3 million (US$3 million). The
reductions in positions during the year resulted from the following
activities:
-- We sold security positions and terminated written credit
derivatives, as well as terminated certain hedges and unmatched
protection purchased mainly from financial guarantors, which
reduced our notional positions by US$9.6 billion;
-- We sold the residual interest in our U.S. residential
mortgage market (USRMM) positions which had been hedged by a
previously issued limited recourse note. As a result of the sale of
our residual interest, we no longer have any remaining exposures to
underlying collateral on investments (notional of US$2.9 billion
and fair value of US$183 million) and written credit derivatives
(notional of US$1.2 billion and fair value of US$1.0 billion). We
have accordingly excluded these positions from the table below;
-- We terminated $2.6 billion of written credit derivatives
which were hedged through protection purchased from a Canadian
conduit. Subsequent to the year end we terminated US$2.2 billion of
the purchased protection resulting in no significant gain or loss;
and
-- Our positions also reduced by US$2.2 billion due primarily to
normal amortization, maturities and foreign currency related
impacts during the year.
Management's discussion and analysis
Position summary
The following table summarizes our positions within the
structured credit run-off business:
Credit protection purchased from:
US$ millions, Written credit
as at October derivatives, liquidity
31, 2011 Investments and loans(1) and credit facilities Financial guarantors Other counterparties
Fair Fair Carrying Fair
value of value of value of value of
trading securities securities written Fair value Fair value
and AFS classified classified credit net of net of
Notional securities as loans as loans Notional derivatives Notional CVA Notional CVA
-------------- ---------------------------- ----------------------------- -------------------------------- -------------------------------- ---------------------------- -------------------------------- ---------------------------- ------------------------------ ------------------------- -------------------------------
USRMM -
CDO.... $ - $ - $ - $ - $ 361 $ 335 $ - $ - $ 361 $ 335
CLO 4,168 - 3,843 3,937 3,376 174 6,436 244 341 21
Corporate
debt..... - - - - 4,980 170 - - 4,980 171
Other........
............ 1,090 382 303 390 687 86 427 73 26 5
Unmatched....
...... - - - - - - 397 162 2,598 4
-------------- ---------------------------- ----------------------------- -------------------------------- -------------------------------- ---------------------------- -------------------------------- ---------------------------- ------------------------------ ------------------------- -------------------------------
$ 5,258 $ 382 $ 4,146 $ 4,327 $ 9,404 $ 765 $ 7,260 $ 479 $ 8,306 $ 536
-------------- ---------------------------- ----------------------------- -------------------------------- -------------------------------- ---------------------------- -------------------------------- ---------------------------- ------------------------------ ------------------------- -------------------------------
Oct. 31,
2010....... $ 12,006 $ 855 $ 7,284 $ 7,428 $ 15,163 $ 1,997 $ 13,102 $ 719 $ 8,469 $ 574
-------------- ---------------------------- ----------------------------- -------------------------------- -------------------------------- ---------------------------- -------------------------------- ---------------------------- ------------------------------ ------------------------- -------------------------------
(1) Excluded from the table above are equity and surplus notes
that we obtained in consideration for commutation of our USRMM
contracts with financial guarantors with a notional of US$239
million (2010: US$249 million) and a carrying value of US$17
million (2010: US$18 million).
USRMM - collateralized debt obligation (CDO)
Our net USRMM position, comprising a written credit derivative
amounted to US$26 million. This position was hedged through
protection purchased from a large U.S.-based diversified
multinational insurance and financial services company with which
we have market-standard collateral arrangements.
Collateralized loan obligation (CLO)
CLO positions consist of super senior tranches of CLOs backed by
diversified pools of primarily U.S. (62%) and European based (35%)
senior secured leveraged loans. As at October 31, 2011,
approximately 9% of the total notional amount of the CLO tranches
was rated equivalent to AAA, 74% was rated between the equivalent
of AA+ and AA-, and the remainder was equivalent of A+. As at
October 31, 2011, approximately 11 % of the underlying collateral
was rated equivalent to BB- or higher, 50% was rated between the
equivalent of B+ and B-, 10% was rated equivalent to CCC+ or lower,
with the remainder unrated. The CLO positions have a
weighted-average life of 3.2 years and average subordination of
31%.
Corporate debt
Corporate debt exposure consists of a large matched super senior
derivative, where CIBC has purchased and sold credit protection on
the same reference portfolio. The reference portfolio consists of
highly diversified, predominantly investment grade corporate
credit. Claims on these contracts do not occur until cumulative
credit default losses from the reference portfolio exceed 30%
during the 62 month term of the contract. On this reference
portfolio, we have sold protection to an investment dealer.
Other
Significant positions in Other include:
-- US$330 million notional value of CDOs consisting of trust
preferred securities (TruPs) collateral, which are Tier I
Innovative Capital Instruments issued by U.S. regional banks and
insurers. These securities are classified as loans and had a fair
value of US$199 million and carrying value of US$283 million;
-- US$214 million notional value of trading securities with a
fair value of US$160 million, and US$341 million notional value of
written protection with a fair value of US$83 million, on
inflation-linked notes and CDO tranches with collateral consisting
of high-yield corporate debt portfolios, TruPs and non-U.S.
residential mortgage-backed securities (RMBS), with 51% rated the
equivalent of AA- or higher and the majority of the remaining rated
equivalent of BBB or lower;
-- US$79 million notional value of an asset-backed security
(ABS) classified as a loan, with fair value of US$66 million and
carrying value of US$69 million;
-- Variable rate Class A-1/A-2 notes classified as trading
securities with a notional value of US$290 million and a fair value
of US$217 million, and tracking notes classified as AFS with a
notional value of US$80 million and a fair value and carrying value
of US$4 million. These notes were originally received in exchange
for our non-bank sponsored ABCP in January 2009, upon the
ratification of the Montreal Accord restructuring; and
-- US$301 million of undrawn Margin Funding Facility related to
the Montreal Accord restructuring.
Unmatched
The underlyings in our unmatched positions are a reference
portfolio of corporate debt, a loan backed by film receivables and
a CLO tranche.
Management's discussion and analysis
Credit protection purchased from financial guarantors and other
counterparties
The following table presents the notional amounts and fair
values of credit protection purchased from financial guarantors and
other counterparties by counterparty credit quality, based on
external credit ratings (Standard & Poor's and/or Moody's
Investors Service), and the underlying referenced assets. Excluded
from the table below are certain performing loans and tranched
securities positions in our continuing businesses, with a total
notional amount of approximately US$61 million, which are partly
secured by direct guarantees from financial guarantors or by bonds
guaranteed by financial guarantors.
Credit protection purchased
from financial guarantors
Notional amounts of referenced assets and other counterparties
----------------------------------------------------------------------------------------------
Corporate CDO - Total Fair value Fair value
US$ millions, as at October 31, 2011 CLO debt USRMM Other Unmatched notional before CVA CVA net of CVA
------------------------------------------ ---------------------------- ------------------------------ --------------------------- --------------------- ---------------------------------- -------------------------- --------------------------------- ------------------------- --------------------------------
Financial guarantors(1)
......................
Investment
grade....................... $ 3,902 $ - $ - $ 84 $ 197 $ 4,183 $ 443 $ (85 ) $ 358
Non-investment grade............... 75 - - 248 - 323 88 (45 ) 43
Unrated..............................
........ 2,459 - - 95 200 2,754 153 (75 ) 78
------------------------------------------ ---------------------------- ------------------------------ --------------------------- --------------------- ---------------------------------- -------------------------- --------------------------------- ------------------------- --------------------------------
6,436 - - 427 397 7,260 684 (205 ) 479
------------------------------------------ ---------------------------- ------------------------------ --------------------------- --------------------- ---------------------------------- -------------------------- --------------------------------- ------------------------- --------------------------------
Other counterparties(1)
......................
Investment
grade....................... 341 20 361 26 - 748 362 2 364
Unrated..............................
........ - 4,960 - - 2,598 7,558 176 (4 ) 172
------------------------------------------ ---------------------------- ------------------------------ --------------------------- --------------------- ---------------------------------- -------------------------- --------------------------------- ------------------------- --------------------------------
341 4,980 361 26 2,598 8,306 538 (2 ) 536
------------------------------------------ ---------------------------- ------------------------------ --------------------------- --------------------- ---------------------------------- -------------------------- --------------------------------- ------------------------- --------------------------------
Total....................................
............... $ 6,777 $ 4,980 $ 361 $ 453 $ 2,995 $ 15,566 $ 1,222 $ (207 ) $ 1,015
------------------------------------------ ---------------------------- ------------------------------ --------------------------- --------------------- ---------------------------------- -------------------------- --------------------------------- ------------------------- --------------------------------
Oct. 31,
2010..................................... $ 10,355 $ 8,242 $ 402 $ 747 $ 1,825 $ 21,571 $ 1,587 $ (294 ) $ 1,293
------------------------------------------ ---------------------------- ------------------------------ --------------------------- --------------------- ---------------------------------- -------------------------- --------------------------------- ------------------------- --------------------------------
(1) In cases where one credit rating agency does not provide a
rating, the classification in the table is based on the rating
provided by the other agency. Where ratings differ between
agencies, we use the lower rating.
The unrated other counterparties are primarily two Canadian
conduits. These conduits are in compliance with their collateral
posting arrangements and have posted collateral exceeding current
market exposure. The fair value of the collateral as at October 31,
2011 was US$675 million relative to US$172 million of net exposure.
As previously noted, we terminated US$2.2 billion of the unmatched
purchased protection subsequent to the end of the year.
Gain on reduction of unfunded commitment on a variable funding
note (VFN)
In 2008, we recognized a gain of $895 million (US$841 million),
resulting from the reduction to zero of our unfunded commitment on
a VFN issued by a CDO. Refer to Note 24 to the consolidated
financial statements for additional details.
Management's discussion and analysis
Corporate and Other
Corporate and Other comprises the six functional groups -
Technology and Operations; Corporate Development; Finance;
Treasury; Administration; and Risk Management - that support CIBC's
SBUs. The revenue, expenses and balance sheet resources of these
functional groups are generally allocated to the business lines
within the SBUs. Corporate and Other also includes our
International Banking operations comprising mainly CIBC
FirstCaribbean; strategic investments in the CIBC Mellon joint
ventures and The Bank of N.T. Butterfield & Son Limited; and
other income statement and balance sheet items, including the
general allowance, not directly attributable to the business lines.
The impact of securitization is also retained within Corporate and
Other.
Results(1)
$ millions, for the year ended October 31 2011 2010(2) 2009(2)
----------------------------------------------------- -------------------- ------------------- --------------------
Revenue..............................................
.....................................................
.................
International
banking.........................................
................................................
.. $ 549 $ 636 $ 765
Other...........................................
................................................
......................... 224 683 144
----------------------------------------------------- -------------------- ------------------- --------------------
Total
revenue.............................................
....................................................
........... 773 1,319 909
(Reversal of) provision for credit
losses..............................................
......................... (267 ) (229) 99
Non-interest
expenses............................................
.................................................... 849 875 833
----------------------------------------------------- -------------------- ------------------- --------------------
Income (loss) before taxes and non-controlling
interests...........................................
. 191 673 (23)
Income tax
expense.............................................
....................................................
. 72 616 16
Non-controlling
interests...........................................
................................................. 9 15 21
----------------------------------------------------- -------------------- ------------------- --------------------
Net income
(loss)..............................................
....................................................
..... $ 110 $ 42 $ (60)
----------------------------------------------------- -------------------- ------------------- --------------------
Full-time equivalent
employees...........................................
..................................... 15,644 16,026 15,837
----------------------------------------------------- -------------------- ------------------- --------------------
(1) For additional segmented information, see Note 29 to the consolidated financial statements.
(2) Prior year information has been restated to conform to the
presentation adopted in the current year.
Financial overview
Net income was up $68 million from 2010. The current year
included the gain on sale of CMT's Issuer Services business, higher
unallocated treasury revenue, higher interest income on tax
reassessments, and lower unallocated corporate support costs. These
were partially offset by a lower reversal of credit losses in the
general allowance, lower revenue from international banking, and
higher losses related to securitization activities. The prior year
included a higher net loss on capital repatriation activities and a
write-down of future tax assets.
Revenue
Revenue was down $546 million or 41% from 2010.
International banking revenue was down $87 million or 14%,
primarily due to lower gains on sale of AFS securities and the
impact of a stronger Canadian dollar in CIBC FirstCaribbean.
Other revenue was down $459 million or 67% from 2010, primarily
due to lower foreign exchange gains on capital repatriation
activities and higher losses related to securitization activities.
These were partially offset by higher unallocated treasury revenue,
the gain on sale of CMT's Issuer Services business, and higher
interest income on tax reassessments.
(Reversal of) provision for credit losses
Reversal of credit losses was up $38 million or 17% from 2010,
primarily due to higher recoveries on securitized card balances
partially offset by a lower reversal of credit losses in the
general allowance. The current year had a higher provision for
credit losses in CIBC FirstCaribbean.
Non-interest expenses
Non-interest expenses were down $26 million or 3% from 2010,
primarily due to lower unallocated corporate support costs.
Income taxes
Income tax expense was down $544 million or 88% from 2010,
primarily due to lower income tax expense related to capital
repatriation activities. The prior year included a future tax asset
write-down resulting from the enactment of lower Ontario corporate
tax rates.
Management's discussion and analysis Financial condition
Review of condensed consolidated balance sheet
$ millions, as at October 31 2011 2010
--------------------------------------------------------------------------- -------------------- -------------------
Assets
Cash and deposits with
banks.....................................................................
.................................... $ 6,297 $ 12,052
--------------------------------------------------------------------------- -------------------- -------------------
Securities.................................................................
......................................................................
Trading...............................................................
...................................................................... 32,797 28,557
AFS...................................................................
......................................................................
.. 29,212 26,621
FVO...................................................................
......................................................................
. 20,064 22,430
--------------------------------------------------------------------------- -------------------- -------------------
82,073 77,608
--------------------------------------------------------------------------- -------------------- -------------------
Securities borrowed or purchased under resale
agreements........................................................... 27,840 37,342
--------------------------------------------------------------------------- -------------------- -------------------
Loans......................................................................
.......................................................................
Residential
mortgages.............................................................
................................................. 99,603 93,568
Personal..............................................................
...................................................................... 34,842 34,335
Credit
card..................................................................
.............................................................. 10,408 12,127
Business and
government............................................................
............................................. 41,812 38,582
Allowance for credit
losses................................................................
........................................ (1,647 ) (1,720)
--------------------------------------------------------------------------- -------------------- -------------------
185,018 176,892
--------------------------------------------------------------------------- -------------------- -------------------
Derivative
instruments...............................................................
..................................................... 28,259 24,682
Customers' liability under
acceptances...............................................................
............................ 9,361 7,684
Other
assets....................................................................
................................................................ 14,851 15,780
--------------------------------------------------------------------------- -------------------- -------------------
$ 353,699 $ 352,040
--------------------------------------------------------------------------- -------------------- -------------------
Liabilities and shareholders' equity
Deposits...................................................................
.......................................................................
Personal..............................................................
...................................................................... $ 116,592 $ 113,294
Business and
government............................................................
............................................. 134,636 127,759
Bank..................................................................
......................................................................
.. 4,181 5,618
--------------------------------------------------------------------------- -------------------- -------------------
255,409 246,671
--------------------------------------------------------------------------- -------------------- -------------------
Derivative
instruments...............................................................
..................................................... 29,807 26,489
Acceptances...............................................................
.................................................................... 9,396 7,684
Obligations related to securities lent or sold short or under repurchase
agreements....................... 24,622 37,893
Other
liabilities...............................................................
................................................................ 11,823 12,572
Subordinated
indebtedness..............................................................
.............................................. 5,138 4,773
Non-controlling
interests.................................................................
................................................ 164 168
Shareholders'
equity....................................................................
................................................... 17,340 15,790
--------------------------------------------------------------------------- -------------------- -------------------
$ 353,699 $ 352,040
--------------------------------------------------------------------------- -------------------- -------------------
Assets
As at October 31, 2011, total assets were up by $1.7 billion
from 2010.
Cash and deposits with banks decreased $5.8 billion or 48%,
mainly due to lower treasury deposit placements.
Securities were up $4.5 billion or 6%, due to increases in
trading and AFS securities, partially offset by a decrease in FVO
securities. Trading securities increased mainly in the equity
portfolio, partially offset by a decrease in government-issued
securities. AFS securities increased mainly due to higher
government-issued bonds and an increase in market valuations as a
result of market changes. FVO securities decreased largely due to
the sale of mortgage-backed and government-issued securities.
Further details on the composition of securities are provided in
Note 4 to the consolidated financial statements and in the
"Supplementary annual financial information" section.
Securities borrowed or purchased under resale agreements
decreased by $9.5 billion or 25% primarily due to reduced client
demand and our funding requirements.
Loans increased by $8.1 billion or 5%. Residential mortgages
were up $6.0 billion due to volume growth, net of securitizations
and repayments. Personal loans were up $507 million due to business
growth. Credit card loans were down $1.7 billion mostly due to
securitizations. Business and government loans increased by $3.2
billion, primarily due to growth in U.S. real estate finance and
corporate lending and the purchase of certain retained interests
related to the credit
Management's discussion and analysis
card securitizations, partially offset by a reduction in our CLO
exposure. A detailed discussion of the loan portfolios is included
in the "Management of risk" section. Further details on the
composition of loans are provided in Note 5 to the consolidated
financial statements and in the "Supplementary annual financial
information" section.
Derivative instruments increased $3.6 billion or 14% ($0.3
billion or 1 %, net of derivative liabilities) due to a change in
market valuation of interest rate and equity derivatives as well as
an increase in volume of transactions. Further details on the
composition of derivatives are provided in Notes 2 and 14 to the
consolidated financial statements.
Customers' liability under acceptances increased by $1.7 billion
or 22%, driven by growth in corporate and commercial lending.
Other assets were down by $929 million or 6%, mainly due to
lower future income tax assets, collateral pledged, and items in
transit, partially offset by our equity-accounted investment in
ACI.
Liabilities
Total liabilities as at October 31, 2011 were up by $109 million
from 2010.
Deposits were up $8.7 billion or 4%, mainly due to growth in
deposits and wholesale funding activity. Further details on the
composition of deposits are provided in Note 10 to the consolidated
financial statements and in the "Supplementary annual financial
information" section.
Derivative instruments increased $3.3 billion or 13% due to the
reasons noted above for derivative assets.
Acceptances increased by $1.7 billion or 22% due to the reasons
noted above.
Obligations related to securities lent or sold short or under
repurchase agreements decreased by $13.3 billion or 35%, reflecting
our funding requirements and client-driven activities.
Other liabilities decreased by $749 million or 6%, mainly
arising from the settlement of preferred share liabilities redeemed
on October 31, 2010.
Subordinated indebtedness increased by $365 million or 8%
reflecting our net issuance and redemption activities. See the
"Capital resources" section for more details.
Shareholders' equity
Shareholders' equity as at October 31, 2011 was up by $1.6
billion or 10%, mainly due to a net increase in retained earnings
and the issuance of common shares pursuant to the stock option,
shareholder investment, and employee share purchase plans (ESPP).
These were partially offset by the redemption of the preferred
shares and a decrease in AOCI.
Capital resources
Our capital strength protects our depositors and creditors from
risks inherent in our businesses, allows us to absorb unexpected
losses, and enables us to take advantage of attractive business
opportunities. It also enables us to maintain a favourable credit
standing and to raise additional capital or other funding on
attractive terms. Our objective is to maintain a strong and
efficient capital base. We manage and monitor our capital to
maximize risk-adjusted return to shareholders and to meet
regulatory requirements.
Regulatory capital and ratios
Our minimum regulatory capital requirements are determined in
accordance with guidelines issued by the Office of the
Superintendent of Financial Institutions (OSFI). The OSFI
guidelines evolved from the Basel II framework of risk-based
capital standards developed by the Bank for International
Settlements (BIS). The BIS framework allows some domestic
regulatory discretion in determining capital. Capital ratios of
banks in different countries are, therefore, not strictly
comparable unless adjusted for discretionary differences.
Current Basel II standards require that banks maintain minimum
Tier 1 and Total capital ratios of 4% and 8%, respectively. OSFI
has established that Canadian deposit-taking financial institutions
maintain Tier 1 and Total capital ratios of at least 7% and 10%,
respectively.
Capital adequacy requirements are applied on a consolidated
basis. The consolidation basis applied to our financial statements
is described in Note 1 to the consolidated financial statements.
All subsidiaries, except certain investments and holdings which are
not subject to risk assessment under Basel II and are instead
deducted from regulatory capital, are included for regulatory
capital calculation purposes. A deduction approach applies to
investments in insurance subsidiaries, substantial investments, and
applicable securitization-related activities. Our Canadian
insurance subsidiary, CIBC Life Insurance Company Limited, is
subject to OSFI's Minimum Continuing Capital Surplus Requirements
for life insurance companies.
Management's discussion and analysis
Under the Basel II AIRB approach, credit RWAs are calculated
according to the mathematical formula utilizing probability of
default (PD), loss given default (LGD), and exposure at default
(EAD), and in some cases, maturity adjustments.
Under the Basel II standardized approach, credit RWAs are
calculated by applying the weighting factors specified in the
The components of our RWAs are shown in the table below:
OSFI guidelines to on- and off-balance sheet exposures. RWAs for
market risk in the trading portfolio are statistically determined
based on models approved by OSFI. RWAs for operational risk related
to losses from inadequate or failed processes, people, and systems
are determined under a model-based approach approved by OSFI.
Risk-weighted amounts
-------------------------------------------
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------- --------------------- --------------------
Credit risk
Standardized
approach.................................................................
.....................................
Corporate...........................................................
........................................................... $ 3,735 $ 4,729
Sovereign...........................................................
........................................................... 676 178
Banks...............................................................
.............................................................. 428 394
Real estate secured personal
lending.............................................................
............... 1,652 1,653
Other
retail..............................................................
...................................................... 1,961 2,288
------------------------------------------------------------------------- --------------------- --------------------
8,452 9,242
AIRB
approach.................................................................
..................................................
Corporate...........................................................
........................................................... 34,988 31,236
Sovereign...........................................................
........................................................... 1,544 1,595
Banks...............................................................
.............................................................. 3,077 3,902
Real estate secured personal
lending.............................................................
............... 4,876 4,213
Qualifying revolving
retail..............................................................
............................... 15,544 14,281
Other
retail..............................................................
...................................................... 5,764 5,302
Equity(1)
....................................................................
..................................................... 613 695
Trading
book................................................................
................................................. 2,574 3,516
Securitizations.....................................................
.......................................................... 2,119 1,761
Adjustment for scaling
factor..............................................................
........................... 4,266 3,990
------------------------------------------------------------------------- --------------------- --------------------
75,365 70,491
Other credit risk-weighted
assets..................................................................
........................ 6,293 7,049
------------------------------------------------------------------------- --------------------- --------------------
Total credit
risk....................................................................
............................................... 90,110 86,782
Market risk (Internal Models
Approach)...............................................................
............ 1,646 1,625
Operational risk (Advanced Measurement
Approach)..................................................... 18,212 18,256
------------------------------------------------------------------------- --------------------- --------------------
Total risk-weighted
assets..................................................................
.................................. $ 109,968 $ 106,663
------------------------------------------------------------------------- --------------------- --------------------
(1) 100% risk-weighted.
RWAs increased mainly due to increased corporate exposures and
updates to our advanced internal ratings-based (AIRB) model
parameters, partially offset by decreased exposure to banks and
structured credit.
Management's discussion and analysis
The components of our regulatory capital and ratios are shown in
the table below:
$ millions, as at October 31 2011 2010
------------------------------------------------------------------------- --------------------- --------------------
Tier 1
capital..................................................................
.........................................................................
.................
Common
shares..............................................................
....................................................................
................. $ 7,376 $ 6,804
Contributed
surplus.............................................................
....................................................................
............. 90 96
Retained
earnings............................................................
....................................................................
............... 7,605 6,095
Net after-tax fair value losses arising from changes in institution's
own credit risk................................................. - 1
Foreign currency translation
adjustments.........................................................
.................................................... (650 ) (575)
Non-cumulative preferred
shares..............................................................
........................................................... 2,756 3,156
Innovative
instruments.........................................................
....................................................................
............ 1,600 1,599
Certain non-controlling interests in
subsidiaries........................................................
........................................... 164 168
Goodwill............................................................
....................................................................
.............................. (1,894 ) (1,913)
Gains on sale of applicable securitized
assets..............................................................
....................................... (60 ) (58)
50/50 deductions from each of Tier 1 and Tier 2(1)
....................................................................
.......................... (779 ) (522)
------------------------------------------------------------------------- --------------------- --------------------
16,208 14,851
------------------------------------------------------------------------- --------------------- --------------------
Tier 2
capital..................................................................
.........................................................................
.................
Perpetual subordinated
indebtedness........................................................
......................................................... 234 270
Other subordinated indebtedness (net of
amortization).......................................................
................................ 4,741 4,404
Net after-tax unrealized holding gains on AFS equity
securities..........................................................
................ 5 4
Eligible general allowance (standardized
approach)...........................................................
................................ 108 126
50/50 deductions from each of Tier 1 and Tier 2(1)
....................................................................
.......................... (779 ) (522)
Investment in insurance activities(2)
....................................................................
.................................................. (230 ) (167)
------------------------------------------------------------------------- --------------------- --------------------
4,079 4,115
------------------------------------------------------------------------- --------------------- --------------------
Total capital available for regulatory
purposes................................................................
...................................... $ 20,287 $ 18,966
------------------------------------------------------------------------- --------------------- --------------------
Regulatory capital
ratios...................................................................
........................................................................
Tier 1
capital.............................................................
....................................................................
...................... 14.7 % 13.9%
Total
capital.............................................................
....................................................................
....................... 18.4 % 17.8%
Assets-to-capital multiple
(ACM)...............................................................
........................................................... 16.0 x 17.0x
------------------------------------------------------------------------- --------------------- --------------------
(1) Items which are deducted 50% from each of Tier 1 capital and
Tier 2 capital include allowance shortfall calculated under AIRB
approach, securitization exposures (other than gain on sale of
applicable securitized assets), and substantial investments in
unconsolidated entities.
(2) Investment in insurance activities continues to be deducted
100% from Tier 2 capital in accordance with OSFI's transition
rules.
Tier 1 and Total regulatory capital increased mainly due to
internal capital generation and the issuance of common shares,
offset in part by regulatory deductions related to our investment
in ACI and the redemption of preferred shares noted in the "Capital
management" section. Total regulatory capital as at October 31,
2011 also reflected the issuance and redemption of subordinated
debt noted in the "Capital management" section.
The Tier 1 ratio was up 0.8% and the Total capital ratio was up
0.6% from October 31, 2010. The capital ratios benefited from an
increase in both Tier 1 and Total regulatory capital, offset in
part by an increase in RWAs.
We are required to hold regulatory capital for the underlying
securitized credit card receivables (both for our Cards II and
Broadway Trusts) as if they had remained on our consolidated
balance sheet. Applying this treatment resulted in a reduction of
our Tier 1 and Total capital ratios by approximately 0.49% and
0.63%, respectively (2010: 0.34% and 0.42%, respectively).
Basel III and revisions to regulatory capital requirements
In order to promote a more resilient banking sector and
strengthen global capital standards, the Basel Committee on Banking
Supervision (BCBS) proposed significant enhancements and capital
reforms to the current framework. Revisions to the
Basel II market risk framework, effective in the first quarter
of fiscal 2012, will raise capital requirements for the trading
book and complex securitization exposures. The complete revised
framework, referred to as Basel III, will be effective January 1,
2013 and provides lengthy periods for transitioning to numerous new
requirements.
Significant Basel III reforms include the following:
-- Introducing a new common equity ratio (the Common Equity Tier
1 ratio). Certain adjustments are made to common equity, for
example the deduction of goodwill, intangible assets and a portion
of significant equity investments in financial entities, for the
purpose of calculating this new ratio. The adjustments will be
phased-in commencing January 1, 2013. Banks will be required to
meet the new Common Equity Tier 1 ratio standard during a
transition period beginning January 1, 2013 and ending on January
1, 2019. The minimum Common Equity Tier 1 ratio requirement of 4.5%
and an incremental 2.5% conservation buffer will be phased-in
during the transition period;
Management's discussion and analysis
-- Increasing the minimum Tier 1 capital and Total capital
ratios to 8.5% and 10.5%, respectively, including a 2.5%
conservation buffer. These increases will also be phased-in
commencing January 1, 2013 with banks expected to meet the new
standards through a transition period ending on January 1,
2019;
-- Amending the rules on instruments that can be considered
qualifying capital instruments for the purposes of calculating
regulatory capital. In particular, Basel III requires that capital
instruments be capable of absorbing loss at the point of
non-viability of a financial institution. The inclusion of
non-qualifying capital instruments in regulatory capital
calculations will be phased-out between January 1, 2013 and January
1, 2022;
-- Increasing capital requirements for counterparty credit
exposures arising from derivative, repo and securities financing
activities; and
-- Introducing a new global leverage ratio to address balance
sheet leverage. The BCBS will be monitoring and refining this new
ratio between 2011 and 2017 before its final implementation in
2018.
In February 2011, OSFI issued advisories confirming the adoption
of Basel III in Canada and clarifying the treatment of
non-qualifying capital instruments. Non-qualifying capital
instruments are subject to a 10% phase-out per annum commencing
2013. Banks are expected to develop and maintain a redemption
schedule for non-qualifying capital instruments that gives priority
to redeeming instruments at their regular par redemption dates
before exercising any regulatory event redemption rights. We expect
to exercise our regulatory event redemption right in fiscal 2022 in
respect of the $300 million 10.25% CIBC Tier 1 Notes - Series B due
June 30, 2108 issued by CIBC Capital Trust.
On August 16, 2011, we received confirmation from OSFI that our
non-cumulative Class A preferred shares, Series 26, 27 and 29 (the
Convertible Preferred Shares) will be treated as non-viability
contingent capital (NVCC) for the purposes of determining
regulatory capital under Basel III. In connection with receiving
this confirmation, we have irrevocably renounced by way of a deed
poll, our right to convert the Convertible Preferred Shares into
CIBC common shares except in circumstances that would be a "Trigger
Event" as described in the August 2011 NVCC Advisory issued by
OSFI; and we have provided an undertaking to OSFI that we will
immediately exercise our right to convert each of the Convertible
Preferred Shares into CIBC common shares upon the occurrence of a
Trigger Event.
On November 4, 2011, the BCBS issued rules to reduce the moral
hazard and probability of failure of global systemically important
banks (G-SIBs). The rules include an assessment methodology for
determining global systemic importance and increased minimum common
equity requirements for banks identified as G-SIBs. CIBC was not
identified as a G-SIB under the BCBS methodology.
We maintain prudent capital planning practices to ensure we are
adequately capitalized and continue to exceed minimum standards and
internal targets. While OSFI has confirmed that Basel III will be
adopted in Canada, revised national regulations are not expected to
be released until 2012. Based on our current understanding of the
revised capital requirements, we expect to exceed the new
requirements ahead of implementation timelines that have been
proposed by BCBS and confirmed by OSFI, while continuing to invest
for future growth.
Capital management
Our capital management policies, established by the Board,
relate to capital strength, capital mix, dividends and return of
capital, and the unconsolidated capital adequacy of regulated
entities. Each year a capital plan and three-year outlook are
established, which encompass all the associated elements of
capital: forecasts of sources and uses, maturities, redemptions,
new issuances, corporate initiatives and business growth. The
capital plan is stress-tested in various ways to ensure that it is
sufficiently robust under all reasonable scenarios. We maintain a
process which determines plausible but stressed economic scenarios,
and then apply these stresses to the vast majority of our exposures
to determine the impact on the consolidated statement of
operations, RWA requirements, and consequently, key capital ratios.
This helps us analyze the potential risks within our portfolios and
establish prudent capital levels in excess of the regulatory
minimum requirements. All of the elements of capital are monitored
throughout the year and the capital plan is adjusted as
appropriate.
The following were the main capital initiatives undertaken in
2011:
Subordinated debt
On November 2, 2010, we issued $1,500 million principal amount
of 3.15% Debentures (subordinated indebtedness) due November 2,
2020. The Debentures qualify as Tier 2 capital.
On March 28, 2011, we redeemed all $1,080 million of our
remaining 4.55% Medium Term Notes (subordinated indebtedness) due
March 28, 2016. In accordance with their terms, the Medium Term
Notes were redeemed at 100% of their principal amount, plus accrued
and unpaid interest thereon.
Management's discussion and analysis
On October 31, 2011, we purchased and cancelled US$30 million
($29 million) of our Floating Rate Debenture Notes due 2084. As a
result, the principal balance outstanding on this issue was reduced
to US$169 million ($168 million).
Preferred shares
On April 28, 2011, we redeemed all 2,000 of the remaining
outstanding Non-cumulative Class A Series 28 Preferred Shares with
a par value of $10 each at a redemption price of $10.00 per share
for cash.
On July 31, 2011, we redeemed all of our 16 million
Non-cumulative Class A Series 30 Preferred Shares with a par value
of $25 each at a redemption price of $25.75 per share for a total
amount of $412 million.
Common shares
During the year, we issued 1.2 million (2010: 1.9 million) new
common shares for a total consideration of $79 million (2010: $88
million), pursuant to stock option plans.
Under CIBC's Shareholder Investment Plan (Plan), shareholders
may elect to reinvest dividends received on common or preferred
shares into additional common shares, and purchase additional
common shares through optional cash contributions. Under the Plan,
we may elect to have shares issued from Treasury or purchased in
the open market. If the shares are issued from Treasury, we may
offer a discount on reinvested dividends. Commencing with dividends
paid on April 28, 2011, the participants in the Dividend
Reinvestment Option and Stock Dividend Option of the Plan receive a
2% discount from average market price (as defined in the Plan) on
the reinvested dividends in additional common shares. Previously,
the shares were issued at a 3% discount. During 2011, we issued 5.5
million (2010: 6.0 million) new common shares for a total
consideration of $411 million (2010: $419 million), pursuant to the
Plan.
Effective February 2010, employee contributions to CIBC's
Canadian ESPP have been used to purchase common shares issued from
Treasury. For additional details about the ESPP, see Note 20 to the
consolidated financial statements. During 2011, we issued 1.1
million (2010: 0.8 million) new common shares for a total
consideration of $85 million (2010: $56 million), pursuant to the
ESPP.
Dividends
We paid quarterly dividends of 87 cents per common share for the
first three quarters of fiscal 2011. For the fourth quarter of
2011, we increased our quarterly dividend from 87 cents per share
to 90 cents per share. Common and preferred share dividends are
declared quarterly at the discretion of the Board. The declaration
and payment of dividends is governed by Section 79 of the Bank Act
(Canada), the terms of the preferred shares, and the terms of the
Notes issued by CIBC Capital Trust, as explained in Notes 17 and 18
to the consolidated financial statements.
Economic capital
Economic capital provides the financial framework to evaluate
the returns of each business line, commensurate with the risk
taken. It comprises the capital required to protect against
unexpected losses, in periods of near catastrophic "worst case"
loss scenarios, while remaining an independent going concern.
Economic capital is therefore an estimate of the amount of equity
capital required by the businesses to absorb losses consistent with
our targeted risk rating over a one-year horizon. The economic
capital methodologies that we employ quantify the level of inherent
risk within our products, clients, and business lines, as required.
This enables us to measure and compare risk-adjusted returns across
products and business lines, and contributes to the analysis of
where to direct the allocation of balance sheet resources.
Our economic capital methodology comprises a number of key risk
types including credit, strategic, operational, investment, and
market.
Total economic capital by risk type
Total economic capital by operating segments
Management's discussion and analysis
Outstanding share data
Conversion for common shares(1)
--------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------
Shares outstanding CIBC's
---------------------------------
As at November 28, 2011 No. of shares $ millions conversion date
--------------------------------------------------------------------------------------------------------------------------------- --------------- ---------------- -----------------
Common shares(2)
................................................................................................................. 400,749,254 $ 7,392
--------------------------------------------------------------------------------------------------------------------------------- --------------- ---------------- -----------------
Class A Preferred Shares
Classified as
equity................................................................................................................
Series not
18.......................................................................................................................... 12,000,000 $ 300 convertible
Series April 30,
26.......................................................................................................................... 10,000,000 250 2008
Series October 31,
27.......................................................................................................................... 12,000,000 300 2008
Series May 1,
29.......................................................................................................................... 13,232,342 331 2010
Series not
31.......................................................................................................................... 18,000,000 450 convertible
Series not
32.......................................................................................................................... 12,000,000 300 convertible
Series not
33.......................................................................................................................... 12,000,000 300 convertible
Series not
35.......................................................................................................................... 13,000,000 325 convertible
Series not
37.......................................................................................................................... 8,000,000 200 convertible
--------------------------------------------------------------------------------------------------------------------------------- --------------- ---------------- -----------------
Total.......................................................................................................................
......... $ 2,756
--------------------------------------------------------------------------------------------------------------------------------- --------------- ---------------- -----------------
Stock options outstanding................................................................................................... 4,667,810
--------------------------------------------------------------------------------------------------------------------------------- --------------- ---------------- -----------------
(1) Preferred shareholders do not hold the right to convert
their preferred shares into common shares.
(2) Net of treasury shares.
As noted in the table above, Class A Preferred Shares Series 26,
27, and 29 provide CIBC with the right to convert the shares to
common shares on or after a specified conversion date. We have
irrevocably renounced by way of a deed poll, our rights to convert
these shares into common shares except in circumstances that would
be a "Trigger Event" as described in the August 2011 NVCC Advisory
issued by OSFI. We have provided an undertaking to OSFI that we
will immediately exercise our rights to convert these shares into
common shares upon the occurrence of a Trigger Event. Each such
share is convertible into a number of common shares, determined by
dividing the then applicable cash redemption price by 95% of the
average common share price (as defined in the relevant short form
prospectus or prospectus supplement), subject to a minimum price of
$2.00 per share.
Non-cumulative Rate Reset Class A Preferred Shares, Series 33
(Series 33 shares) may be converted on a one-for-one basis into
non-cumulative Floating Rate Class A Preferred Shares Series 34
(Series 34 shares) at the holder's option on July 31, 2014.
Thereafter, Series 33 shares and Series 34 shares are convertible,
one to the other, at every fifth anniversary of July 31, 2014.
Non-cumulative Rate Reset Class A Preferred Shares, Series 35
(Series 35 shares) may be converted on a one-for-one basis into
non-cumulative Floating Rate Class A Preferred Shares Series 36
(Series 36 shares) at the holder's option on April 30, 2014.
Thereafter, Series 35 shares and Series 36 shares are convertible,
one to the other, at every fifth anniversary of April 30, 2014.
Non-cumulative Rate Reset Class A Preferred Shares Series 37
(Series 37 shares) may be converted on a one-for-one basis into
non-cumulative Floating Rate Class A Preferred Shares Series 38
(Series 38 shares) at the holder's option on July 31, 2014.
Thereafter, Series 37 shares and Series 38 shares are convertible,
one to the other, at every fifth anniversary of July 31, 2014.
Off-balance sheet arrangements
Off-balance sheet arrangements include securitizations,
derivatives, credit-related arrangements, and guarantees. These
off-balance sheet arrangements are either not recorded on the
consolidated balance sheet or are recorded in amounts that differ
from the full contract or notional amounts. They could have a
current or future effect on our financial condition as they
involve, among other risks, varying elements of market, credit, and
liquidity risk, as discussed in the "Management of risk" section.
Off-balance sheet arrangements are generally undertaken both as a
revenue-generating business activity and for risk management,
capital management, and/or funding management purposes.
Securitizations
Off-balance sheet arrangements may involve the use of VIEs. VIEs
may be formed as corporations, partnerships, limited liability
companies or trusts. They are an important part of the financial
markets, providing market liquidity by facilitating investors'
access to specific portfolios of assets and risks.
Management's discussion and analysis
VIEs are often used for securitizing our own assets or
third-party assets. In a securitization, an entity transfers assets
to a VIE in exchange for cash. The VIE will fund these purchases by
issuing ownership interests and debt securities to third-party
investors.
VIEs are also used to create investment products by aggregating
pools of assets and issuing ABCP or longer-term multi-tiered debt
instruments which may include super senior, senior, mezzanine, and
equity tranches. Often these VIEs are referred to by reference to
the types of assets that are aggregated within the VIE, such as
RMBS which aggregate residential mortgage loans, or CLOs which
aggregate corporate loans. In addition, VIEs can also aggregate
debt securities issued by other VIEs, such as RMBS, in which case
they are referred to as CDOs. In more complex structures, VIEs
aggregate securities issued by other CDOs and then issue a further
tranche of debt securities.
VIEs are generally structured to be bankruptcy remote, thereby
insulating investors from creditors of other entities, including
the asset seller. Investors can benefit from and may have recourse
to, the VIE assets, including a cash collateral account and
over-collateralization in the form of excess assets, a liquidity
facility or a guarantee or other forms of credit enhancements.
Accordingly, the debt securities issued by the VIE may obtain a
more favourable credit rating from rating agencies than the
transferor could obtain for its own debt issuance, resulting in
lower financing costs.
We engage one or more of the four major rating agencies, Moody's
Investors Service (Moody's), DBRS, Standard & Poor's (S&P)
and Fitch Ratings (Fitch), to opine on the credit ratings of ABS
issued by our sponsored securitization vehicles. In the event that
ratings differ between rating agencies we use the more conservative
rating.
Securitization of our own assets
Securitization of our own assets provides us with an additional
source of liquidity. It may also reduce our risk exposure and
provide regulatory capital relief. Securitizations are accounted
for as asset sales only when we surrender control of the
transferred assets and receive consideration other than beneficial
interests in the transferred assets. Accounting standards require a
determination to be made as to whether the VIE that purchases these
assets should be consolidated into our financial statements. We
record the transaction as a sale of assets when the aforementioned
criteria are met and when we are not required to consolidate the
VIE. When such asset sales occur, we may retain residual components
of the securitized assets, such as interest-only strips, one or
more senior or subordinated tranches of debt, and cash reserve
accounts, all of which are considered retained interests in the
securitized assets. We continue to service all securitized assets
after transfer.
Residential mortgage loans
We securitize insured fixed- and variable-rate residential
mortgages through the creation of National Housing Act (NHA) MBS.
Under the Canada Mortgage Bond (CMB) program, sponsored by Canada
Mortgage and Housing Corporation (CMHC), we sell mortgage-backed
securities (MBS) to a securitization trust. We have also sold MBS
directly to CMHC under the Government of Canada NHA MBS Auction
process. Under the CMB program, the MBS are sold to a government
sponsored securitization trust that issues securities to investors.
During the year, we sold approximately $12.9 billion (2010: $12.1
billion) of MBS under these programs.
We maintain the client account relationships and continue to
service the securitized loans. We also enter into swap arrangements
with the government sponsored securitization trust to receive
interest cash flows from the securitized MBS assets in return for
paying interest on the bond issued. In addition to interest on the
MBS assets, the swap arrangement entitles us to any interest earned
on the principal reinvestment account resulting from principal
repayment on those MBS assets. As at October 31, 2011, we continue
to service $49.7 billion (2010: $48.5 billion) of securitized
mortgages under the NHA MBS Program.
We also securitize Canadian insured prime mortgages and
uninsured Near-Prime/Alt-A mortgages to a trust. The trust is a
qualifying special purpose entity (QSPE), which we are not required
to consolidate. During the year, we sold $0.3 billion (2010: $0.4
billion) of these mortgages into the QSPE. We have retained
interests in those mortgages through the retention of the excess
spread and provide a cash reserve account that is subordinate to
the funding obligations to investors of the ABS. We are also the
counterparty to interest rate swap agreements where we pay the QSPE
the interest due to investors and receive a rate of interest
derived from the coupon of the underlying mortgages. We also
provide a liquidity facility to the QSPE. As at October 31, 2011,
we continue to service $0.9 billion (2010: $0.9 billion) of
securitized mortgages sold to the QSPE.
Credit card receivables
Credit card receivables are securitized through our Cards II
Trust (Cards II), which was established to purchase a proportionate
share of designated portfolios, with the proceeds of securities
issued by the trust. Additionally, effective September 1, 2010, we
also securitize credit card receivables
Management's discussion and analysis
associated with explicitly identified individual accounts
through Broadway Trust (Broadway). We are one of several
underwriters that distribute securities issued by the trusts. We
continue to maintain the credit card client account relationships
and provide servicing for receivables sold to the trusts. Our
credit card securitizations are revolving securitizations, with new
credit card receivables sold to the trusts each period to replenish
receivable amounts as clients repay their balances. The trusts meet
the criteria for a QSPE and, accordingly, we do not consolidate
either of the trusts.
We retain some risk of loss with respect to the receivables held
by the trusts to the extent of our retained interest. Our interests
in the excess spread from the trusts are subordinate to the trusts'
obligation to the holders of their ABS. The excess spread
represents our participation in the residual income after all the
interests and administrative expenses have been paid. As a result,
excess spread absorbs losses with respect to credit card
receivables before payments to the note-holders are affected.
Subordinated notes, which we may retain, also absorb losses before
payments to senior note-holders are affected. As at October 31,
2011, we continue to service $5.4 billion (2010: $3.8 billion) of
securitized credit card receivables sold to the trusts.
Commercial mortgage loans
We securitize certain commercial mortgages through a
pass-through structure that results in ownership certificates held
by various investors. The trust meets the requirements of a QSPE
and, accordingly, we do not consolidate the trust. As at October
31, 2011, we held ownership certificates of $5 million (2010: $5
million). As at October 31, 2011, we continue to service $360
million (2010: $437 million) of securitized commercial mortgages
sold to the trust.
Securitization of third-party assets
CIBC sponsored conduits
We sponsor several multi-seller conduits in Canada that purchase
pools of financial assets from our clients, and finance the
purchases by issuing commercial paper to investors. These conduits
provide our clients with access to liquidity in the debt capital
markets by allowing them to sell assets to the conduits. The
sellers to the conduits may continue to service the assets and may
be exposed to credit losses realized on these assets, typically
through the provision of over-collateralization or another form of
credit enhancement. The conduits may obtain credit enhancements
from third-party providers.
We generally provide the conduits with commercial paper backstop
liquidity facilities, securities distribution, accounting, cash
management, and operations services. The liquidity facilities for
our sponsored ABCP programs in Crisp Trust, Safe Trust, Smart
Trust, and Sound Trust require us to provide funding, subject to
the satisfaction of certain limited conditions with respect to the
conduits, to fund non-defaulted assets.
We are required to maintain certain short- and/or long-term debt
ratings with respect to the liquidity facilities provided to our
own sponsored ABCP programs. If we are downgraded below the
specified level, and we fail to make alternative arrangements that
meet the requirements of the rating agencies that rate the ABCP
issued by the conduits, we could be required to provide funding
into an escrow account in respect of our liquidity commitments.
We may also act as a counterparty to derivative contracts
entered into by a conduit in order to convert the yield of the
underlying assets to match the needs of the conduit's investors or
to mitigate the interest rate risk within the conduit. All fees
earned in respect of these activities are on a market basis.
As at October 31, 2011, the underlying collateral for various
asset types in our multi-seller conduits amounted to $1.3 billion
(2010: $2.1 billion). The estimated weighted-average life of these
assets was 1.0 year (2010: 1.5 years). Our holdings of ABCP issued
by our non-consolidated sponsored multi-seller conduits that offer
ABCP to external investors were $3 million (2010: $110 million).
Our committed backstop liquidity facilities to these conduits were
$1.8 billion (2010: $2.6 billion). We provided credit facilities of
$40 million (2010: $40 million) to these conduits.
We also participated in a syndicated facility for a three-year
commitment of $475 million to a CIBC-sponsored single-seller
conduit that provides funding to franchisees of a major Canadian
retailer. Our portion of the commitment is $95 million. As at
October 31, 2011, we funded $77 million (2010: $72 million) by the
issuance of bankers' acceptances.
Revenue from the above activities amounted to approximately $9
million (2010: approximately $12 million). CIBC structured CDO
vehicles
We have curtailed our business activity in structuring CDO
vehicles within our structured credit run-off portfolio. Our
exposures to CDO vehicles mainly arose through our previous
involvement in acting as structuring and placement agent for the
CDO vehicles.
Management's discussion and analysis
Third party structured vehicles - run-off
Similar to our structured CDO activities, we also curtailed our
business activities in third-party structured vehicles, within our
structured credit run-off portfolio. These positions were initially
traded as intermediation, correlation, and flow trading which
earned us a spread on matching positions.
Previously, we excluded certain VIEs where we were considered
the primary beneficiary and consolidated the entities. During the
year, we determined that we were no longer the primary beneficiary
to certain VIEs subsequent to the sale of our residual interest in
those VIEs. The exposure to these entities is included in the table
below.
Third party structured vehicles - continuing
We have investments in third-party structured vehicles through
our treasury and trading activities.
Our exposures to non-consolidated entities involved in the
securitization of third-party assets (both
CIBC-sponsored/structured and third-party structured) are
summarized in the table below. Investments and loans are stated at
carrying value. Undrawn liquidity and credit facilities are
notional amounts net of any investment and loans to the entities.
Written credit derivatives are notional amounts of written credit
default swap (CDS) contracts and total return swap contracts
payable under which we assume exposures.
$ millions, as
at October 31 2011 2010
---------------- --------------------- -------------------- ---------------------- ------------------- -------------------- --------------------
Undrawn Undrawn
liquidity Written liquidity Written
Investment and credit credit Investment and credit credit
and loans(1) facilities derivatives(2) and loans(1) facilities derivatives(2)
---------------- --------------------- -------------------- ---------------------- ------------------- -------------------- --------------------
CIBC-sponsored
conduits.......
.. $ 80 $ 1,297 $ - $ 182 $ 2,182 $ -
CIBC-structured
CDO vehicles.. 292 42 284 448 50 389
Third-party
structured
vehicles -
structured
credit
run-off.... 4,583 391 4,830 7,696 585 5,128
Third-party
structured
vehicles -
continuing.....
...............
... 2,146 16 - 1,778 - -
---------------- --------------------- -------------------- ---------------------- ------------------- -------------------- --------------------
(1) Excludes securities issued by, retained interest in, and
derivatives with entities established by CMHC, Fannie Mae, Freddie
Mac, Ginnie Mae, Federal Home Loan Bank, Federal Farm Credit Bank,
and Sallie Mae. $3.9 billion (2010: $6.4 billion) of the exposures
related to CIBC-structured CDO and third-party structured vehicles
were hedged.
(2) The negative fair value recorded on the consolidated balance
sheet was $1.6 billion (2010: $1.1 billion). Notional of $3.6
billion (2010: $4.7 billion) were hedged with credit derivatives
protection from third parties. The fair value of these hedges net
of CVA was $0.4 billion (2010: $0.5 billion). Accumulated fair
value losses amount to nil (2010: $0.5 billion) on unhedged written
credit derivatives.
Details of our consolidated VIEs and securitization transactions
during the year are provided in Note 5 to the consolidated
financial statements.
Other financial transactions
We are the sponsor of several mutual and pooled funds, in the
form of trusts. We are the administrator of these funds. In
addition, we may act in other capacities, including custodian,
trustee, and broker. We earn fees at market rates from these
trusts. We do not guarantee either principal or returns to
investors in these funds, except in very limited circumstances. We
act as a trustee of a number of personal trusts and have a
fiduciary responsibility to act in the best interests of the
beneficiaries of the trusts. We earn a fee for acting as a trustee.
We also participate in transactions to modify the cash flows of
trusts managed by third-party asset managers to create investments
with specific risk profiles, or to assist clients in the efficient
management of other risks. Typically, these involve the use of
derivative products, which transfer the risks and returns to or
from a trust.
Derivatives
We participate in derivatives transactions, as a market maker
facilitating the needs of our clients or as a principal to manage
the risks associated with our funding, investing and trading
strategies. Since 2008, we have ceased activities in the following
areas:
-- Credit derivative contracts with clients to enable them to
create synthetic exposures to meet their needs.
-- Intermediation trades that assume credit risks of clients
through credit derivatives, and in turn offset these risks by
entering into credit derivative contracts with third-party
financial institutions.
All derivatives are recorded at fair value on our consolidated
balance sheet. See Notes 2 and 14 to the consolidated financial
statements for details on derivative contracts and the risks
associated with them.
Management's discussion and analysis
Credit-related arrangements
We enter into various commitments to meet the financing needs of
clients, which are summarized in the table below. For a detailed
description of these arrangements, see Note 24 to the consolidated
financial statements.
Contract amounts expiration per period
$ millions, as at Less than 1-3 3-5 Over 2011 2010
October 31 1 year years years 5 years Total Total
------------------ ------------------------ ------------------------ ------------------------ --------------------- ----------------------- -----------------------
Securities
lending(1)(2)
.................
. $ 57,286 $ - $ - $ - $ 57,286 $ 57,325
Unutilized credit
commitments(3)(4)
.................
.................
............ 118,187 9,986 10,982 1,193 140,348 132,261
Backstop liquidity
facilities.......
... 3,176 - - - 3,176 4,403
Standby and
performance
letters of
credit...........
.................
..... 5,180 656 463 24 6,323 5,721
Documentary and
commercial
letters of
credit...........
............ 312 - - - 312 290
Other............
.................
.............. 412 - - - 412 381
------------------ ------------------------ ------------------------ ------------------------ --------------------- ----------------------- -----------------------
$ 184,553 $ 10,642 $ 11,445 $ 1,217 $ 207,857 $ 200,381
------------------ ------------------------ ------------------------ ------------------------ --------------------- ----------------------- -----------------------
(1) Includes the full contract amount of custodial client
securities totalling $46.3 billion (2010: $45.0 billion) lent by
CIBC Mellon Global Securities Services Company (GSS), which is a
50/50 joint venture between CIBC and The Bank of New York
Mellon.
(2) Securities lending of $2.8 billion (2010: $4.3 billion) for
cash is excluded from the table above as it is reported on the
consolidated balance sheet.
(3) Starting 2011, includes personal, home equity and credit
card lines of credit. Prior year information was restated
accordingly.
(4) Includes irrevocable lines of credit totalling $32.2 billion
(2010: $34.9 billion), of which $11.7 billion (2010: $14.3 billion)
will expire in one year or less.
Guarantees
Guarantees include contracts that contingently require the
guarantor to make payments to a guaranteed party based on (a)
changes in an underlying economic characteristic that is related to
an asset, liability or an equity security of the guaranteed party;
(b) failure of another party to perform under an obligating
agreement; or (c) failure of a third party to pay its indebtedness
when due. For a detailed description of our guarantees, maximum
potential future payments, and the liability recorded on the
consolidated balance sheet, see Note 24 to the consolidated
financial statements.
Management's discussion and analysis
Management of risk
We have provided, in the MD&A, certain disclosures required
under the Canadian Institute of Chartered Accountants (CICA)
handbook section 3862, "Financial Instruments - Disclosures"
related to the nature and extent of risks arising from financial
instruments, as permitted by that handbook section. These
disclosures are included in the sections "Risk overview", "Credit
risk", "Market risk", "Liquidity risk", "Operational risk",
"Reputation and legal risk", and "Regulatory risk". These
disclosures have been shaded and form an integral part of the
consolidated financial statements.
Risk overview
Most of our business activities * Regular risk reports to identify and communicate risk
involve, to a varying degree, levels;
a variety of risks, including
credit, market, liquidity,
and operational risks. * An independent control framework to identify and test
compliance with key controls;
Our objective is to balance
the level of risk with our
business objectives for growth * Stress testing to consider potential impacts of
and profitability, in order changes in the business environment on capital,
to achieve consistent and sustainable liquidity, and earnings; and
performance over the long term,
while remaining within our
risk appetite. * Oversight through our risk-focused committees and
governance structures.
Our risk appetite defines tolerance
levels for various risks. This
is the foundation for our risk
management culture, and is We continuously monitor our
supported by limits, policies, risk profile against our defined
procedures, and other controls. risk appetite and related
limits, taking actions as
Managing risk is a shared responsibility needed to maintain an appropriate
at CIBC. Business units and balance of risk and return.
risk management professionals Monitoring our risk profile
work in collaboration to ensure includes forward-looking analysis
that business strategies and of sensitivity to local and
activities are consistent with global market factors, economic
our risk appetite. conditions, and political
and regulatory environments
Our risk management framework that influence our overall
includes: risk profile.
-- Risk policies, procedures,
and limits to align activities Regular and transparent risk
with reporting and discussion at
risk appetite; senior management committees
facilitate communication of
risks and risk strategies
across the organization, with
oversight provided by the
Board of Directors.
Risk governance
Our risk governance and management structure is illustrated
below:
Management's discussion and analysis
Board of Directors (the Board): impacts and provides oversight
The Board oversees the enterprise-wide of our policies and procedures
risk management program through relative to the management
approval of our risk appetite of reputation and legal risks.
and supporting risk management
policies and limits. The Board Risk management
accomplishes its mandate through The Risk Management group is
its Risk Management and Audit responsible for setting risk
committees, described below. strategy and for providing
independent oversight of risk
Risk Management Committee (RMC): measurement, monitoring, and
This committee assists the control. Our Risk Management
Board group works in partnership
in fulfilling its responsibilities with our businesses to identify,
for approving CIBC's risk appetite assess, mitigate, and monitor
and overseeing CIBC's risk the risks associated with business
profile and performance against activities and strategies.
the defined risk appetite.
This includes oversight of The Risk Management group performs
policies, procedures, and limits several important activities
related to the identification, including the following:
measurement, monitoring, and * Developing CIBC's risk appetite;
control of CIBC's principal
business risks.
* Setting risk strategy to manage risks in alignment
Audit Committee: The Audit with our risk appetite and business strategy;
Committee reviews the overall
adequacy
and the effectiveness of internal * Establishing and communicating policies, procedures
controls and the control environment, and limits to control risks in alignment with risk
including controls over the strategy;
risk management process.
Senior Executive Team (SET): * Measuring, monitoring, and reporting on risk levels;
The SET, led by the CEO, and
including the executives reporting
directly to the CEO, is responsible * Identifying and assessing emerging and potential
for setting business strategy strategic risks; and
and for monitoring, evaluating,
and managing risks across CIBC.
The SET is supported by the * Deciding on transactions that fall outside of risk
following committees: limits delegated to underlying business lines. The
* Asset Liability Committee (ALCO): This committee, five key groups within Risk Management, independent
which comprises the SET, senior business and Risk of the originating businesses, that contribute to our
Management executives, reviews CIBC's key risks and management of risk are:
implications for balance sheet and liquidity
management.
* Capital Markets Risk Management - This unit provides
independent oversight of the measurement, monitoring,
* Capital and Risk Committee (CRC): This committee, and control of market risks (both trading and
which comprises the SET, senior leaders from the non-trading), trading credit risk and trading
lines of business and Risk Management and other operational risk across CIBC's portfolios.
infrastructure groups, provides a forum for the
strategic assessment of risks andrisk-mitigation
strategies. Key activities include reviewing, * Card Products Risk Management - This unit oversees
evaluating and recommending CIBC's risk appetite the management of credit risk in the card products
statement and risk strategies; reviewing and portfolio, including the optimization of lending
evaluating business strategies in the context of our profitability.
risk appetite; and identifying, reviewing, and
advising on current and emerging risk issues and
associated mitigation plans. * Retail Lending and Wealth Risk Management - This unit
primarily oversees the management of credit and fraud
risk in the retail lines of credit and loans,
* Governance and Control Committee (GCC): This residential mortgage, and small business loan
committee, which comprises senior leaders from Risk portfolios, including the optimization of lending
Management, lines of business and other profitability. This unit is also responsible for
infrastructure groups, acts as the senior point of overall risk management oversight of wealth
management reviewwith respect to the design and management activities.
effectiveness of CIBC's governance and internal
control structure, within the parameters and
strategic objectives established by the CEO and * Wholesale Credit and Investment Risk Management -
direction provided by the Board. This unit is responsible for the adjudication and
oversight of credit risks associated with our
commercial and wholesale lending activities globally,
* Reputation and Legal Risks (RLR) Committee: This management of the risks of our investment portfolios,
committee, which comprises senior leaders from Risk as well as management of the special loans
Management and other infrastructure groups, reviews portfolios.
transactions for potential material reputation and/or
legal
Management's discussion and analysis
For trading credit risks associated
* Risk Services - This unit is responsible for with market value-based products,
enterprise-wide risk analysis and reporting. This we use models to estimate
unit also manages our economic and regulatory capital exposure relative to the value
frameworks, along with operational risk management. of the portfolio of trades
with each counterparty, giving
consideration to market rates
and prices.
Liquidity and funding risks
are managed by Treasury. The Unexpected loss and economic
measurement, monitoring and capital
control of liquidity and funding Unexpected loss is the statistical
risk is addressed in collaboration estimate of the amount by
with Risk Management, with which actual losses might
oversight provided by the ALCO. exceed expected losses over
a specified time horizon,
Risk identification and measurement computed at a given confidence
Risk identification and measurement level. We use economic capital
are important elements of our to estimate the level of capital
risk management framework. needed to protect us against
Risk identification is a continuous unexpected losses. Economic
process, generally achieved capital allows us to assess
through: performance on a risk-adjusted
* Ongoing monitoring of trading and non-trading basis. Refer to the "Financial
portfolios; condition" section for additional
details.
* Regular assessment of risks associated with lending We also use techniques such
and trading credit exposures; as sensitivity analysis and
stress testing to help ensure
that the risks remain within
* Assessment of risks in new business activities and our risk appetite and that
processes; our capital is adequate to
cover those risks. Our stress
testing program includes evaluation
* Assessment of risks in restructurings and of the potential effects of
re-organizations; and various economic and market
scenarios on our risk profile.
* Regular monitoring of the overall risk profile Risk controls
considering market developments and trends and Our risk management framework
external and internal events. includes a comprehensive set
of risk controls, designed
to ensure that risks are being
appropriately identified and
We have enterprise-wide methodologies, managed.
models and techniques in place
to measure both the quantitative Our risk controls are part
and qualitative aspects of of CIBC's overall Control
risks, appropriate for the Framework, developed based
various types of risks we face. on the Committee of Sponsoring
These methodologies, models, Organizations of the Treadway
and techniques are subject Commission's (COSO) widely
to independent assessment and accepted "Internal Control
review - Integrated Framework". The
to ensure that the underlying Control Framework also draws
logic remains sound, that model on elements
risks have been identified of the OSFI Supervisory Framework
and managed, and that use of and Corporate Governance Guidelines.
the models continues to be
appropriate and outputs are The Board, primarily through
valid. Risk is usually measured the RMC, approves certain
in terms of expected loss, risk limits and delegates
unexpected loss and economic specific transactional approval
capital. authorities to the CEO. The
RMC must approve transactions
Expected loss that exceed delegated authorities.
Expected loss represents the Onward delegation of authority
loss that is statistically by the CEO to business units
expected to occur in the normal is controlled to ensure decision-making
course of business in a given authorities are restricted
period of time. to those individuals with
the necessary experience levels.
In respect of credit risk,
the parameters used to measure In addition, we have rigorous
expected loss are PD, LGD, processes to identify, evaluate
and EAD. These parameters are and remediate risk control
updated regularly and are based deficiencies in a timely manner.
on our historical experience
and benchmarking of credit Regular reporting is provided
exposures. to the RMC to evidence compliance
with risk limits. Risk limits
For trading market risks, value-at-risk are reviewed annually by the
(VaR) is the statistical technique RMC, and the delegation of
used to measure risk. VaR is authority to the CEO is reviewed
the estimate of the maximum and approved annually by the
loss in market value that we Board.
would expect to incur in our
trading portfolio due to an
adverse one-day movement in
market rates and prices, within
a given
level of confidence.
Management's discussion and analysis
Credit risk Credit risk mitigation
Credit risk primarily arises We may mitigate credit risk
from our direct lending activities, by obtaining a pledge of collateral,
and from which has the effect of mitigating
our trading, investment, the risk of credit loss by
and hedging activities. Credit improving recoveries in the
risk is defined as the risk event of a default. Our credit
of financial loss due to a risk management policies include
borrower or counterparty failing requirements relating to collateral
to including verification of the
meet its obligations in accordance collateral and its value and
with contractual terms. ensuring that we have legal
certainty with respect to the
To control credit risk in assets pledged. Valuations
alignment with our risk appetite are updated periodically depending
and to manage concentrations, on the nature of the collateral,
we have implemented policies, legal environment, and the
standards, and limits. creditworthiness of the counterparty.
Key policies and limits are The main types of collateral
subject to annual review and include: (i) cash or marketable
approval by securities for securities lending
the RMC. and repurchase transactions;
(ii) cash or marketable securities
Senior management reports taken as collateral in support
to the RMC at least quarterly of our OTC derivatives activity;
on material credit risk matters, (iii) charges over operating
including material credit assets such as inventory, receivables,
transactions, compliance and real estate properties
with limits, portfolio trends, for lending to small business
impaired loans, and credit and commercial borrowers; and
loss provisioning levels. (iv) mortgages over residential
Impaired loan balances, allowances, properties for retail lending.
and credit losses are
reviewed by In certain circumstances we
the RMC and the Audit Committee may mitigate our risk by obtaining
quarterly. third party guarantees. We
also obtain insurance to reduce
The Risk Management group the risk in our real estate
provides enterprise-wide adjudication secured lending portfolios,
and oversight of the management the most material of which
of credit risk in our credit relates to the portion of our
portfolios. Adjudication and residential mortgage portfolio
portfolio management decisions that is insured by CMHC, an
are based on our risk appetite, agency of the government of
as reflected in our policies, Canada.
standards, and limits. Credit
approval authorities are We limit the credit risk of
controlled to ensure decisions over-the-counter (OTC) derivatives
are made by qualified personnel. through the use of multi-product
derivative master netting agreements.
Process and control Further, we may settle certain
The credit approval process OTC derivative contracts through
is centrally controlled, with exchanges, where we have limited
all significant credit requests credit risk due to daily margining.
submitted to a credit adjudication
group within Risk Management We use credit derivatives to
that is independent of the reduce industry sector concentrations
originating businesses. Approval and single-name exposures,
authorities are a function or as part of portfolio diversification
of the risk and amount of techniques, though our use
credit requested. In certain of credit derivatives has declined
cases, credit requests must significantly this year.
be referred to the Credit
Committee, Exposure to credit risk
a sub-committee of the CRC, The following table presents
or to the RMC for approval. the exposure to credit risk,
which is measured as EAD for
After initial approval, individual on- and off-balance sheet financial
credit exposures continue instruments. EAD represents
to be monitored, with a formal the estimate of the amount
risk assessment, including which will be drawn at the
review of assigned ratings, time of default.
documented at least annually.
Higher risk-rated accounts Total credit exposure, net
are subject to closer monitoring of collateral on repurchase
and are reviewed at least agreement activities, increased
quarterly. Collections and by $15.7 billion in 2011, due
specialized loan workout groups to growth in both our retail
handle the day-to-day management and corporate portfolios.
of high risk loans and valuation
of any collateral pledged As a result of our holdings
to maximize recoveries. of subordinated enhancement
notes issued by Cards II Trust,
Credit concentration limits commencing in the fourth quarter
Credit concentration limits of 2009, we are required to
are established for business hold regulatory capital for
and government loans to control the underlying securitized
against adverse concentrations credit card receivables as
within portfolios. These include if they had remained on our
limits for individual borrowers, balance sheet. We apply the
groups of related borrowers, same capital treatment to the
industry sectors, country securitized credit card receivables
and geographic regions, and relating to
products or portfolios. Direct Broadway Trust; these assets
loan sales, credit derivative resulted from our acquisition
hedges, or other of the MasterCard portfolio
transactions may also be on September 1, 2010.
used to reduce concentrations.
Management's discussion and analysis
$ millions, as
at October 31 2011 2010
--------- ------------ --------- ---------------- ------------ ---------
AIRB Standardized AIRB Standardized
approach approach Total approach approach Total
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Business and government
portfolios
Corporate
Drawn $ 39,509 $ 3,559 $ 43,068 $ 31,522 $ 4,495 $ 36,017
Undrawn commitments 24,303 139 24,442 21,853 167 22,020
Repo-style transactions 28,055 139 28,194 28,614 - 28,614
Other off-balance
sheet 5,204 191 5,395 4,765 188 4,953
OTC derivatives 3,909 - 3,909 5,316 29 5,345
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
100,980 4,028 105,008 92,070 4,879 96,949
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Sovereign
Drawn 39,716 3,792 43,508 45,055 2,518 47,573
Undrawn commitments 4,791 - 4,791 4,513 - 4,513
Repo-style transactions 1,893 - 1,893 1,056 - 1,056
Other off-balance
sheet 410 - 410 184 - 184
OTC derivatives 2,572 - 2,572 1,778 - 1,778
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
49,382 3,792 53,174 52,586 2,518 55,104
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Banks
Drawn 12,960 1,854 14,814 15,613 1,723 17,336
Undrawn commitments 613 - 613 890 - 890
Repo-style transactions 25,342 362 25,704 51,395 219 51,614
Other off-balance
sheet 43,825 - 43,825 42,082 - 42,082
OTC derivatives 7,948 5 7,953 7,486 5 7,491
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
90,688 2,221 92,909 117,466 1,947 119,413
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Total business
and
government portfolios
(gross) 241,050 10,041 251,091 262,122 9,344 271,466
Less: repo collateral (50,106) - (50,106) (76,273) - (76,273)
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Total business
and
government portfolios
(net) 190,944 10,041 200,985 185,849 9,344 195,193
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Retail portfolios
Real estate secured
personal lending
Drawn 115,024 2,218 117,242 108,818 2,216 111,034
Undrawn commitments 27,993 - 27,993 25,983 - 25,983
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
143,017 2,218 145,235 134,801 2,216 137,017
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Qualifying revolving
retail
Drawn 21,338 - 21,338 20,743 - 20,743
Undrawn commitments 40,586 - 40,586 40,095 - 40,095
Other off-balance
sheet 396 - 396 381 - 381
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
62,320 - 62,320 61,219 - 61,219
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Other retail
Drawn 7,963 2,541 10,504 8,001 2,991 10,992
Undrawn commitments 1,302 20 1,322 2,110 20 2,130
Other off-balance
sheet 32 16 48 18 - 18
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
9,297 2,577 11,874 10,129 3,011 13,140
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Total retail portfolios 214,634 4,795 219,429 206,149 5,227 211,376
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Securitization
exposures 19,488(1) - 19,488 17,592(1) - 17,592
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Gross credit exposure $ 475,172 $ 14,836 $ 490,008 $ 485,863 $ 14,571 $ 500,434
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
Net credit exposure $ 425,066 $ 14,836 $ 439,902 $ 409,590 $ 14,571 $ 424,161
--------------------------- --------- ------------ --------- ---------------- ------------ ---------
(1) Under the internal ratings based (IRB) approach.
The portfolios are categorized based upon how we manage the
business and the associated risks. Amounts provided are after CVA
related to financial guarantors and before allowance for credit
losses and risk mitigation. Non-trading equity exposures are not
included in the table above as they have been deemed immaterial
under the OSFI guidelines, and hence, are subject to 100%
risk-weighting.
Management's discussion and analysis
Exposures subject to AIRB Our credit framework and policies
approach define our appetite for exposure
Business and government portfolios to any single name or group
(excluding scored small business) of related borrowers, which
- risk-rating method is a function of the internal
This section describes the risk rating. We generally extend
portfolio rating categories. new credit only to borrowers
The portfolio comprises exposures where the risk is considered
to corporate, sovereign, and satisfactory, specifically
bank obligors. Our adjudication the investment grade and non-investment
process and criteria includes grade categories noted above,
assigning an obligor rating and our credit
that reflects our estimate policies are designed to mitigate
of the financial strength against any adverse concentration
of the borrower and a of exposure to borrowers in
facility rating that reflects any particular industry or
the security applicable to region. We also have credit
the exposure. policies in place to ensure
that appropriate documentation
The obligor rating takes into is in place for each credit
consideration our financial exposure, such as financial
assessment of statements, signing
the obligor, the industry, authorities, registration of
and the economic environment security, and independent appraisal
of the region in which the of collateral.
obligor operates. Where a
guarantee from a third party The effectiveness of the risk
exists, both the obligor and rating systems and the parameters
the guarantor will be assessed. associated with the risk ratings
While our obligor rating is are monitored within Risk Management
arrived at independently of and are subject to an annual
external ratings for the obligor, review. The models used in
our risk-rating methodology the estimation of the risk
includes a review of those parameters are also subject
external ratings. to independent validation by
the Risk Management validation
A mapping between our internal group, which is independent
ratings and the ratings used of both the origination business
by external ratings agencies and the model development process.
is shown in the table below.
Parameter estimates for each
of these dimensions are long-term
averages with adjustments for
the effects of any potential
change in the credit cycle.
A simplified risk-rating process
(slotting approach) is used
for uninsured Canadian commercial
mortgages, which comprise non-residential
mortgages and multi-family
residential mortgages. These
exposures are individually
rated on our rating scale using
a risk-rating methodology that
considers the property's key
attributes, which include its
loan-to-value and debt service
ratios, the quality of the
property, and the financial
strength of the owner/sponsor.
All exposures are secured by
a lien over the property. Additionally,
we have insured multi-family
residential mortgages, which
are not treated under the slotting
approach, but are instead treated
as sovereign exposures in the
following table.
Credit quality of the risk-rated
portfolios
The following table provides
the credit quality of the risk-
rated portfolios. Amounts provided
are before allowance for credit
losses, and after credit risk
mitigation, CVA related to
financial guarantors, and collateral
on repurchase agreement activities.
CIBC S&P Moody's
Grade rating equivalent equivalent
Investment 00-47 AAA to Aaa to
grade BBB- Baa3
Non-investment 51-67 BB+ to Ba1 to
grade B- B3
Watchlist 70-80 CCC+ Caa1
to CC to Ca
-------------------- ---------- --------------- ---------------
Default 90 D C
-------------------- ---------- --------------- ---------------
We use quantitative modelling
techniques to assist in the
development of internal risk-rating
systems. The risk-rating systems
have been developed through
analysis of internal and external
credit risk data. The risk
ratings are used for portfolio
management, risk limit setting,
product pricing, and in the
determination of economic
capital.
Our credit process is designed
to ensure that we approve
applications and extend credit
only where we believe that
our customer has the ability
to repay, according to the
agreed terms and conditions.
Embedded in our credit policies
and criteria is an assessment
of risk exposure using the
following three dimensions:
* PD - the probability that the obligor will default
within the next 12 months.
* EAD - the estimate of the amount which will be drawn
at the time of default.
* LGD - the expected severity of loss as the result of
the default, expressed as a percentage of the EAD.
Management's discussion and analysis
$ millions, as at October
31
------------------------------------- -------------------- --------- -------- -------------------------------
EAD
--------- --------
Grade Corporate Sovereign Banks Total
----- ------------------------------ -------------------- --------- -------- -------------------------------
2011 Investment grade $ 39,831 $ 47,131 $ 65,760 $ 152,722
Non-investment grade 26,482 510 2,244 29,236
Watchlist 546 - 3 549
Default 866 - - 866
------------------------------------ -------------------- --------- -------- -------------------------------
$ 67,725 $ 47,641 $ 68,007 $ 183,373
------------------------------------ -------------------- --------- -------- -------------------------------
Strong $ 7,222
Good 239
Satisfactory 41
Weak 65
Default 4
------------------------------------ -------------------- --------- -------- -------------------------------
Total slotted exposure $ 7,571
------------------------------------ -------------------- --------- -------- -------------------------------
Total business and government
portfolios $ 190,944
------------------------------------ -------------------- --------- -------- -------------------------------
2010 Investment grade $ 33,217 $ 51,036 $ 67,501 $ 151,754
Non-investment grade 22,761 517 2,347 25,625
Watchlist 603 1 3 607
Default 1,061 1 - 1,062
------------------------------------ -------------------- --------- -------- -------------------------------
$ 57,642 $ 51,555 $ 69,851 $ 179,048
------------------------------------ -------------------- --------- -------- -------------------------------
Strong $ 6,612
Good 111
Satisfactory 57
Weak 13
Default 8
------------------------------------ -------------------- --------- -------- -------------------------------
Total slotted exposure $ 6,801
------------------------------------ -------------------- --------- -------- -------------------------------
Total business and government
portfolios $ 185,849
------------------------------------ -------------------- --------- -------- -------------------------------
The decrease in watch list exposures was largely attributable to
improvement in our domestic portfolio. Default exposures were down
from October 31, 2010, with the improvement across most areas of
CIBC.
Retail portfolios identification, proof of income,
Retail portfolios are characterized independent appraisal of the
by a large number of relatively collateral, and registration
small exposures. They comprise: of security, as appropriate.
real estate secured personal
lending In Canada, banks are limited
(residential mortgages and to making residential real
personal loans and lines secured estate loans of no more than
by residential property); qualifying 80% of the collateral value
revolving retail exposures (credit by the Bank Act. All loans
cards and unsecured lines of with a higher loan-to-value
credit); and other retail exposures ratio must be insured by either
(loans secured by non-residential the Government of Canada,
assets, unsecured loans including or by a private insurer. As
student loans, and of October 31, 2011, 66% (2010:
scored small business loans). 67%) of the on-balance sheet
We use scoring models in the domestic residential mortgage
adjudication portfolio was insured. No
of new retail credit exposures, material losses are expected
which are based on statistical in the insured portfolio.
methods of analyzing the unique
characteristics of the borrower, On a managed basis, 77%(1)
to estimate future behaviour. (2010: 78%(1) ) of our domestic
In developing our models, we residential mortgage portfolio
use internal historical information was insured.
from previous borrowers, as
well as information from Our real estate secured personal
external sources, such as credit lending portfolio is a low
bureaus. The use of credit scoring risk portfolio, where we have
mode a first charge on the majority
ls allows for consistent assessment of the properties, and second
across borrowers. There are lien on only a small portion
specific guidelines in place of the portfolio. We use the
for each product, and our adjudication same scoring model and lending
decision will take into account criteria in the adjudication
the characteristics of the borrower, of both first lien and second
any guarantors, lien loans; however, our credit
and the quality and sufficiency policies are designed to ensure
of the collateral pledged (if that the value of both the
any). The documentation required first and second liens do
as part of the lending process not exceed 80% of the collateral
will include satisfactory value at origination.
(1) For additional information,
see the "Non-GAAP measures"
section.
Management's discussion and analysis
Retail portfolios are managed Credit quality of the retail
as pools of homogenous risk portfolios
exposures, using external The following table presents
credit bureau scores and/or the credit quality of the retail
other behavioural assessment portfolios. Amounts provided
to group exposures according are before allowance for credit
to similar credit risk profiles. losses and after credit risk
These pools are assessed through mitigation. Retail portfolios
statistical techniques, such include $2.8 billion (2010:
as credit scoring and computer- $3.5 billion) of small business
based models. Characteristics scored exposures, $62.8 billion
used to group individual exposures (2010: $59.5 billion) of insured
vary by asset category; as residential mortgages, and
a result, the number of pools, $86 million (2010: $117 million)
their size, and the statistical of government-guaranteed student
techniques applied to their loans and small business loans.
management differ accordingly.
------------------------------------
The following table maps the
PD bands to various risk levels:
------------------------------------
Risk level PD bands
--------------------- ---------------
Exceptionally low 0.01%-0.20%
Very low 0.21%-0.50%
Low 0.51%-2.00%
Medium 2.01%-10.00%
High 10.01%-99.99%
Default 100.00%
--------------------- --------------- ------------------------------------
$ millions, as at
October 31
--------------------- ----------------------------------------------------------------- ------------------------- ------------------------ -----------------
EAD
Real estate secured Qualifying Other
revolving
Risk level personal lending retail retail Total
----- -------------- ----------------------------------------------------------------- ------------------------- ------------------------ -----------------
Exceptionally
2011 low $ 119,120 $ 33,562 $ 1,423 $ 154,105
Very low 12,906 6,796 743 20,445
Low 9,760 13,646 4,252 27,658
Medium 922 6,397 2,296 9,615
High 181 1,746 465 2,392
Default 128 173 118 419
-------------------- ----------------------------------------------------------------- ------------------------- ------------------------ -----------------
$ 143,017 $ 62,320 $ 9,297 $ 214,634
-------------------- ----------------------------------------------------------------- ------------------------- ------------------------ -----------------
Exceptionally
2010 low $ 115,235 $ 32,252 $ 825 $ 148,312
Very low 10,991 9,230 2,244 22,465
Low 7,705 12,556 4,885 25,146
Medium 593 5,484 2,045 8,122
High 112 1,523 61 1,696
Default 165 174 69 408
-------------------- ----------------------------------------------------------------- ------------------------- ------------------------ -----------------
$ 134,801 $ 61,219 $ 10,129 $ 206,149
-------------------- ----------------------------------------------------------------- ------------------------- ------------------------ -----------------
Exposures subject to the standardized approach
Exposures within CIBC FirstCaribbean, obligations of certain
exposures of individuals for non-business purposes, and certain
exposures in the CIBC Mellon joint ventures have been deemed
immaterial, and are subject to the standardized approach. In
addition, credit card receivables, which resulted from our
acquisition of the MasterCard portfolio on September 1, 2010, are
subject to the standardized approach. A detailed breakdown of our
standardized exposures before allowance for credit losses by
risk-weight category is provided below.
$ millions,
as at October
31 2011 2010
--------------- --- ----- ------- -------- --- ------- ------- -------- --------
Risk-weight
category
--- ----- ------- ------------- ------- -------
0% 20% 50% 75% 100% Total Total
------------------- ----- ------- -------- --- ------- ------- -------- --------
Corporate $ - $ - $ 14 $ - $ 4,014 $ 4,028 $ 4,879
Sovereign 2,910 114 229 - 539 3,792 2,518
Bank - 2,053 156 - 12 2,221 1,947
Real estate
secured
personal
lending - - - 2,218 - 2,218 2,216
Other retail - - - 2,404 173 2,577 3,011
-------------------- ----- ------- -------- --- ------- ------- -------- --------
$ 2,910 $ 2,167 $ 399 $ 4,622 $ 4,738 $ 14,836 $ 14,571
------------------- ----- ------- -------- --- ------- ------- -------- --------
Management's discussion and analysis
Securitization exposures
The following table provides details on our securitization
exposures by credit ratings under the IRB approach. Accumulated
gain of $60 million (2010: $58 million) is not included in the
table below as it is deducted from Tier 1 capital.
$ millions, as
at October 31 2011 2010
---------------------- ----------------------- --------
EAD(1)
---------------------------------
S&P rating equivalent
AAA to BBB- $ 13,517 $ 16,255
BB+ to BB- - 9
Below BB- 19 484
Unrated 5,539 308
---------------------- ----------------------- --------
$ 19,075 $ 17,056
---------------------- ----------------------- --------
(1) EAD under IRB approach is net of financial collateral of
$353 million (2010: $478 million).
Counterparty credit exposures
We have counterparty credit exposure that arises from our
interest rate, foreign exchange, equity, commodity, and credit
derivatives trading, hedging, and portfolio management activities,
as explained in Note 14 to the consolidated financial statements.
The PD of our counterparties is measured in the same manner as our
direct lending activity.
We are exposed to wrong-way risk when the exposure to a
particular counterparty is adversely correlated with the credit
quality of that counterparty. When we are exposed to wrong-way risk
with a derivative counterparty, our procedures subject those
transactions to a more rigorous approval process. The
exposure may be hedged with other derivatives to further
mitigate the risk that can arise from these transactions.
We establish a CVA for expected future credit losses from each
of our derivative counterparties. The expected future credit loss
is a function of our estimates of the PD, the expected
loss/exposure in the event of default, and other factors such as
risk mitigants.
Rating profile of derivative MTM receivables
$ billions,
as at October
31 2011 2010
--------------- -------- ---------- ---- ------
Exposure(1)
-------- ----------- ---- ------
S&P rating
equivalent
AAA to
BBB- $ 5.71 79.3% $6.45 86.7%
BB+ to
B- 1.46 20.3 0.82 11.0
CCC+ to
CCC- 0.01 0.1 0.01 0.1
Below CCC- 0.01 0.2 0.02 0.3
Unrated 0.01 0.1 0.14 1.9
--------------- -------- ---------- ---- ------
$ 7.20 100.0% $7.44 100.0%
--------------- -------- ---------- ---- ------
(1) MTM value of the derivative contracts is after CVA and
derivative master netting agreements, and before any
collateral.
Concentration of exposures
Concentration of credit risk exists when a number of obligors
are engaged in similar activities, or operate in the same
geographical areas or industry sectors, and have similar economic
characteristics so that their ability to meet contractual
obligations is similarly affected by changes in economic,
political, or other condition.
Geographic distribution
The following table provides a geographic distribution of our
business and government exposures under the AIRB approach. The
classification of geography is based upon the country of ultimate
risk. Amounts are before allowance for credit losses and risk
mitigation, and after CVA related to financial guarantors and $50.1
billion (2010: $76.3
billion) of collateral held for our repurchase agreement
activities.
$ millions, as at October
31 2011 2010
-------------------------- --------- -------- -------- ------- -------- --------
Canada U.S. Europe Other Total Total
-------------------------- --------- -------- -------- ------- -------- --------
Drawn $ 70,941 $ 12,650 $ 5,086 $ 3,508 $ 92,185 $ 92,190
Undrawn commitments 25,421 3,397 381 508 29,707 27,256
Repo-style transactions 3,126 1,547 429 82 5,184 4,792
Other off-balance sheet 39,001 5,204 5,050 184 49,439 47,031
OTC derivatives 6,365 2,774 4,664 626 14,429 14,580
-------------------------- --------- -------- -------- ------- -------- --------
$ 144,854 $ 25,572 $ 15,610 $ 4,908 $190,944 $185,849
-------------------------- --------- -------- -------- ------- -------- --------
For retail portfolios, substantially all of the exposures under
the AIRB approach are based in Canada.
Management's discussion and analysis
Business and government exposures by industry groups
The following table provides an industry-wide breakdown of our
business and government exposures under the AIRB approach. Amounts
are before allowance for credit losses and after CVA related to
financial guarantors and $50.1 billion (2010: $76.3 billion) of
collateral held for our repurchase agreement activities.
$ millions, as at
October 31 2011 2010
------------------- -------------- ----------------- --- --------- --- ------- ---------- --------- -----------
Other off-
Undrawn Repo-style balance OTC
Drawn commitments transactions sheet derivatives Total Total
Commercial
mortgages $ 7,420 $ 151 $ - $ - $ - $ 7,571 $ 6,801
Financial
institutions 17,826 2,888 5,035 45,669 10,563(1) 81,981 87,042(1)
Retail and
wholesale 2,424 2,228 - 280 39 4,971 4,392(2)
Business services 3,723 1,525 - 166 38 5,452 5,240
Manufacturing -
capital goods 1,542 1,082 - 96 47 2,767 2,485(2)
Manufacturing -
consumer goods 1,620 940 - 24 19 2,603 2,188
Real estate and
construction 8,573 3,130 - 753 117 12,573 9,096
Agriculture 3,228 1,105 - 33 27 4,393 4,021
Oil and gas 3,357 5,480 - 504 530 9,871 8,304
Mining 468 1,893 - 311 19 2,691 2,566
Forest products 473 474 - 117 51 1,115 850
Hardware and
software 381 381 - 47 5 814 881
Telecommunications
and cable 365 827 - 199 69 1,460 1,757
Broadcasting,
publishing and
printing 444 314 - 157 11 926 996
Transportation 1,185 1,008 - 270 30 2,493 2,303
Utilities 963 2,225 - 614 424 4,226 3,512
Education, health,
and social
services 1,254 937 10 55 92 2,348 2,248
Governments 36,939 3,119 139 144 2,348 42,689 41,167
------------------- -------------- ----------------- --- --------- --- ------- ---------- --------- -----------
$ 92,185 $ 29,707 $ 5,184 $ 49,439 $ 14,429 $ 190,944 $ 185,849
------------------- -------------- ----------------- --- --------- ------------ ----------- --------- -----------
(1) Includes $487 million (2010: $1.2 billion) of EAD with
financial guarantors hedging our derivative contracts. The fair
value of these derivative contracts net of CVA was $477 million
(2010: $732 million).
(2) Prior year information has been reclassified to conform to
the presentation adopted in the current year.
As at October 31, 2011, the notional amount of credit protection
purchased against our business and government loans was $85 million
(2010: $1.2 billion). The decrease during the year was due to
unwinding a number of hedge positions. All counterparties from whom
we have purchased credit protection for the loan portfolio are
financial institutions with investment grade ratings from major
rating agencies.
Total loans and acceptances
As at October 31, 2011, total loans and acceptances after
allowance for credit losses were $194.4 billion (2010: $184.6
billion). Consumer loans (comprising residential mortgages, credit
cards and personal loans, including lines of credit and student
loans) constitute 74% (2010: 75%) of the portfolio, and business
and government loans (including acceptances) constitute the
remaining. Lines of credit are exclusively priced at variable
rates. All other consumer loans may be priced at either variable or
fixed rates. Business and government loans are generally priced at
variable rates, except for non-residential mortgages, which are
priced at fixed rates.
Consumer loans increased $4.9 billion or 4% from the prior year,
resulting mainly from volume growth in residential mortgages.
Residential mortgages increased by $6.0 billion or 6% and
constitute 69% (2010: 67%) of the total consumer loan portfolio and
exhibit very low levels of credit risk.
Business and government loans (including acceptances) were up by
$4.9 billion or 11% from the prior year.
Management's discussion and analysis The following table
provides details of our impaired loans, specific allowances and
provision for credit losses
$ millions, as Business Business
at or for the and and
year ended government Consumer 2011 government Consumer 2010
October 31 loans loans Total loans loans Total
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
Gross impaired
loans
Balance at
beginning
of
year.......
...........
...... $ 1,080 $ 756 $ 1,836 $ 1,184 $ 727 $ 1,911
New
additions..
...........
...........
...........
...........
.. 431 1,328 1,759 626 1,636 2,262
Returned to
performing
status,
repaid or
sold. (251 ) (467 ) (718 ) (404 ) (515 ) (919)
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
Gross impaired
loans prior to
write-offs 1,260 1,617 2,877 1,406 1,848 3,254
Write-offs.
...........
...........
...........
...........
........... (158 ) (874 ) (1,032 ) (326 ) (1,092 ) (1,418)
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
Balance at end
of
year...........
...............
.............. $ 1,102 $ 743 $ 1,845 $ 1,080 $ 756 $ 1,836
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
Specific
allowance
Balance at
beginning
of
year.......
...........
...... $ 377 $ 254 $ 631 $ 442 $ 293 $ 735
Write-offs.
...........
...........
...........
...........
........... (158 ) (874 ) (1,032 ) (326 ) (1,092 ) (1,418)
Provisions.
...........
...........
...........
...........
......... 163 762 925 258 943 1,201
Recoveries.
...........
...........
...........
...........
........ 12 100 112 12 111 123
Other......
...........
...........
...........
...........
........... (10 ) 3 (7 ) (9 ) (1 ) (10)
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
Balance at end
of
year...........
...............
.............. $ 384 $ 245 $ 629 $ 377 $ 254 $ 631
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
Net impaired
loans
Balance at
beginning
of
year.......
...........
...... $ 703 $ 502 $ 1,205 $ 742 $ 434 $ 1,176
Net change
in gross
impaired...
...........
.......... 22 (13 ) 9 (104 ) 29 (75)
Net change
in
allowance..
...........
...........
....... (7 ) 9 2 65 39 104
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
Balance at end
of
year...........
...............
.............. $ 718 $ 498 $ 1,216 $ 703 $ 502 $ 1,205
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
Gross impaired
loans less
specific
allowance as a
percentage of
related
assets(1)
...............
......... 0.55 % 0.54%
---------------- -------------------------- ----------------------- ------------------- ------------------------- ---------------------- -----------------
(1) The related assets include loans, securities borrowed or
purchased under resale agreements, and acceptances.
Impaired loans
During the year, $1.8 billion of loans were newly classified as
impaired, down $0.5 billion from 2010. The decrease was driven by a
decrease of $308 million in consumer loans and a decrease of $195
million in business and government loans.
Reductions in gross impaired loans (GIL) through remediation,
repayment or sale were $718 million, down $201 million from 2010.
The decrease comprises $48 million in consumer loans and $153
million in business and government loans. For the year, write-offs
totalled $1.0 billion, down $386 million from the prior year.
Consumer loan write-offs decreased by $218 million, while business
and government loan write-offs decreased by $168 million.
Canadian consumer GIL trended higher beginning in 2007 due to
both historical growth of the portfolio and economic deterioration,
but showed some signs of improvement in 2010, and remained stable
in 2011. The majority of impaired residential mortgages in 2010
were in the Canadian insured portfolio where losses are expected to
be minimal. Business and government GIL also showed some signs of
improvement in 2010, attributable to an improvement in credit
quality of the Canadian and the U.S. portfolios, partially offset
by deterioration in CIBC FirstCaribbean. Business and government
GIL remained relatively stable in 2011.
Additional details on the geographic distribution and industry
classification of impaired loans are provided in the "Supplementary
annual financial information" section.
Allowance for credit losses
The total allowance for credit losses consists of specific and
general allowance components carried on the consolidated balance
sheet.
The allowance for credit losses is the means by which we reduce
the book value of our loan portfolio to the value of future cash
flows that we expect to receive from those loans, discounted at the
effective interest rate of the loan. Our loss estimate on impaired
loans, and therefore, the level of specific allowance for such
loans is a function of the security and collateral held against
each of the impaired loans in the portfolio. The nature of the
security and collateral varies by loan, and may include cash,
guarantees, real property, inventory, accounts receivable, or other
assets. Larger loans are assessed individually, while smaller
retail loans may be assessed on a pooled basis, using historical
loss data. The general allowance provides for credit losses that
are expected to have already occurred in the current portfolio, but
that have not yet been specifically identified or provided for
through the specific allowance.
Management's discussion and analysis
For a discussion on the methodologies used in establishing our
allowance for credit losses, see the "Critical accounting policies
and estimates" section. A breakdown of the allowance by geographic
region and industry classification is provided in the
"Supplementary annual financial information" section.
The total allowance for credit losses was $1,695 million, down
$89 million or 5% from 2010.
Specific allowance for credit losses, excluding the allowance
for letters of credit, was $629 million, down $2 million from 2010.
The decrease in consumer loans was mostly offset by an increase in
business and government loans. The specific allowance for consumer
loans decreased by $9 million or 4%, mainly due to improvements in
personal lending. The specific allowance for business and
government loans increased by $7 million or 2%, related to
non-residential mortgage, service and retail industry sectors,
partially offset by an improvement in the consumer goods
manufacturing sector.
Consumer GIL decreased to $743 million from $756 million a year
ago. The decrease was mainly attributable to an improvement in the
personal lending portfolio. This was consistent with the downward
movement in specific allowances for this portfolio, as a result of
economic improvements in Canada. Both GIL and specific allowance of
residential mortgages remained relatively flat in 2011.
The specific allowance for business and government loans
increased to $384 million from $377 million a year ago, mainly
driven by an increase outside North America, partially offset by a
decrease in Canada reflecting continued improvements in the
Canadian economy. Business and government GIL increased from $1,080
million to $1,102 million. The increase was primarily outside North
America, partially offset by an improvement in Canada, which is
consistent with the movement in specific allowance for this
portfolio. Business and government GIL outside North America
increased $75 million where specific allowance increased $39
million (or approximately 52% of the increase in GIL). In Canada,
GIL decreased $60 million while specific allowance decreased $28
million (or approximately 47% of the decrease in GIL). Both GIL and
specific allowance in the U.S. remained relatively stable in 2011.
The increase in GIL outside North America was attributable to our
CIBC FirstCaribbean subsidiary, which continued to be affected by
global economic stresses that have had a detrimental effect on
tourism and real estate development in the Caribbean. The specific
allowance increased in both Europe and CIBC FirstCaribbean.
Additional information on specific allowance for credit losses
as a percentage of GIL is provided in the "Supplementary annual
financial information" section.
The general allowance was $1,066 million, down $87 million from
2010. Improvements in the business and government and Visa
portfolios have been offset somewhat by a build-up of the general
allowance applicable to the acquired MasterCard portfolio. Since we
acquired only performing accounts, the build-up in the general
allowance was due to the portfolio seasoning to a normal level of
delinquency.
Additional information on the general allowance as a percentage
of total net loans is provided in the "Supplementary annual
financial information" section.
The general allowance related to undrawn credit facilities was
down $16 million, primarily attributed to an improvement in the
credit risk profile due to improving economic conditions.
Management believes the total allowance for credit losses as at
October 31, 2011 was appropriate in light of the composition of the
credit portfolio. Future additions to, or reductions of, the
allowance will be influenced by the continuing evaluation of risks
in the loan portfolio as well as changing economic conditions.
Management's discussion and analysis
Exposure to certain countries and regions
Several European countries especially Greece, Ireland, Italy,
Portugal, and Spain have continued to experience credit concerns.
The following table provides our direct exposure to these European
countries and selected countries in the Middle East and North
Africa that have either experienced or may be at risk of unrest. We
had no exposure to corporate entities in these countries and no
retail or small business exposure (2010: nil). We have not
purchased or sold credit derivatives on sovereigns, financial
institutions, or corporations located in these countries (2010:
nil). Our exposures are stated as carrying value for loans,
deposits with banks and securities, notional amounts for unfunded
exposures, and fair value for derivative MTM receivables.
Derivative
Unfunded MTM
Loans, deposits with banks and securities exposure(1) Receivables
---------------------------------------------- -------------------- ---------------------------------------------------------------------- -------------------- -----------------------
$ millions, as at October 31, 2011 Sovereign Banks Total Banks Banks
---------------------------------------------- -------------------- ----------------------------------- --------------------------------- -------------------- -----------------------
Greece........................................
................. $ - $ - $ - $ - $ -
Ireland......................................
................... - 10 10 2 194
Italy........................................
..................... - - - 1 57
Middle East and North Africa(2)
..................... - - - 1 1
Portugal......................................
................. - - - - -
Spain........................................
................... - - - 9 6
---------------------------------------------- -------------------- ----------------------------------- --------------------------------- -------------------- -----------------------
Gross
exposure.....................................
........ - 10 10 13 258
Less : collateral held(3)
............................ - - - - 240
---------------------------------------------- -------------------- ----------------------------------- --------------------------------- -------------------- -----------------------
Net
exposure.....................................
........... $ - $ 10 $ 10 $ 13 $ 18
---------------------------------------------- -------------------- ----------------------------------- --------------------------------- -------------------- -----------------------
October 31,
2010......................................... $ 43 $ 232 $ 275 $ 16 $ 54
---------------------------------------------- -------------------- ----------------------------------- --------------------------------- -------------------- -----------------------
(1) Unfunded exposure comprises letters of credit and
guarantees.
(2) Includes Algeria, Bahrain, Egypt, Jordan, Lebanon, Libya,
Morocco, Oman, Saudi Arabia, Syria, Tunisia, and Yemen.
(3) The collateral from these counterparties was in the form of
cash and comprises $195 million (2010: $119 million) from banks in
Ireland, $40 million (2010: $26 million) from Italy, and $5 million
(2010: $9 million) from Spain.
We also have indirect exposures through securities (primarily
CLOs classified as loans) on our consolidated balance sheet, and
written credit protection on securities, in our structured-credit
run-off portfolio (where we benefit from significant subordination
to our position) to the European countries noted above. Our gross
exposure before subordination amounted to $352 million (2010: $608
million). The indirect exposure is stated as carrying value for
securities and notional less the fair value for derivatives where
we have written protection. We have no exposure to the Middle East
and North African countries noted above through these
securities.
Selected exposures in certain activities
In response to the recommendations of the Financial Stability
Board this section provides information on our other selected
activities within our continuing and exited businesses that may be
of particular interest to investors based on their risk
characteristics and the current market environment.
U.S. real estate finance
In our U.S. real estate finance business, we operate a
full-service platform which originates commercial mortgages to
mid-market clients, under four programs.
The construction program offers floating-rate financing to
properties under construction. The interim program offers fixed and
floating-rate financing, typically with an average term of one to
three years for properties that are fully leased or with some
leasing or renovation yet to be done. In addition, the interim
program provides operating lines to select borrowers. These
programs provide feeder product for the group's permanent
fixed-rate loan program. Once the construction and interim phases
are complete and the properties are income producing, borrowers are
offered fixed-rate financing within the permanent program
(typically with average terms of 10 years).
We also have a joint venture agreement with a private equity
firm which originates a pool of newly advanced fixed-rate first
mortgages secured by commercial real estate in the U.S. We provide
a senior-ranking credit facility to the entity with a three-year
initial term. Each advance under the facility to fund a loan is
subject to our credit approval. We also provided a contingent swap
line relating to the entity's interest rate hedging activity.
The following table provides a summary of our positions in this
business:
$ millions, as at October 31, 2011 Drawn Undrawn
-------------------------------------------------------------------- --------------- ------------------
Construction program......................................... $ 155 $ 75
Interim program................................................. 2,819 339
Joint venture...................................................... 405 215
-------------------------------------------------------------------- --------------- ------------------
Exposure, net of allowance................................ $ 3,379 $ 629
-------------------------------------------------------------------- --------------- ------------------
Of the above:
Net impaired................................................ $ 167 $ 2
On credit watch list....................................... 271 2
-------------------------------------------------------------------- --------------- ------------------
Net exposure as at
October 31, 2010......................................... $ 1,770 $ 885
-------------------------------------------------------------------- --------------- ------------------
As at October 31, 2011, the allowance for credit losses for this
portfolio was $86 million (2010: $76 million). During the year, we
recorded a provision for credit losses of $15 million (2010: $81
million).
Management's discussion and analysis
The business also maintains commercial mortgage-backed
securities (CMBS) trading and distribution capabilities. As at
October 31, 2011, we had CMBS inventory with a notional amount of
$9 million and a fair value of less than $1 million (2010: notional
of $9 million and fair value of less than $1 million).
European leveraged finance
In 2008, management made a decision to exit our European
leveraged finance business where we originated non-investment grade
leveraged loans and syndicated the majority of the loans, earning a
fee during the process.
The following table provides a summary of our positions in this
exited business:
$ millions, as
at October 31,
2011 Drawn Undrawn
------------------- ------------------ ---------
Manufacturing $ 379 $ 60
Publishing and
printing 41 3
Telecommunications 10 5
Utilities 10 -
Business services 9 13
Transportation 8 10
---------------------------------- --- ---- ---
Exposure, net
of allowance $ 457 $ 91
------------------- ------------- --- ---- ---
Of the above:
Net impaired $ 8 $ -
------------------- ------------- --- ---- ---
On credit watch
list 355 35
---------------------------------- --- ---- ---
Net exposure
as at
------------------- ------------- --- ---- ---
October 31, 2010 $ 721 $ 140
------------------- ------------- --- ---- ---
Our exposure has declined primarily due to repayments during the
period.
As at October 31, 2011, the allowance for credit losses for this
portfolio was $43 million (2010: $25 million). During the year, net
provision for credit losses was $19 million (2010: $10
million).
Sale of U.S. leveraged finance to Oppenheimer
We sold our U.S. leveraged finance business, where we provided
leveraged loans to non-investment grade customers to facilitate
their buyout, acquisition and restructuring activities, as part of
the sale of some of our U.S. businesses to Oppenheimer Holdings
Inc. (Oppenheimer) in 2008. Under the transaction, the leveraged
loans in existence at the time of the sale remained with us. These
loans are being managed to maturity. In addition, under the current
terms of our agreement with Oppenheimer, we agreed to provide a
loan warehouse facility of up to $2.0 billion to finance and hold
syndicated loans to non-investment grade customers, originated for
U.S. middle market companies by Oppenheimer, to facilitate their
buyout, acquisition and restructuring activities. Underwriting of
any loan for inclusion in this facility is subject to joint credit
approval by Oppenheimer and CIBC.
The following table provides a summary of our remnant positions
in this business as well as the positions from the warehouse
facility:
$ millions, as
at October 31,
2011 Drawn Undrawn
---------------------- ------------------ ---------
Transportation $ 67 $ 60
Gaming and lodging 6 1
Healthcare 3 16
Media and advertising 9 9
Manufacturing 16 76
Other 11 17
------------------------------------- --- ---- ---
Exposure, net
of allowance $ 112 $ 179
---------------------- ------------- --- ---- ---
Of the above:
Net impaired $ 4 $ 2
---------------------- ------------- --- ---- ---
On credit watch
list 59 59
------------------------------------- --- ---- ---
Net exposure
as at
---------------------- ------------- --- ---- ---
October 31, 2010 $ 232 $ 321
---------------------- ------------- --- ---- ---
Our exposure has declined primarily due to repayments during the
period.
The allowance for credit losses on these loans was $13 million
(2010: $16 million). During the year, net reversals of credit
losses were $2 million (2010: $4 million).
Settlement risk
Settlement risk is the risk that one party fails to deliver at
the time of settlement on the terms of a contract between two
parties. This risk can arise in general trading activities and from
payment and settlement system participation.
Many global settlement systems offer significant risk reduction
benefits through complex risk mitigation frameworks. Bilateral
payment netting agreements may be put in place to mitigate risk by
reducing the aggregate settlement amount between counterparties.
Further, we participate in several North American payment and
settlement systems, including a global foreign exchange
multilateral netting system. We also use financial intermediaries
to access some payment and settlement systems, and for certain
trades, we may utilize an established clearing house to minimize
settlement risk.
Transactions settled outside of payment and settlement systems
or clearing houses require approval of credit facilities for
counterparties, either as pre-approved settlement risk limits or
payment-versus-payment arrangements.
Market risk
Market risk arises from positions in currencies, securities and
derivatives held in our trading portfolios, and from our retail
banking business, investment portfolios and other non-trading
activities. Market risk is defined as the potential for financial
loss from adverse changes in underlying market factors, including
interest and foreign exchange rates, credit spreads, and equity and
commodity prices.
Management's discussion and analysis
Market risk is managed through an integrated internal control
framework. Each business has a dedicated market risk manager,
supplemented by regional risk managers located in all of our major
trading centres, facilitating comprehensive risk coverage.
We have comprehensive policies for market risk management
related to identification and measurement of the various types of
market risk, the eligibility of certain of those risks for
inclusion in the trading and non-trading books, and to the
establishment of limits within which we manage our overall
exposures.
Our policies also outline requirements for valuation model
construction, and align with accounting policies with respect to
MTM and model valuation methodologies, the independent checking of
the valuation of positions, and the establishment of valuation
adjustments.
In the first quarter of 2012, we will implement the Market Risk
Amendment (MRA) and the Incremental Risk Charge (IRC) as required
by OSFI under the Basel market risk framework. The stressed VaR
measure which is part of MRA shows the VaR measure for the current
portfolio if that portfolio was held at the worst period in the
past five years. IRC assigns capital to the credit migration and
default risk for issuer credit risk held in the trading portfolios.
As a result, we expect an increase in the VaR measure and capital
requirements. In the first quarter of 2011, we implemented
incremental sensitivity based (ISB) enhancements to our VaR. The
ISB risk measures included in our internal VaR model are equity
skew vega risk, commodity skew vega risk, interest rate basis risk,
dividend risk, and correlation risk.
Process and control
Market risk exposures are monitored daily against approved risk
limits, and control processes are in place to monitor that only
authorized activities are undertaken. We generate daily risk and
limit-monitoring reports, based on the previous day's positions.
Summary market risk and limit compliance reports are produced and
reviewed weekly with the SET, and quarterly with the RMC.
We have risk tolerance levels, expressed in terms of both
statistically based VaR measures and potential worst-case stress
losses. We use a three-tiered approach to set market risk and
stress limits on the amounts of risk that we can assume in our
trading and non-trading activities, as follows:
-- Tier 1 limits are our overall market risk and worst-case
scenario limits;
-- Tier 2 limits are designed to control the risk profile in
each business; and
-- Tier 3 limits are at the desk level and designed to monitor
risk concentration and the impact of book-specific stress
events.
Tier 1 limits are established by the CEO, consistent with the
risk tolerance policies approved by the RMC; Tier 2 and Tier 3
limits are approved at levels of management commensurate with the
risk taken.
Trading activities
We hold positions in traded financial instruments to meet client
investment and risk management needs, and for proprietary trading
purposes. Trading revenue (net interest income or non-interest
income) is generated from these transactions. Trading instruments
are recorded at fair value and include debt and equity securities,
as well as interest rate, foreign exchange, equity, commodity, and
credit derivative products.
Risk measurement
We use the following measures for market risk:
-- VaR, which enables the meaningful comparison of the risks in
different businesses and asset classes;
-- Stressed VaR, which enables the meaningful comparison of the
risks in different businesses and asset classes if the worst period
in the last five years is applied to the current portfolio;
-- IRC, which measures assigned capital due to the credit
migration and default risk for issuer credit risk held in the
trading portfolios;
-- Stress testing and scenario analyses, which provide insight
into portfolio behaviour under extreme circumstances; and
-- Backtesting, which validates the effectiveness of risk
quantification through analysis of actual and theoretical profit
and loss outcomes.
Trading revenue comprises both trading net interest income and
non-interest income and excludes underwriting fees and commissions.
In 2011, trading revenue was $269 million (2010: $821 million;
2009: $(294) million) and trading revenue (TEB)(1) was $456 million
(2010: $870 million; 2009: $(256) million).
For purposes of the VaR measures disclosed in the table and
backtesting chart on the next pages, trading revenue relates to
portfolios that are treated as trading for regulatory capital
purposes which may differ from trading for accounting purposes and
excludes accounting month-end adjustments. In particular, the VaR
measures exclude positions in our structured credit run-off
businesses. These positions are being managed down independent of
our trading businesses and our processes include frequent
comprehensive measurement and reporting of the main risks to both
management and the RMC. Commencing in the first quarter of 2011,
the structured credit run-off business has been reported as part of
our non-trading business for regulatory capital purposes.
Previously, these positions were reported in our trading
business.
(1) For additional information, see the "Non-GAAP measures"
section.
Management's discussion and analysis
Value-at-Risk
Our VaR methodology is a statistical technique that measures the
potential overnight loss within a 99% confidence level. VaR uses
numerous risk factors as inputs and is computed through the use of
historical volatility of each risk factor and the associated
historical correlations among them, evaluated over a one-year
period.
Total market risk VaR is determined by the combined modelling of
VaR for each of interest rate, credit spread, equity, foreign
exchange, commodity, and debt specific risks, along with the
reduction due to the portfolio effect arising from the
interrelationship of the different risks.
Actual market loss experience may differ from that implied by
the VaR measure for a variety of reasons. Fluctuations in market
rates and prices may differ from those in the past that are used to
compute the VaR measure. Additionally, our VaR measure does not
account for any losses that may occur beyond the 99% confidence
level.
To determine the reliability of the VaR models, actual outcomes
are monitored regularly to test the validity of the assumptions and
the parameters used in the VaR calculation. Market risk positions
are also subject to regular stress tests against defined limits to
ensure we would withstand an extreme market event.
Stress testing and scenario analysis
Stress testing and scenario analyses are designed to add insight
to possible outcomes of abnormal market conditions, and to
highlight possible risk concentrations.
Our stress testing measures the effect on portfolio values of a
wide range of extreme moves in market prices. The methodology
assumes that no actions are taken during the stress event to
mitigate risk, reflecting the decreased liquidity that frequently
accompanies market shocks.
Our scenario analysis approach simulates the impact on earnings
of extreme market events up to a period of one quarter. Scenarios
are developed using actual historical market data during periods of
market disruption, or are based on the hypothetical occurrence of
economic events, political events and natural disasters suggested
and designed by economists, business leaders and risk managers.
Among the historical scenarios used were the 1987 equity market
crash, the 1994 period of U.S. Federal Reserve tightening, the 1998
Russian-led crisis, the market events following September 11, 2001,
and the 2008 market crisis. The hypothetical scenarios used include
potential market crises originating in North America, Asia, and
Europe.
Our core stress testing and scenario analyses are run daily, and
further ad hoc analysis is carried out as required. Scenarios are
reviewed and amended as necessary to ensure they remain relevant.
Limits are placed on the maximum acceptable loss to the aggregate
portfolio under any worst-case scenario and on the impact of stress
testing at the detailed portfolio level and by asset class.
Backtesting
Backtesting measures whether actual profit and loss outcomes are
consistent with the statistical assumptions of the VaR model. This
process also includes the calculation of a hypothetical or static
profit and loss. This represents the theoretical change in value of
the prior day's closing portfolio due to each day's price
movements, on the assumption that the contents of the portfolio
remained unchanged.
Backtesting is conducted on a daily basis at the level of
consolidated CIBC and at the lower levels, including business lines
and individual portfolios. Static profit and loss and trading
losses in excess of the one-day VaR are investigated. The
investigation process involves review of data used in the model,
underlying theoretical definition of the model, overview of
processes used to aggregate data and produce output information and
strategic analysis of produced results. The purpose of this review
is to ensure that all risk factors are identified and understood.
The model validation process is performed by risk professionals who
are independent of those responsible for development of the model.
Validation process, overview of results and model overview are also
subject to regular review by Internal Audit. Based on our
backtesting results, we are able to ensure that our VaR model
appropriately measures the risk.
The table below presents market risks by type of risk and in
aggregate. The risks are interrelated and the diversification
effect reflects the reduction of risk due to portfolio effects
among the trading positions. Our trading risk exposures to interest
rates and credit spreads arise from activities in the global debt
and derivative markets, particularly from transactions in the
Canadian, U.S. and European markets. The primary instruments are
government and corporate debt, interest rate derivatives and other.
The bulk of the trading exposure to foreign exchange risk arises
from transactions involving the U.S. dollar, Euro, British pound,
and Japanese yen, whereas the primary risks of losses in equities
are in the U.S., Canadian and European markets. Trading exposure to
commodities arises primarily from transactions involving North
American natural gas and oil product indices.
Total average risk for the trading portfolio was up 55% from the
previous year, driven mainly by implementation of ISB risk measures
to our internal VaR model.
Management's discussion and analysis
VaR by risk type - trading portfolio(1)
$ millions, as
at or for the
year ended October
31 2011(2) 2010
-------------------- -------------- ----- ----- ------ ------- --- ----- ----- ----- ----
Year-end Average High Low Year-end Average High Low
-------------------- --------------------- --------- ------ ------- ---------- --------- ----- ----
Interest rate $
risk $ 2.7 $ 3.4 $ 6.7 $ 1.5 $ 3.2 $ 3.2 $ 6.2 1.3
Credit spread
risk 1.0 1.1 1.7 0.5 0.9 0.6 1.4 0.3
Equity risk 1.6 3.2 6.2 1.4 0.8 1.1 2.5 0.6
Foreign exchange
risk 1.6 0.9 3.3 0.2 0.7 1.0 2.7 0.3
Commodity risk 0.5 1.0 1.9 0.4 0.3 0.5 3.1 0.2
Debt specific
risk 2.5 2.7 5.2 1.3 2.2 1.7 2.8 1.0
Diversification
effect(3) (5.7) (5.8) n/m n/m (4.0) (3.9) n/m n/m
------------------------------------ ----- ----- ------ ------- --- ----- ----- ----- ----
$
Total risk $ 4.2 $ 6.5 $ 10.2 $ 3.4 $ 4.1 $ 4.2 $ 6.8 2.6
-------------------- -------------- ----- ----- ------ ------- --- ----- ----- ----- ----
(1) The table excludes exposures in our structured credit
run-off businesses which are described in the "Structured credit
run-off business" section of the MD&A.
(2) Reflects ISB risk measures including equity skew vega risk,
commodity skew vega risk, interest rate basis risk, dividend risk,
and correlation risk relating to trading activities for 2011.
Comparative information for these measures prior to 2011 was not
available.
(3) Aggregate VaR is less than the sum of the VaR of the
different market risk types due to risk offsets resulting from
portfolio diversification effect. n/m Not meaningful. It is not
meaningful to compute a diversification effect because the high and
low may occur on different days for different risk types.
Trading revenue
The histogram below presents the frequency distribution of daily
trading revenue (TEB)(1) for 2011. Trading revenue (TEB)(1) was
positive for 94% of the days (2010: 93%; 2009: 91%). The trading
day count methodology was changed in 2011 compared to the
methodology used in 2010 and 2009. Comparative numbers for 2010 and
2009 based on the 2011 trading day count methodology were not
restated as that information was not readily determinable. Daily
trading losses did not exceed VaR during the year. Average daily
trading revenue (TEB)(1) was $2.7 million (2010: $2.9 million;
2009: $3.3 million). The trading revenue (TEB)(1) graph below and
VaR backtesting graph which follows compare the 2011 actual daily
trading revenue (TEB)(1) with the previous day's VaR measures. As
previously noted, the trading revenue disclosed in the tables is on
a regulatory capital basis and excludes certain items, which may
result in it being different than trading revenue for accounting
purposes.
Frequency distribution of daily 2011 trading revenue
(TEB)(1)(2)
(1) For additional information, see the "Non-GAAP measures"
section.
(2) Distribution of trading revenue for certain days in the
first three quarters of 2011 has been revised from that previously
disclosed.
Management's discussion and analysis
Backtesting of trading revenue (TEB)(1)(2) vs. VaR
(1) For additional information, see the "Non-GAAP measures" section.
(2) Distribution of trading revenue for certain days in the
first three quarters of 2011 has been revised from that previously
disclosed.
Non-exchange traded commodity derivatives
In the normal course of business, we trade non-exchange traded
commodity derivative contracts. We control and manage our
non-exchange traded commodity derivatives risk through the VaR and
stress testing methodologies described above. We use modelling
techniques or other valuation methodologies to determine the fair
value of these contracts.
The following table provides the fair value, based upon maturity
of non-exchange traded commodity contracts:
$ millions, as
at October 31,
2011 Positive Negative Net
------------------- ------------ ---------- --- ----
Maturity less
than 1 year $ 216 $ 250 $ (34)
Maturity 1-3
years 163 235 (72)
Maturity 4-5
years 26 4 22
Maturity in excess
of 5 years 52 4 48
---------------------------- --- ------ --- ----
Fair value of
contracts $ 457 $ 493 $ (36)
------------------- ------- --- ------ --- ----
Non-trading activities
Market risks also arise from our retail banking business, equity
investments and other non-trading activities. We originate many
retail products with market risk characteristics. Changes in market
conditions, customer behaviour and competitive market pressures can
have an impact on the market risk exposure and retail margins
earned from these products. Foreign exchange exposures arising from
net earnings from, and investments in, foreign operations are also
included in non-trading activities.
Interest rate risk
Non-trading interest rate risk consists primarily of risk
inherent in our asset/liability management (ALM) activities and the
activities of domestic and foreign subsidiaries. Interest rate risk
results from differences in the maturities or repricing dates of
assets and liabilities, both on- and off-balance sheet, as well as
from embedded optionality in retail products. This optionality
arises predominantly from the prepayment exposures of mortgage
products, mortgage commitments and some GIC products with early
redemption features; this optionality is measured consistent with
our actual experience. A variety of cash instruments and
derivatives, principally interest rate swaps, futures and options,
are used to manage and control these risks.
ALM activities are conducted by Treasury under the supervision
of the SET, within the overall risk appetite established by the
Board. Compliance with trading and non-trading market risk policy,
as well as market risk limits is monitored daily by market risk
management.
Our principal interest rate risk measures are VaR, earnings
risk, and future risk. Earnings risk is the impact to net income
after-tax, over a one-year term of an immediate 1% and 2% increase
in market interest rates. Future risk is the impact to common
shareholders' equity (on a present value basis) of an immediate 1%
and 2% increase in market interest rates.
Management's discussion and analysis
Our total non-trading interest rate risk exposure, as at October
31, 2011, is included in Note 19 to the consolidated financial
statements. On- and off-balance sheet assets and liabilities are
generally reported based on the earlier of their contractual
repricing or maturity date; however, our disclosure includes the
assumed interest rate sensitivity of certain assets and liabilities
(including core deposits and credit card balances), reflecting how
we manage interest rate risk;
the assumed duration of core balances is approximately 1.94
years. The interest rate position reported in Note 19 presents our
risk exposure only at a point in time. The exposure can change
depending on client preference for products and terms, including
mortgage prepayment or other options exercised, and the nature of
our management of the various and diverse portfolios that comprise
the consolidated interest rate risk position.
The following table shows the potential impact over the next 12
months, adjusted for estimated prepayments, of an immediate 100 and
200 basis point increase or decrease in interest rates. In
addition, we have a floor in place in the downward shock to
accommodate for the current low interest rate environment.
Interest rate sensitivity - non-trading (after-tax)
$ millions, as at October 31 2011 2010
------------------------------ -------------------------- ------------- --------- ------- ------------ ---------
C$ US$ Other C$ US$ Other
------------------------------ -------------------------- ------------- --------- ------- ------------ ---------
100 basis points increase in
interest rates
Net income $ 111 $ (24) $ 2 $ 110 $ 12 $ 3
Change in present value of
shareholders' equity (188) (84) (34) (39) (17) (12)
100 basis points decrease in
interest rates
Net income $ (180) $ 24 $ (2) $ (173) $ (2) $ (3)
Change in present value of
shareholders' equity 64 59 34 (68) 9 9
------------------------------ -------------------------- ------------- --- ---- ------- ------------ ---------
200 basis points increase in
interest rates
Net income $ 195 $ (48) $ 4 $ 196 $ 25 $ 5
Change in present value of
shareholders' equity (380) (168) (67) (117) (33) (25)
200 basis points decrease in
interest rates
Net income $ (232) $ 36 $ (5) $ (250) $ (2) $ (3)
Change in present value of
shareholders' equity 18 86 45 (161) 13 17
------------------------------ -------------------------- ------------- --- ---- ------- ------------ ---------
Foreign exchange risk
Non-trading foreign exchange risk, also referred to as
structural foreign exchange risk, arises primarily from our
investments in foreign operations. This risk, predominantly in U.S.
dollars, is managed using derivative hedges and by funding the
investments in foreign currencies. We actively manage this risk to
ensure that the potential impact to earnings is minimized and that
the potential impact on our capital ratios is within tolerances set
by the RMC.
Structural foreign exchange risk is managed by Treasury under
the supervision of the SET, with the overall risk appetite
established by the Board. Compliance with trading and non-trading
market risk policy, as well as market risk limits, is monitored
daily by market risk management.
A 1% appreciation of the Canadian dollar would reduce our
shareholders' equity as at October 31, 2011 by approximately $38
million (2010: $39 million) on a pre-tax basis.
Our non-functional currency denominated earnings are converted
into the functional currencies through spot or forward foreign
exchange transactions. Thus, there is no significant impact of
exchange rate fluctuations on our consolidated statement of
operations, except for foreign
functional currency earnings, which are translated at average
monthly exchange rates as they arise.
We hedge certain foreign currency contractual expenses using
derivatives which are accounted for as cash flow hedges. The net
change in fair value of these hedging derivatives included in AOCI
amounted to a loss of $19 million (2010: loss of $24 million). This
amount will be released from AOCI to offset the hedged currency
fluctuations as the expenses are incurred.
Derivatives held for ALM purposes
Where derivatives are held for ALM purposes, and when
transactions meet the criteria specified in the CICA handbook
section 3865, we apply hedge accounting for the risks being hedged,
as discussed in Notes 1, 2 and 15 to the consolidated financial
statements. Derivative hedges that do not qualify for hedge
accounting treatment are referred to as economic hedges and are
recorded at fair value on the consolidated balance sheet with
changes in fair value recognized in the consolidated statement of
operations.
Management's discussion and analysis
Economic hedges for other than FVO financial instruments may
lead to income volatility because the hedged items are recorded
either on a cost or amortized cost basis. This income volatility
may not be representative of the overall risk.
Equity risk
Non-trading equity risk arises primarily in our merchant banking
activities. Our merchant banking investments comprise public and
private equities, investments in limited partnerships, and
equity-accounted investments.
The following table provides the amortized cost and fair values
of our non-trading equities, including merchant banking
portfolios:
$ millions, as Amortized Fair
at October 31 cost value
------------------------ --------------- ---------
2011 AFS securities $ 584 $ 833
Equity-accounted
investments 1,128 1,171
--------------------------- ---- ----- -----
$ 1,712 $ 2,004
-------------------------------- ----- -----
2010 AFS securities $ 696 $ 1,023
Equity-accounted
investments 298 324
--------------------------- ---- ----- -----
$ 994 $ 1,347
-------------------------------- ----- -----
The increase in equity-accounted investments as compared to the
prior year was primarily due to the acquisition of a minority
interest in ACI. See the "Significant events" section for
additional details.
Liquidity risk
Liquidity risk is the risk of having insufficient cash resources
to meet financial obligations as they fall due, in their full
amount and stipulated currencies, without raising funds at adverse
rates or selling assets on a forced basis.
Our liquidity risk management strategies seek to maintain
sufficient liquid financial resources and diversified funding
sources to continually fund our balance sheet and contingent
obligations under both normal and stressed market environments.
Governance
In its oversight capacity, the Board establishes the liquidity
risk framework that consists of policies, procedures, limits and
independent monitoring structures used by us to manage and monitor
its liquidity and funding risks.
ALCO oversees and approves the execution of liquidity policies
and monitors our current and prospective liquidity position in
relation to risk appetite and limits.
RMC annually reviews and approves policies and standards
defining our liquidity risk management, measurement and reporting
requirements.
The Treasurer oversees and governs our liquidity risk management
framework and is responsible for maintaining the liquidity policies
as well as monitoring compliance to the policies.
Policies
Our liquidity policy and framework require maintenance of a
sufficient unencumbered stock of liquid assets to meet anticipated
funding needs in both stable and stressed conditions for a minimum
period of time as determined by the RMC. Guidelines are also set to
ensure a well-diversified and balanced liability structure.
Alongside the liquidity risk management framework, our
enterprise-wide pledging policy sets out consolidated aggregate net
maximum pledge limits for financial and non-financial assets.
Pledged assets are considered encumbered for liquidity
purposes.
We maintain and periodically update a detailed contingency
funding plan for responding to liquidity events. The plan is
presented annually to the RMC.
Process and control
We manage our liquidity risk in a manner that enables us to
withstand a liquidity crisis without an adverse impact on the
viability of our operations. Actual and anticipated inflows and
outflows of funds generated from on- and off-balance sheet
exposures are monitored on a daily basis to ensure compliance with
the limits. Short-term asset/liability mismatch limits are set by
geographic location and consolidated for overall global exposure.
Contractual and behavioural on-balance sheet and off-balance sheet
cash flows under normal and stressed conditions are modeled and
used to determine liquidity levels to be maintained for a minimum
time horizon.
The RMC is regularly informed of current and prospective
liquidity conditions, ongoing monitoring measures and the
implementation of enhanced measurement tools.
Risk measurement
Our liquidity measurement system provides daily liquidity risk
exposure reports for review by senior management. Stress event
impacts are measured through scenario analyses, designed to measure
potential impact of abnormal market conditions on the liquidity
risk profile. Treatment of cash flows under varying conditions is
reviewed periodically to determine whether changes to customer
behaviour assumptions are warranted.
The primary liquidity risk metric to measure and monitor our
liquidity positions is liquidity horizon, the future point in time
when projected cumulative cash outflows exceed cash
Management's discussion and analysis
inflows. The contractual and behavioural cash flows of on-and
off-balance sheet positions are projected forward using parameters
to reflect response expectations by category under given stress
environments.
Collateral, which consists mainly of cash and high-quality
government bonds that are generally acceptable by central banks, is
primarily used to minimize exposure to counterparty credit risk. In
the normal course of business, we are exposed to the risk of
counterparties being unable to provide required collateral to cover
their exposure with us. In addition, we are exposed to impacts of
downgrades of our own credit ratings on the requirements to
collateralize counterparties' credit exposures. As part of our
liquidity framework, we make prudential assumptions on intraday and
other collateral requirements that may arise under hypothetical
CIBC defined liquidity stress events. These requirements are
pre-funded by holding appropriate liquid asset buffers in the form
of unencumbered high-quality securities.
Term funding sources and strategies
We manage liquidity to meet both short- and long-term cash
requirements. Reliance on short-term wholesale funding is
maintained at prudent levels.
We obtain funding through both wholesale and retail sources.
Consistent with our liquidity risk mitigation strategies, we
continue to source term funding in the wholesale markets from a
variety of clients and geographic locations, borrowing across a
range of maturities, using a mix of funding instruments.
Core personal deposits remain a primary source of retail funding
and totalled $111.8 billion as at October 31, 2011 (2010: $108.6
billion).
Strategies for managing liquidity risk include maintaining
diversified sources of wholesale term funding, asset securitization
initiatives, and maintenance of segregated pools of high-quality
liquid assets that can be sold or pledged as security to provide a
ready source of cash. Collectively, these strategies result in
lower dependency on short-term wholesale funding.
We were an active issuer of term debt during the year, raising
US$4.0 billion and AUD1.3 billion through covered bond issuances,
and over $20 billion through the issuance of Canadian deposit
notes.
We have historically securitized various financial assets,
including credit card receivables and residential and commercial
mortgages. For further discussion of our off-balance sheet
arrangements affecting liquidity and funding, see the "Off-balance
sheet arrangements" section.
Balance sheet liquid assets are summarized in the following
table:
$ billions, as at October
31 2011 2010(1)
------------------------------ --- ----- -----------
Cash $ 1.4 $ 1.3
Deposits with banks 4.9 10.7
Securities issued by
Canadian Governments(2) 10.1 5.4
Mortgage-backed securities(2) 18.5 20.1
Other securities(3) 44.3 40.9
Cash collateral on securities
borrowed 1.8 2.4
Securities purchased
under resale agreements 26.0 34.9
----------------------------------- ----- -----------
$ 107.0 $ 115.7
---------------------------------- ----- -----------
(1) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
(2) These represent government issued or guaranteed securities
with residual term to contractual maturity of more than one
year.
(3) Comprises AFS securities and FVO securities with residual
term to contractual maturity within one year and trading
securities.
In the course of our regular business activities, certain assets
are pledged as part of collateral management, including those
necessary for day-to-day clearing and settlement of payments and
securities. Pledged assets, including those for covered bonds,
securities borrowed or financed through repurchase agreements as at
October 31, 2011 totalled $28.7 billion (2010: $33.5 billion). For
additional details, see Note 24 to the consolidated financial
statements.
Credit ratings
Access to wholesale funding sources and the cost of funds are
dependent on various factors including credit ratings. During the
course of the year, Fitch and Moody's changed CIBC's outlook from
negative to stable. There have been no changes to our credit
ratings during the year at major credit rating agencies, other than
those noted in the footnote to the table below.
Our funding and liquidity levels remained stable and sound over
the year and we do not anticipate any events, commitments or
demands which will materially impact our liquidity risk
position.
Management's discussion and analysis
Our credit ratings are summarized in the table below:
Senior Subordinated Preferred
Short-term debt debt debt shares(1)
As at October
31 2011 2010 2011 2010 2011 2010 2011 2010
------------- -------- ------- ---- ------ ------ ------ ------------- --------
DBRS R-1(H) R-1(H) AA AA AA(L) AA(L) Pfd-1(L) Pfd-1(L)
Fitch F1+ F1+ AA- AA- A+ A+ A A
Moody's P-1 P-1 Aa2 Aa2 Aa3 Aa3 Baa1 Baa1
S&P A-1 A-1 A+ A+ A A P-1(L)/P-2(H) P-1(L)
------------- -------- ------- ---- ------ ------ ------ ------------- --------
(1) During the year, S&P changed its rating of CIBC's Class
A Preferred Shares Series 26 and 27 to P-2(H) following OSFI's
confirmation that these shares will be treated as NVCC under Basel
III. S&P does not rate CIBC's Class A Preferred Shares Series
29 which are also NVCC compliant.
Impact on collateral if there is a downgrade of CIBC's credit
rating
We are required to deliver collateral to certain derivative
counterparties in case of a downgrade to our current credit risk
rating. The collateral requirement is based on MTM exposure,
collateral valuations, and collateral arrangement thresholds as
applicable.
Restrictions on the flow of funds
We have certain subsidiaries that have separate regulatory
capital, liquidity and funding requirements, as set by banking and
securities regulators. Requirements of these entities are subject
to regulatory change and can fluctuate depending on activity.
We monitor and manage our capital and liquidity requirements
across these entities to ensure that capital is used efficiently
and that each entity is in continuous compliance with local
regulations.
Contractual obligations
Contractual obligations give rise to commitments of future
payments affecting our short- and long-term liquidity and capital
resource needs. These obligations include financial liabilities,
credit and liquidity commitments, and other contractual
obligations.
Liabilities
The following table provides the maturity profile of liabilities
based upon contractual repayment obligations, and excludes
contractual cash flows related to derivative liabilities.
Contractual maturity information related to derivatives is provided
in Note 14 to the consolidated financial statements. Although
contractual repayments of many deposit accounts are on demand or at
short notice, in practice, short-term deposit balances remain
stable. Our deposit retention history indicates that many customers
do not request repayment on the earliest redemption date and the
table therefore does not reflect the anticipated cash flows.
No
Less than 1-3 3-5 Over specified 2011 2010(1)
$ millions, as at October 31 1 year years years 5 years maturity Total Total
Liabilities
Deposits $ 72,286 $ 34,782 $ 15,325 $ 9,416 $ 123,600 $ 255,409 $ 246,671
Acceptances 9,396 - - - - 9,396 7,684
Obligations related to securities sold
short 10,316 - - - - 10,316 9,673
Cash collateral on securities lent 2,850 - - - - 2,850 4,306
Obligations related to securities sold
under repurchase agreements 11,456 - - - - 11,456 23,914
Other liabilities - - - - 11,987 11,987 12,740
Subordinated indebtedness - 250 - 4,740 - 4,990 4,616
$ 106,304 $ 35,032 $ 15,325 $ 14,156 $ 135,587 $ 306,404 $ 309,604
(1) Certain prior year information has been reclassified to
conform to the presentation adopted in the current year.
Management's discussion and analysis
Credit and liquidity commitments
The following table provides the contractual maturity of
notional amounts of credit, guarantee, and liquidity commitments
should contracts be fully drawn upon and clients default. Since a
significant portion of guarantees and commitments are expected to
expire without being drawn upon, the total of the contractual
amounts is not representative of future liquidity requirements.
Contract amounts expiration per period
Less than 1-3 3-5 Over 2011 2010
$ millions, as at October 31 1 year years years 5 years Total Total
Unutilized credit commitments(1) $ 118,187 $ 9,986 $ 10,982 $ 1,193 $ 140,348 $ 132,261
Backstop liquidity facilities 3,176 - - - 3,176 4,403
Standby and performance letters of credit 5,180 656 463 24 6,323 5,721
Documentary and commercial letters of
credit 312 - - - 312 290
$ 126,855 $ 10,642 $ 11,445 $ 1,217 $ 150,159 $ 142,675
(1) Starting 2011, includes personal, home equity, and credit card lines. Prior year information
has been restated accordingly.
Other contractual obligations
The following table provides the contractual maturities of other contractual obligations affecting
our short- and long-term and capital resource needs:
Less than 1-3 3-5 Over 2011 2010
$ millions, as at October 31 1 year years years 5 years Total Total
Operating leases $ 351 $ 636 $ 506 $ 1,385 $ 2,878 $ 2,905
Purchase obligations(1) 566 831 520 434 2,351 1,752
Investment commitments(2) 354 - - - 354 294
Pension contributions(3) 230 - - - 230 216
Underwriting commitments 333 - - - 333 183
$ 1,834 $ 1,467 $ 1,026 $ 1,819 $ 6,146 $ 5,350
(1) Obligations that are legally binding agreements whereby we
agree to purchase products or services with specific minimum or
baseline quantities defined at fixed, minimum or variable prices
over a specified period of time are defined as purchase
obligations. Purchase obligations are included through to the
termination date specified in the respective agreements, even if
the contract is renewable. Many of the purchase agreements for
goods and services include clauses that would allow us to cancel
the agreement prior to expiration of the contract within a specific
notice period. However, the amount above includes our obligations
without regard to such termination clauses (unless actual notice of
our intention to terminate the agreement has been communicated to
the counterparty). The table excludes purchases of debt and equity
instruments that settle within standard market timeframes.
(2) As an investor in merchant banking activities, we enter into
commitments to fund external private equity funds and investments
in equity and debt securities at market value at the time the
commitments are drawn. As the timing of future investment
commitments is non-specific and callable by the counterparty,
obligations have been included as less than one year.
(3) Subject to change as contribution decisions are affected by
various factors, such as market performance, regulatory
requirements, and management's ability to change funding policy.
Also, funding requirements after 2012 are excluded due to the
significant variability in the assumptions required to project the
timing of future cash flows.
Strategic risk
Strategic risk arises from ineffective business strategies or
the failure to effectively execute strategies. It includes, but is
not limited to, potential financial loss due to the failure of
acquisitions or organic growth initiatives.
Oversight of strategic risk is the responsibility of the SET and
the Board. At least annually, the CEO presents CIBC's strategic
planning process and CIBC's annual strategic business plan to the
Board for review and approval. The Board reviews the plan in light
of management's assessment of emerging market trends, the
competitive environment, potential risks and other key issues.
One of the tools for measuring, monitoring and controlling
strategic risk is attribution of economic capital against this
risk. Our economic capital models include a strategic risk
component for those businesses utilizing capital to fund an
acquisition or a significant organic growth strategy.
Operational risk
Operational risk is the risk of loss resulting from inadequate
or failed internal processes, systems, human error or external
events.
Operational risks driven by people and processes are mitigated
through human resources policies and practices, and operational
procedural controls, respectively. Operational risks driven by
systems are managed through controls over technology development
and change management.
The GCC oversees the effectiveness of our internal control
framework within the parameters and strategic objectives
established by the SET. The SET is accountable to the Board and its
Audit Committee and the RMC for maintaining a strong internal
control environment.
Management's discussion and analysis
Process and control
Each line of business has responsibility for the day-to-day
management of operational risk. Infrastructure and governance
groups maintain risk and control self-assessment processes. We
maintain a corporate insurance program to provide additional
protection from loss and a global business continuity management
program to mitigate business continuity risks in the event of a
disaster.
Risk measurement
We use the Advanced Measurement Approach (AMA) under Basel II to
calculate operational risk regulatory capital. Our operational risk
measurement methodology attributes operational risk capital to
expected and unexpected losses arising from the following loss
event types:
-- Legal liability (with respect to third parties, clients and
employees);
-- Client restitution;
-- Regulatory compliance and taxation violations;
-- Loss or damage to assets;
-- Transaction processing errors; and
-- Theft, fraud and unauthorized activities.
Operational risk capital is calculated using a loss distribution
approach with the input parameters based on either actual internal
loss experience where a statistically significant amount of
internal historical data is available, or applying a loss scenario
approach based on the available internal/external loss data and
management expertise.
In addition to the capital attributed as described above,
adjustments are made for internal control issues and risks that are
not included in the original operational risk profile. These
adjustments are based on the results of the quarterly risk and
control self-assessment processes, which involve input from the
business and infrastructure groups as well as from the governance
areas such as the Operational Risk Department, Control Division,
Internal Audit, Legal, and Compliance.
Under AMA, we are allowed to recognize the risk mitigating
impact of insurance in the measures of operational risk used for
regulatory minimum capital requirements. Although our current
insurance policies are tailored to provide earnings protection from
potential high-severity losses, we currently do not take any
capital relief as a result of our insurance program.
We attribute operational risk capital at the line of business
level. Capital represents the worst-case loss and is determined for
each loss event type and production/infrastructure/ corporate
governance line of business. The aggregate risk of CIBC is less
than the sum of the individual parts, as thelikelihood that all
business groups across all regions will experience a worst-case
loss in every loss category in the same year is extremely small. To
adjust for the fact that all risks are not 100% correlated, we
incorporate a portfolio effect to ensure that the aggregated risk
is representative of the total bank-wide risk. The process for
determining correlations considers both internal and external
historical correlations and takes into account the uncertainty
surrounding correlation estimates.
The results of the capital calculations are internally
backtested each quarter, and the overall methodology is
independently validated by the Risk Management Validation group to
ensure that the assumptions applied are reasonable and
conservative.
Reputation and legal risk
Our reputation and financial soundness are of fundamental
importance to us and to our customers, shareholders and
employees.
Reputation risk is the potential for negative publicity
regarding our business conduct or practices which, whether true or
not, could significantly harm our reputation as a leading financial
institution, or could materially and adversely affect our business,
operations or financial condition.
Legal risk is the potential for civil litigation or criminal or
regulatory proceedings being commenced against CIBC that, once
decided, could materially and adversely affect our business,
operations or financial condition.
The RMC provides oversight of the management of reputation and
legal risk. The identification, consideration and prudent,
proactive management of potential reputation and legal risk is a
key responsibility of CIBC and all of our employees.
Our Global Reputation and Legal Risks Policy sets standards for
safeguarding our reputation and minimizing exposure to our
reputation and legal risk. The policy is supplemented by business
procedures for identifying and escalating transactions that could
pose material reputation risk and/or legal risk to the RLR
Committee.
Management's discussion and analysis
Regulatory risk
Regulatory risk is the risk of non-compliance with regulatory
requirements. Non-compliance with these requirements may lead to
regulatory sanctions and harm to our reputation.
Our regulatory compliance philosophy is to manage regulatory
risk through the promotion of a strong compliance culture, and the
integration of sound controls within the business and
infrastructure groups. The foundation of this approach is a
comprehensive Legislative Compliance Management (LCM) framework.
The LCM framework maps regulatory requirements to internal
policies, procedures and controls that govern regulatory
compliance.
Our Compliance department is responsible for the development and
maintenance of a comprehensive regulatory compliance program,
including oversight of the LCM framework. The department is
independent of business management and reports regularly to the
Audit Committee.
Primary responsibility for compliance with all applicable
regulatory requirements rests with senior management of the
business and infrastructure groups, and extends to all employees.
The Compliance department's activities support those groups, with
particular emphasis on those regulatory requirements that govern
the relationship between CIBC and its clients and those
requirements that help protect the integrity of the capital
markets.
Environmental risk
Environmental risk is the risk of financial loss or damage to
reputation associated with environmental issues, whether arising
from our credit and investment activities or related to our own
operations. Our corporate environmental policy, originally approved
by the Board in 1993, is regularly updated and approved by the RMC.
The policy commits CIBC to responsible conduct in all activities to
protect and conserve the environment; safeguard the interests of
all stakeholders from unacceptable levels of environmental risk;
and support the principles of sustainable development.
The policy is addressed by an integrated Corporate
Environmental Management Program that is under the overall
management of the Environmental Risk Management (ERM) group in Risk
Management. Environmental evaluations are integrated into our
credit and investment risk assessment processes, with environmental
risk management standards and procedures in place for all sectors.
In addition, environmental and social risk assessments in project
finance are required in accordance with our commitment to the
Equator Principles, a voluntary set of guidelines for financial
institutions based on the screening criteria of the International
Finance Corporation, which we adopted in 2003. We also conduct
ongoing research and benchmarking on environmental issues such as
climate change and biodiversity protection as they may pertain to
responsible lending practices. We are also a signatory to and
participant in the Carbon Disclosure Project, which promotes
corporate disclosure to the investment community on greenhouse gas
emissions and climate change management.
The ERM group works closely with Corporate Services, Marketing,
Communications and Public Affairs, and other business and
functional groups to ensure that high standards of environmental
due diligence and responsibility are applied in our facilities
management, purchasing and other operations. An Environmental
Management Committee is in place to provide oversight and to
support these activities.
Management's discussion and analysis
Accounting and control matters
Critical accounting policies and estimates
A summary of significant accounting policies is presented in
Note 1 to the consolidated financial statements. Certain accounting
policies require us to make judgments and estimates, some of which
may relate to matters that are uncertain. Changes in the judgments
and estimates required in the critical accounting policies
discussed below could have a material impact on our financial
results. We have established control procedures to ensure
accounting policies are applied consistently and processes for
changing methodologies are well controlled.
Valuation of financial instruments
Debt and equity trading securities, obligations related to
securities sold short, all derivative contracts, AFS securities
other than private equities, and FVO financial instruments are
carried at fair value. FVO financial instruments include debt
securities, business and government loans, certain structured
retail deposits and business and government deposits.
The determination of fair value requires judgment and is based
on market information, where available and appropriate. Fair value
is defined as the price that would be received to sell an asset or
paid to transfer a liability at the measurement date in an orderly
arm's length transaction between knowledgeable and willing market
participants motivated by normal business considerations. Fair
value measurements are categorized into levels within a fair value
hierarchy based on the nature of the valuation inputs (Level 1, 2
or 3) as outlined below. Fair value is best evidenced by an
independent quoted market price for the same instrument in an
active market (Level 1).
If a market price in an active market is not available, the fair
value is estimated on the basis of valuation models. Observable
market inputs are utilized for valuation purposes to the extent
possible and appropriate.
Valuation models may utilize predominantly observable market
inputs (Level 2), including: interest rates, foreign currency
rates, equity and equivalent synthetic instrument prices, index
levels, credit spreads, counterparty credit quality, corresponding
market volatility levels, and other market-based pricing factors,
as well as any appropriate, highly correlated proxy market
valuation data. Valuation models may also utilize predominantly
non-observable market inputs (Level 3).
If the fair value of a financial instrument is not determinable
based upon quoted market prices in an active market, and a suitable
market proxy is not available, the transaction price would be
considered to be the best indicator of market value on the
transaction date. When the fair value of a financial instrument is
determined using a valuation technique that incorporates
significant non-observable market inputs, no inception profit or
loss (difference between the determined fair value and the
transaction price) is recognized at the time the financial
instrument is first recorded. Any gains or losses at inception
would be recognized only in future periods over the term of the
instrument, or when market quotes or data become observable.
In inactive markets, quotes obtained from brokers are indicative
quotes, meaning that they are not binding, and are mainly derived
from the brokers' internal valuation models. Due to the inherent
limitations of the indicative broker quotes in estimating fair
value, we also consider the values provided by our internal models,
where appropriate, utilizing observable market inputs to the extent
possible.
To ensure that valuations are appropriate, a number of policies
and controls are put in place. Independent validation of fair value
is performed at least on a monthly basis. Valuations are verified
to external sources such as exchange quotes, broker quotes or other
management-approved independent pricing sources. Key model inputs,
such as yield curves and volatilities, are independently verified.
Valuation models used, including analytics for the construction of
yield curves and volatility surfaces, are vetted and approved,
consistent with our model risk policy.
Management's discussion and analysis
The table below presents amounts in each category of financial
instruments, which are fair valued using valuation techniques based
on non-observable market inputs (Level 3), for the structured
credit run-off business and consolidated CIBC.
$ millions, as at
October 31 2011 2010
Structured Structured
credit credit
run-off Total Total run-off Total Total
business CIBC CIBC(1) business CIBC CIBC(1)
-------------------
Assets...........
.................
.................
..
Trading
securities..
............
.......... $ 559 $ 559 1.7% $ 1,647 $ 1,647 5.8%
AFS
securities..
............
............
... 4 2,466 8.4 20 2,849 10.7
FVO
securities
and
loans.......
...... - 10 - 9 20 0.1
Derivative
instruments.
............
.... 1,020 1,112 3.9 1,340 1,461 5.9
-------------------
Liabilities......
.................
.................
.
Deposits(2)
............
............
............ $ 389 $ 583 33.3% $ 1,063 $ 1,428 37.3%
Derivative
instruments.
............
.... 1,788 2,950 9.9 2,052 3,076 11.6
-------------------
(1) Represents percentage of Level 3 assets and liabilities in
each reported category on the consolidated balance sheet.
(2) Includes FVO deposits and bifurcated embedded derivatives.
Sensitivity of level 3 financial assets and liabilities
Much of our structured credit run-off business requires the
application of valuation techniques using non-observable market
inputs. In an inactive market, indicative broker quotes, proxy
valuation from comparable financial instruments, and other internal
models using our own assumptions of how market participants would
price a market transaction on the measurement date (all of which we
consider to be non-observable market inputs), are predominantly
used for the valuation of these positions. We also consider whether
a CVA is required to recognize the risk that any given counterparty
to which we are exposed may not ultimately be able to fulfill its
obligations.
For credit derivatives purchased from financial guarantors, our
CVA is generally driven off market-observed credit spreads, where
available. For financial guarantors that do not have observable
credit spreads or where observable credit spreads are available but
do not reflect an orderly market (i.e., not representative of fair
value), a proxy market spread is used. The proxy market credit
spread is based on our internal credit rating for the particular
financial guarantor. Credit spreads contain information on market
(or proxy market) expectations of PD as well as LGD. The credit
spreads are applied in relation to the weighted-average life of our
exposure to the counterparties. For financial guarantor
counterparties where a proxy market credit spread is used, we also
make an adjustment to reflect additional financial guarantor risk
over an equivalently rated non-financial guarantor counterparty.
The amount of the adjustment is dependent on all available internal
and external market information for financial guarantors. The final
CVA takes into account the expected correlation between the future
performance of the underlying reference assets and that of the
counterparties, except for high quality reference assets where we
expect no future credit degradation.
Where appropriate, on certain financial guarantors, we determine
the CVA based on estimated recoverable amounts.
Interest-only strips from the sale of securitized assets are
valued using prepayment rates, which we consider to be a
non-observable market input.
Swap arrangements related to the sale of securitized assets are
valued using liquidity rates, which we consider to be a
non-observable market input.
ABS are sensitive to credit spreads, which we consider to be a
non-observable market input.
FVO deposits that are not managed as part of our structured
credit run-off business are sensitive to non-observable credit
spreads, which are derived using extrapolation and correlation
assumptions.
Certain bifurcated embedded derivatives, due to the complexity
and unique structure of the instruments, require significant
assumptions and judgment to be applied to both the inputs and
valuation techniques, which we consider to be non-observable.
The effect of changing one or more of the assumptions to fair
value these instruments to reasonably possible alternatives would
impact net income or OCI as described below.
Our unhedged non-USRMM structured credit positions are sensitive
to changes in MTM, generally as derived from indicative broker
quotes and internal models as described above. A 10% adverse change
in MTM of the underlyings would result in losses of approximately
$73 million, excluding unhedged non-USRMM positions classified as
loans which are carried at amortized cost.
Management's discussion and analysis
For our hedged positions, there are two categories of
sensitivities. The first relates to our hedged loan portfolio and
the second relates to our hedged fair valued exposures. Since
on-balance sheet hedged loans are carried at amortized cost whereas
the related credit derivatives are fair valued, a 10% increase in
the MTM of credit derivatives in our hedged structured credit
positions would result in a net gain of approximately $20 million,
assuming current CVA ratios remain unchanged. A 10% reduction in
the MTM of our on-balance sheet fair valued exposures and a 10%
increase in the MTM of all credit derivatives in our hedged
structured credit positions would result in a net loss of
approximately $9 million, assuming current CVA ratios remain
unchanged.
The impact of a 10% increase in the MTM of unmatched credit
derivatives, where we have purchased protection but do not have
exposure to the underlying, would not result in a significant gain
or loss, assuming current CVA ratios remain unchanged.
The impact of a 10% reduction in receivables, net of CVA from
financial guarantors, would result in a net loss of approximately
$48 million.
A 10% increase in prepayment rates pertaining to our retained
interests related to the interest-only strips, resulting from the
sale of securitized assets, would result in a net loss of
approximately $21 million.
A 20 basis point decrease in liquidity rates used to fair value
our derivatives related to the sale of securitized assets would
result in a loss of approximately $102 million.
A 10% reduction in the MTM of our on-balance sheet ABS that are
valued using non-observable credit and liquidity spreads would
result in a decrease in OCI of approximately $147 million.
A 10% reduction in the MTM of certain FVO deposits which are not
managed as part of our structured credit run-off business and are
valued using non-observable inputs, including correlation and
extrapolated credit spreads, would result in a gain of
approximately $4 million.
A 10% reduction in the MTM of certain bifurcated embedded
derivatives, valued using internally vetted valuation techniques,
would result in a gain of approximately $15 million.
The net loss recognized in the consolidated statement of
operations, on the financial instruments, for which fair value was
estimated using valuation techniques requiring non-observable
market parameters, was $437 million (2010: $732 million).
We apply judgment in establishing valuation adjustments that
take into account various factors that may have an impact on the
valuation. Such factors include, but are not limited to, the
bid-offer spread, illiquidity due to lack of market depth,
parameter uncertainty and other market risk, model risk, credit
risk, and future administration costs.
The following table summarizes our valuation adjustments:
$ millions, as at October 31 2011 2010
------------------------------------------------------------------- -------------- -------------
Trading securities............................................
Market risk.................................................. $ 1 $ 2
Derivatives.......................................................
Market risk.................................................. 49 64
Credit risk................................................... 229 325
Administration costs................................... 6 6
------------------------------------------------------------------- -------------- -------------
$ 285 $ 397
------------------------------------------------------------------- -------------- -------------
Note 2 to the consolidated financial statements presents the
valuation methods used to determine fair value showing separately
those that are carried at fair value on the consolidated balance
sheet and those that are not.
Risk factors related to fair value adjustments
We believe that we have made appropriate fair value adjustments
and have taken appropriate write-downs to date. The establishment
of fair value adjustments and the determination of the amount of
write-downs involve estimates that are based on accounting
processes and judgments by management. We evaluate the adequacy of
the fair value adjustments and the amount of write-downs on an
ongoing basis. The levels of fair value adjustments and the amount
of the write-downs could be changed as events warrant and may not
reflect ultimate realizable amounts.
Impairment of AFS securities
AFS securities include debt and equity securities and retained
interests in securitized assets.
AFS securities, other than equities that do not have a quoted
market value in an active market, are stated at fair value, whereby
the difference between the fair value and the amortized cost is
included in AOCI. Equities that do not have a quoted market value
in an active market are carried at cost. AFS securities are subject
to impairment reviews to assess whether or not there is an OTTI.
The assessment of OTTI depends on whether the instrument is debt or
equity in nature.
Management's discussion and analysis
AFS debt securities are identified as impaired when there is
objective observable evidence concerning the inability to collect
the contractual principal or interest. Factors that are reviewed
for impairment assessment include, but are not limited to,
operating performance and future expectations, liquidity and
capital adequacy, external credit ratings, underlying asset quality
deterioration, industry valuation levels for comparable entities,
and any changes in market and economic outlook.
For AFS equity instruments, objective evidence of impairment
exists if there has been a significant or prolonged decline in the
fair value of the investment below its cost. In making the OTTI
assessment we also consider significant adverse changes in the
technological, market, economic, or legal environments in which the
issuer operates, or if the issuer is experiencing significant
financial difficulty, as well as our intent to hold the investment
for a period of time sufficient to allow for any anticipated
recovery.
Realized gains and losses on disposal and write-downs to reflect
OTTI in the value of AFS are recorded in the consolidated statement
of operations. Previously recognized impairment losses for debt
securities (but not equity securities) are reversed if a subsequent
increase in fair value can be objectively identified and is related
to an event occurring after the impairment loss was recognized.
Allowance for credit losses
We establish and maintain an allowance for credit losses that is
considered the best estimate of probable credit-related losses
existing in our portfolio of on- and off-balance sheet financial
instruments, giving due regard to current conditions. The allowance
for credit losses consists of specific and general components.
Specific allowance
Consumer loans
A specific allowance is established for residential mortgages,
personal loans, and certain small business loan portfolios, which
consist of large numbers of homogeneous balances of relatively
small amounts. We take a portfolio approach and establish the
specific allowance utilizing a formula basis, since it is not
practical to review each individual loan. We evaluate these
portfolios for specific allowances by reference to historical
ratios of write-offs to balances in arrears and to balances
outstanding. Further analysis and evaluation of the allowance is
performed to account for the aging of the portfolios and the impact
of economic trends and conditions.
A specific allowance is not established for credit card loans
and they are not classified as impaired. Instead a general
allowance is established and the loans are fully written off when
payments are contractually 180 days in arrears, or upon customer
bankruptcy. Commencing the fourth quarter of 2009, interest on
credit card loans is accrued only to the extent that there is an
expectation of receipt. Prior to that, interest was accrued until
the loans were written off. See Note 5 to the consolidated
financial statements for additional details.
Business and government loans
Business and government loan portfolios are assessed on an
individual loan basis. Specific allowances are established when
impaired loans are identified. A loan is classified as impaired
when we are of the opinion that there is no longer a reasonable
assurance of the full and timely collection of principal and
interest. The specific allowance is the amount required to reduce
the carrying value of an impaired loan to its estimated realizable
amount. This is determined by discounting the expected future cash
flows at the effective interest rate inherent in the loan before
impairment.
General allowance
The general allowance provides for credit losses that are
present in the credit portfolios, but which have not yet been
specifically identified or provided for through specific
allowances. The general allowance applies to on- and off-balance
sheet credit exposures that are not carried at fair value. The
methodology for determining the appropriate level of the general
allowance incorporates a number of factors, including the size of
the portfolios, expected loss rates, and relative risk profiles. We
also consider estimates of the time periods over which losses that
are present would be specifically identified and a specific
provision taken, our view of current economic and portfolio trends,
and evidence of credit quality improvements or deterioration. On a
regular basis, the parameters that affect the general allowance
calculation are updated, based on our experience and the economic
environment.
Expected loss rates for business loan portfolios are based on
the risk rating of each credit facility and on the PD factors
associated with each risk rating, as well as estimates of LGD. The
PD factors reflect our historical experience over an economic
cycle, and is supplemented by data derived from defaults in the
public debt markets. LGD estimates are based on our historical
experience. For consumer loan portfolios, expected losses are based
on our historical loss rates and aggregate balances. As at October
31, 2011, our model indicated a range of outcomes for the general
allowance between $568 million and $1,613 million. The general
allowance of $1,066 million (2010: $1,153 million), which
represents our best estimate of losses inherent but not
Management's discussion and analysis
specifically provided for in our loan portfolios, was selected
from within the range based on a qualitative analysis of the
economic environment and credit trends, as well as the risk profile
of the loan portfolios. A uniform 10% increase in the PDs or loss
severity across all portfolios would cause the general allowance to
increase by approximately $107 million.
Securitizations and VIEs
Securitization of our own assets
We have determined that substantially all of our securitizations
are accounted for as sales because we surrender control of the
transferred assets and receive consideration other than beneficial
interests in the transferred assets. We have also determined that
the entities to which we have transferred the assets should not be
consolidated because they are either QSPEs or we are not the
primary beneficiary of the entities.
Gains or losses on transfers accounted for as sales depend, in
part, upon the allocation of previous carrying amounts to assets
sold and retained interests. These carrying amounts are allocated
in proportion to the relative fair value of the assets sold and the
retained interest. As market prices are generally not available for
retained interests, we estimate fair value based on the present
value of expected future cash flows. This requires us to estimate
expected future cash flows, which incorporate expected credit
losses, scheduled payments and unscheduled prepayment rates,
discount rates, and other factors that influence the value of
retained interests. Actual cash flows may differ significantly from
our estimations. These estimates directly affect our calculation of
gain on sale from securitizations and the rate at which retained
interests are taken into income.
For additional information on our securitizations, including key
economic assumptions used in measuring the fair value of retained
interests and the sensitivity of the changes to those assumptions,
see the "Off-balance sheet arrangements" section, Note 6 to the
consolidated financial statements, and the "Valuation of financial
instruments" section above.
Securitization of third-party assets
We also sponsor several VIEs that purchase pools of third-party
financial assets. Our derivative and administrative transactions
with these entities are generally not considered variable
interests. We monitor the extent to which we support these VIEs
through direct investment in the debt issued by the VIEs and
through the provision of liquidity protection to the other debt
holders, to assess whether we are the primary beneficiary and
consolidator of these entities.
AcG-15, "Consolidation of Variable Interest Entities" provides
guidance on applying consolidation principles to certain entities
that are subject to control on a basis other than ownership of
voting interests. To determine which VIEs require consolidation
under AcG-15, we exercise judgment by identifying our variable
interests and comparing them with other variable interests held by
unrelated parties to determine if we are exposed to a majority of
each of these entities' expected losses or expected residual
returns. We have consolidated certain VIEs as we determined that we
were exposed to a majority of the expected losses or residual
returns.
Where we consider that CIBC is the primary beneficiary of any
VIEs, AcG-15 requires that we reconsider this assessment in the
following circumstances: (i) when there is a significant change to
the design of the VIE or the ownership of variable interests that
significantly changes the manner in which expected losses and
expected residual returns are allocated; (ii) when we sell or
dispose of a part or all of our variable interest to unrelated
parties; or (iii) when the VIE issues new variable interests to
unrelated parties. Where CIBC is not the primary beneficiary,
AcG-15 requires that we reconsider whether we are the primary
beneficiary when we acquire additional variable interests.
Specifically, in relation to ABCP conduits (the conduits), we
reconsider our primary beneficiary assessment whenever our level of
interest in the ABCP issued by the conduits changes significantly,
or in the less frequent event that the liquidity protection we
provide to the conduits is drawn or amended. To the extent that our
ABCP holdings in a particular conduit exceed 45%, it is likely that
we will consider ourselves to be the primary beneficiary, as a
result of the relatively small amount of variability stemming from
the other variable interests in the conduit. A significant increase
in our holdings of ABCP issued by the conduits would become more
likely in a scenario in which the market for bank-sponsored ABCP
suffered a significant deterioration such that the conduits were
unable to roll their ABCP.
Securitizations and VIEs affect all our reporting segments.
Asset impairment
Goodwill, other intangible assets and long-lived assets
As at October 31, 2011, we had goodwill of $1.9 billion (2010:
$1.9 billion) and other intangible assets with an indefinite life
amounting to $136 million (2010: $136 million). Under Canadian
GAAP, goodwill is not amortized, but is instead subject to, at
least annually, an assessment for impairment by applying a two-step
fair value-based test. In the first test, the fair value of the
reporting unit is compared
Management's discussion and analysis
to its book value including goodwill. If the book value of the
reporting unit exceeds the fair value, an impairment loss is then
recognized pursuant to the second test to the extent that, at the
reporting unit level, the carrying amount of goodwill exceeds the
implied fair value of goodwill. In this second step, the implied
fair value of the goodwill is based on determining the fair value
of the reporting unit's tangible and intangible assets and
liabilities in a manner similar to a purchase equation and then
comparing the net fair value with the fair value of the overall
reporting unit determined in the first step. Where appropriate, the
carrying values of our reporting units are based on economic
capital models and are designed to approximate the net book value a
reporting unit would have if it was a stand-alone entity.
Acquired intangible assets are separately recognized if the
benefits of the intangible assets are obtained through contractual
or other legal rights, or if the intangible assets can be sold,
transferred, licensed, rented, or exchanged. Determining the useful
lives of intangible assets requires judgment and fact-based
analysis. Intangibles with an indefinite life are not amortized but
are assessed for impairment by comparing the fair value to the
carrying value.
Long-lived assets and other identifiable intangibles with a
definite life are amortized over their estimated useful lives.
These assets are tested for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may
not be recoverable. In performing the review for recoverability, we
estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected
future undiscounted cash flows is less than the carrying amount of
the asset, an impairment loss is recognized to the extent that fair
value is less than the carrying value.
We use judgment to estimate the fair value of the reporting
units and other intangible assets with an indefinite life. The fair
value of the reporting units and other intangible assets with an
indefinite life are derived from internally developed valuation
models, using market or discounted cash flow approaches. Under a
market approach, the models consider various factors, including
normalized earnings, projected forward earnings, and price earnings
multiples. Under a discounted cash flow approach, the models
consider various factors, including projected cash flows, terminal
growth rates and discount rates.
Our step 1 goodwill impairment tests conducted using these
models during both the current and prior years indicate that the
fair value of the reporting units subject to testing exceeded the
carrying value, with the exception of our CIBC FirstCaribbean
reporting unit, as discussed below with respect to the current
year. The valuations determined by these models are sensitive to
the underlying business conditions in the markets in which the
reporting units operate. Changes in estimated fair values could
result in the future depending on various factors, including
changes in expected economic conditions in these markets.
Using the step 1 test, the estimated fair value of our CIBC
FirstCaribbean reporting unit was less than the carrying value by
approximately $200 million as of the third quarter of 2011. The
decline in the fair value relative to prior estimates was primarily
driven by the increasingly challenging economic environment in the
Caribbean and its impact on our outlook for the region.
As a result of the decline in the fair value of the CIBC
FirstCaribbean reporting unit below the carrying value, we were
required to perform step 2 of the impairment test as of the third
quarter of 2011. The performance of this test demonstrated that the
implied fair value of the goodwill continued to exceed the carrying
value. Our step 2 calculation indicated that the fair value of CIBC
FirstCaribbean's watch-listed and impaired loans were below their
carrying value because of our estimation of the market discount
rate that a purchaser of the loans would require relative to the
contractual terms of the loans. Incorporating the negative fair
value adjustment to the loan portfolio into the hypothetical
purchase equation performed as part of the step 2 test has the
effect of increasing the implied goodwill that the actual goodwill
balance is compared to. As a result, an impairment charge was not
required under Canadian GAAP. Under International Financial
Reporting Standards (IFRS), the determination of goodwill
impairment is based on a single test similar to the step 1 test
under Canadian GAAP and as a result, we expect to record a goodwill
impairment charge in our 2011 IFRS comparative year results as
discussed in the "Transition to International Financial Reporting
Standards" section.
Our indefinite-lived intangible asset impairment tests during
both the current and prior years indicate that the fair value of
the indefinite-lived intangible assets subject to testing exceeded
their carrying values.
These assets are held in all our reporting segments. For
additional details, see Note 8 to the consolidated financial
statements.
Income taxes
We use judgment in the estimation of income taxes and future
income tax assets and liabilities. As part of the process of
preparing our consolidated financial statements, we are
Management's discussion and analysis
required to estimate income taxes in each of the jurisdictions
where we operate.
This process involves estimating actual current tax exposure,
together with assessing temporary differences that result from the
different treatments of items for tax and accounting purposes, and
any tax loss carryforwards.
We are also required to establish a future income tax asset in
respect of expenses recorded currently for which a tax deduction
will be available in a future period, such as the general allowance
for credit losses and loss carryforwards.
As at October 31, 2011, we had available gross future income tax
assets of $825 million (2010: $1,429 million), before a valuation
allowance (VA) of $32 million (2010: $66 million), and gross future
income tax liabilities of $574 million (2010: $596 million). We are
required to assess whether it is more likely than not that our
future income tax assets will be realized prior to their expiration
and, based on all the available evidence, determine if a VA is
required on all or a portion of our future income tax assets. The
factors used to assess the likelihood of realization are our past
experience of income and capital gains, forecast of future net
income before taxes, available tax planning strategies that could
be implemented to realize the future income tax assets, and the
remaining expiration period of tax loss carryforwards. Although
realization is not assured, we believe, based on all the available
evidence, it is more likely than not that the remaining future
income tax assets, net of the VA, will be realized prior to their
expiration.
Income tax accounting impacts all our reporting segments. For
further details of our income taxes, see Note 22 to the
consolidated financial statements.
Contingent liabilities
In the ordinary course of its business, CIBC is a party to a
number of legal proceedings, including regulatory investigations.
In certain of these matters, claims for substantial monetary
damages are asserted against CIBC and its subsidiaries. In
accordance with Canadian GAAP, amounts are accrued for the
financial resolution of claims if, in the opinion of management, it
is both likely that a future event will confirm that a liability
had been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated. In some cases,
however, it is either not possible to determine whether such a
liability has been incurred or to reasonably estimate the amount of
loss until the case is closer to resolution, in which case no
accrual can be made until that time. If the reasonable estimate of
loss involves a range within which a particular amount appears to
be a better estimate, that amount would be accrued. If no such
better estimate within a range is indicated, the minimum amount in
the range is required to be accrued. We regularly assess the
adequacy of CIBC's contingent liability accrual and make the
necessary adjustments to incorporate new information as it becomes
available. Adjustments to the accrual in any quarter may be
material in situations where significant new information becomes
available. While there is inherent difficulty in predicting the
outcome of such matters, based on current knowledge and
consultation with legal counsel, we do not expect that the outcome
of any of these matters, individually or in aggregate, would have a
material adverse effect on our consolidated financial position.
However, the outcome of any such matters, individually or in
aggregate, may be material to our operating results for a
particular year.
Contingent liabilities impact all our reporting segments. For
further details of our contingent liabilities, see Notes 24 and 31
to the consolidated financial statements.
Employee future benefit assumptions
We are the sponsor of defined benefit pension and other
post-employment (including post-retirement) benefit plans for
eligible employees. The pension and other post-employment benefit
expense and obligations, which impact all of our reporting
segments, are dependent upon assumptions used in calculating such
amounts. These assumptions include discount rates, projected salary
increases, expected returns on assets, health care cost trend
rates, turnover of employees, retirement age, and mortality rates.
These assumptions are reviewed annually in accordance with accepted
actuarial practice and are approved by management.
The discount rate assumption used in determining pension and
other post-employment benefit obligations and net benefit expense
reflects the market yields, as of the measurement date, on
high-quality debt instruments with a currency and term to maturity
that match the currency and expected timing of benefit
payments.
Our discount rate is estimated by developing a yield curve based
on high-quality corporate bonds. While there is a deep market of
high-quality corporate bonds denominated in Canadian dollars with
short and medium terms to maturity, there is not a deep market in
bonds with terms to maturity that match the timing of all of the
expected benefits payments for our Canadian plans. As a result, for
our Canadian pension and post-employment benefit plans, we estimate
the yields of high-quality bonds with longer term maturities by
extrapolating current yields on bonds with short and medium term
durations along the yield curve. Judgment is required in
constructing the yield curve, and, as a result,
Management's discussion and analysis
different methodologies applied in constructing the yield curve
can give rise to different discount rates.
The expected rate of return on plan assets assumption is based
on expected returns for the various asset classes, weighted by
portfolio allocation. Anticipated future long-term performance of
individual asset categories is considered, reflecting expected
future inflation and expected real yields on fixed-income
securities and equities. Other assumptions are based on actual plan
experience and our best estimates.
Actual results that differ from the assumptions are accumulated
and amortized over future periods and, therefore, generally affect
recognized expense and the recorded obligation in future periods.
As at October 31, 2011, the net amount of unamortized actuarial
losses was $1,505 million (2010: $1,423 million) in respect of
pension plans and $170 million (2010: $151 million) in respect of
other post-employment benefit plans.
Our benefit plans are funded to or above the amounts required by
relevant legislation or plan term. During the year, we contributed
$281 million (2010: $369 million) to the defined benefit pension
plans, which included $108 million (2010: $175 million) above the
minimum required. Our 2011 funding contributions to our principal
Canadian pension plan was the maximum amount allowed by the Income
Tax Act (Canada).
Our principal post-employment benefit plans are unfunded. We
fund benefit payments for these plans as incurred. During the year,
these benefit payments totalled $33 million (2010: $33
million).
We continue to administer a funded trust in respect of long-term
disability benefits. This plan was closed to new claims effective
June 1, 2004. During the year, we contributed $15 million (2010:
$15 million) to the trust.
For further details of our annual pension and other
post-employment expense and liability, see Note 21 to the
consolidated financial statements.
Actual experience different from that anticipated or future
changes in assumptions may affect our pension and other
post-employment benefit obligations, expenses and funding
contributions. The following table outlines the potential impact of
changes in certain key assumptions used in measuring the accrued
benefit obligations and related expenses for our Canadian plans,
which represent more than 90% of our pension and other
post-employment benefit plans.
Sensitivity analysis: Impact of a change of 100 basis points in
key assumptions
$ millions, for the year ended October 31, 2011
--------------------------------------------------------- ------------------------------ ---------------------------
Estimated increase (decrease) in defined benefit plan
expenses for the year Pension benefit Other benefit
based on assumptions at the beginning of the year plans plans
--------------------------------------------------------- ------------------------------ ---------------------------
Discount
rate.....................................................
.........................................................
.............
Decrease in
assumption..........................................
....................................................
....... $ 76 $ 6
Increase in
assumption..........................................
....................................................
........ (83 ) (5 )
Expected long-term rate of return on plan
assets...................................................
.................
Decrease in
assumption...........................................
.....................................................
..... 39 -
Increase in
assumption...........................................
.....................................................
...... (39 ) -
Rate of compensation
increase.................................................
..............................................
Decrease in
assumption...........................................
.....................................................
..... (30 ) -
Increase in
assumption..........................................
....................................................
........ 33 1
--------------------------------------------------------- ------------------------------ ---------------------------
$ millions, as at October 31, 2011
--------------------------------------------------------- ------------------------------ ---------------------------
Estimated increase (decrease) in accrued benefit
obligations Pension benefit Other benefit
as at October 31, 2011 plans plans
--------------------------------------------------------- ------------------------------ ---------------------------
Discount
rate.....................................................
.........................................................
.............
Decrease in
assumption..........................................
....................................................
....... $ 682 $ 100
Increase in
assumption..........................................
....................................................
........ (654 ) (82 )
Rate of compensation
increase.................................................
..............................................
Decrease in
assumption..........................................
....................................................
....... (120 ) (2 )
Increase in
assumption..........................................
....................................................
........ 130 2
--------------------------------------------------------- ------------------------------ ---------------------------
The sensitivity analysis contained in the table should be used
with caution, as the changes are hypothetical and the impact of
changes in each key assumption may not be linear.
Management's discussion and analysis
Management has approved assumptions to be used for the 2012
expense calculation. The approved weighted-average discount rate
for pension and other post-employment benefits and weighted-average
expected long-term rate of return on plan assets for the funded
defined benefit plans are unchanged from those used for the 2011
expense calculations.
As discussed in the "Transition to International Financial
Reporting Standards" section, our expense calculation for 2012 will
be in accordance with IFRS and as such will reflect various
transition adjustments. The aggregate impact of transition
adjustments together with the impact of changes in market value of
the plan assets in the year is expected to be a decrease of $115
million in expense recognition for our Canadian plans for 2012.
Financial instruments
As a financial institution, our assets and liabilities primarily
comprise financial instruments, which include deposits, securities,
loans, derivatives, acceptances, repurchase agreements,
subordinated debt, and preferred shares.
We use these financial instruments for both trading and
non-trading activities. Trading activities include the purchase and
sale of securities, transacting in foreign exchange and derivative
instruments in the course of facilitating client trades, and taking
proprietary trading positions with the objective of income
generation. Non-trading activities generally include the business
of lending, investing, funding, and ALM.
The use of financial instruments may either introduce or
mitigate exposures to market, credit and/or liquidity risks. See
the "Management of risk" section for details on how these risks are
managed.
Financial instruments are accounted for according to their
classification. For details on the accounting for these
instruments, see Note 1 to the consolidated financial
statements.
For significant assumptions made in determining the valuation of
financial and other instruments, see the "Valuation of financial
instruments" section above.
U.S. regulatory developments
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(the Dodd-Frank Act) was enacted in the U.S. in July 2010. The
Dodd-Frank Act contains financial reforms, including increased
consumer protection, regulation of the OTC derivative markets,
heightened capital and prudential standards, and restrictions on
proprietary trading by banks. The Dodd-Frank Act will affect every
financial institution in the U.S. and many financial institutions
that operate outside the U.S. As many aspects of the Dodd-Frank Act
are subject to rulemaking and will be implemented over several
years, the impact on CIBC is difficult to anticipate until all the
implementing regulations are finalized and released. The
regulations enacted to date do not address the major provisions of
the Dodd-Frank Act and have had a minimal effect on CIBC. At this
point, we do not expect the Dodd-Frank Act to have a significant
impact on our results.
Accounting developments
Changes in accounting policies
2011 and 2010
There were no changes to significant accounting policies during
2011 and 2010.
2009
Financial instruments - recognition and measurement
Effective November 1, 2008, we adopted the revised CICA handbook
section 3855 "Financial Instruments - Recognition and
Measurement."
The revised standard defines loans and receivables as
non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. As a result of this change
in definition, the following transitional provisions were applied
effective November 1, 2008:
-- HTM debt instruments that met the revised definition of loans
and receivables were required to be reclassified from HTM to loans
and receivables;
-- Loans and receivables that an entity intended to sell
immediately or in the near term were required to be classified as
trading financial instruments; and
-- AFS debt instruments were eligible for reclassification to
loans and receivables if they met the revised definition of loans
and receivables. AFS debt instruments were eligible for
reclassification to HTM if they had fixed and determinable payments
and were quoted in an active market and the entity had the positive
intention and ability to hold to maturity. The reclassification
from AFS to loans and receivables or to HTM was optional and could
be made on an instrument-by-instrument basis. We did not elect to
reclassify any AFS securities.
Management's discussion and analysis
Following adoption of the revised standard:
-- Debt securities that meet the definition of loans and
receivables at initial recognition may be classified as loans and
receivables or designated as AFS or held for trading, but are
precluded from being classified as HTM;
-- Impairment charges through income for HTM financial
instruments are to be recognized for credit losses only, rather
than on the basis of a full write down to fair value; and
-- Previously recognized OTTI losses on AFS debt securities are
to be reversed through income if the increase in their fair value
is related to improvement in credit that occurred subsequent to the
recognition of the OTTI.
The adoption of the revised standard resulted in financial
instruments previously classified as HTM being reclassified to
loans and receivables, with no impact to retained earnings or
AOCI.
We adopted the CICA handbook sections 3855 "Financial
Instruments - Recognition and Measurement" and 3862 "Financial
Instruments - Disclosures" as amended and reclassified certain
trading securities to HTM and AFS, from August 1, 2008. See Note 4
to the consolidated financial statements for additional
details.
Financial instruments - disclosures and presentation
For the year ended October 31, 2009, we adopted the amended CICA
3862 handbook section "Financial Instruments - Disclosures," which
expands financial instrument fair value measurement and liquidity
risk management disclosures. The disclosures are provided in Notes
2, 14 and 30 to the consolidated financial statements.
Intangible assets
Effective November 1, 2008, we adopted the CICA handbook section
3064, "Goodwill and Intangible Assets," which replaced CICA
handbook sections 3062, "Goodwill and Other Intangible Assets," and
3450, "Research and Development Costs." The new section establishes
standards for recognition, measurement, presentation and disclosure
of goodwill and intangible assets.
The adoption of this guidance did not result in a change in the
recognition of our goodwill and intangible assets. However, we
retroactively reclassified intangible assets relating to
application software with net book value of $385 million as at
October 31, 2008, from Land, buildings and equipment to Software
and other intangible assets on our consolidated balance sheet.
Transition to International Financial Reporting Standards
Canadian publicly accountable enterprises must transition to
IFRS for fiscal years beginning on or after January 1, 2011. As a
result, we will adopt IFRS commencing November 1, 2011 and will
publish our first interim consolidated financial statements,
prepared in accordance with IFRS, for the quarter ending January
31, 2012. Upon adoption, we will provide fiscal 2011 comparative
financial information, also prepared in accordance with IFRS,
including an opening IFRS consolidated balance sheet as at November
1, 2010.
The transition to IFRS represents a significant initiative for
CIBC and continues to progress on track with our plan. Our
transition program is supported by a formal governance structure
with an enterprise view and a dedicated project team and
appropriately engages our external and internal auditors to review
key milestones and activities as we progress through the
transition.
Our IFRS transition program was divided into three phases: (i)
discovery; (ii) execution; and (iii) conversion. The discovery
phase included an accounting diagnostic, which identified the
accounting standards that are relevant to CIBC, and the
identification and planning for the execution phase. The execution
phase commenced with a detailed analysis of the IFRS standards and
continued through to the preparation of the policies, processes,
technologies, strategies, and reporting for the upcoming
transition. The final conversion phase, which we are currently in,
will report under IFRS in 2012 and will also report on the
reconciliation of Canadian GAAP to IFRS for the fiscal 2011
comparative year. We have included our November 1, 2010 opening
IFRS consolidated balance sheet in Note 32 to our 2011 consolidated
financial statements.
Process, financial reporting controls and technology
During the fourth quarter of 2011, we continued with the
development and implementation of the business processes and
internal controls over financial reporting to enable us to prepare
our comparative opening November 1, 2010 consolidated balance sheet
and restate our comparative fiscal 2011 consolidated financial
statements to IFRS, while at the same time preparing normal course
fiscal 2011 Canadian GAAP financial information. These processes
included the continued use of our technology-based comparative year
reporting facility to track 2011 comparative IFRS financial
information.
Management's discussion and analysis
In the first and second quarters of fiscal 2011, the focus was
on preparing the IFRS opening November 1, 2010 consolidated balance
sheet and our first comparative quarter of 2011. In the third
quarter, we focused on the preparation of the statement of
operations for the second quarter of 2011, while in the fourth
quarter our focus was on the statement of operations for the third
and fourth quarters of 2011. Throughout 2011, we have also been
preparing the IFRS 1, "First-Time Adoption of International
Financial Reporting Standards," transition note with the
accompanying reconciliations that will be included in our first
published IFRS consolidated financial statements for the quarter
ending January 31, 2012. We used our comparative year reporting
facility together with our associated controls and processes to
prepare these IFRS reconciliations. The information in our
comparative year reporting facility is being transferred into our
general ledger effective November 1, 2011.
In addition, the realignment of system feeds to more efficiently
report our securitized mortgages on the consolidated balance sheet
was tested in the fourth quarter of 2011 and was put into
production on November 1, 2011.
Concurrent with preparing for the impact of IFRS on our
financial reporting, we have also prepared CIBC for impacts that
IFRS has on the consolidated financial statements of our clients
and counterparties, including impacts to our loan management
processes, controls, and risk rating system.
Communications and training
Information regarding the progress of the project continued to
be communicated to internal stakeholders throughout fiscal 2011,
including our Audit Committee, senior executives and the Program
Steering Committee, and to external stakeholders including our
external auditor and OSFI. We also participated in an
industry-sponsored IFRS education event to communicate the broad
impacts of IFRS on the banking industry to analysts and investors.
We have also communicated IFRS impacts to rating agencies and
expect to issue a news release in late January 2012 on the impacts
of IFRS to our 2011 statement of operations.
We believe we have the financial reporting expertise to support
our transition to IFRS. We have accounting policy staff dedicated
to assessing the impact of current and future IFRS and they consult
with external advisors as necessary. In 2009, we launched an
enterprise-wide training program to raise the level of awareness of
IFRS throughout CIBC, and to prepare staff to perform in an IFRS
environment. We completed the delivery of our training program
during fiscal 2010, which included separate learning paths for: (i)
groups that need to understand and execute on the impact of IFRS on
CIBC and its subsidiaries; and (ii) groups, such as Risk Management
and the businesses, that need to understand the impact of
transitioning away from Canadian GAAP on CIBC as well as our
Canadian clients and counterparties.
While the training was completed during fiscal 2010, refresh
sessions were provided in 2011 as required.
Financial impacts
The requirements concerning the transition to IFRS are set out
in IFRS 1, "First-time Adoption of International Financial
Reporting Standards," which requires the preparation of an opening
comparative IFRS consolidated balance sheet at November 1, 2010
(opening IFRS balance sheet).
Our opening IFRS balance sheet is included in Note 32 to our
consolidated financial statements, including a description of the
transitional elections and exceptions that were applied in the
preparation of our opening IFRS balance sheet, as well as
differences between Canadian GAAP and IFRS accounting policies that
gave rise to adjustments in our opening IFRS consolidated balance
sheet.
As a result of the transition to IFRS, at November 1, 2010, our
consolidated assets increased by $27.3 billion, our consolidated
liabilities increased by $28.4 billion (including the
reclassification of non-controlling interests to equity), and our
total shareholders' equity decreased by $1.1 billion.
The decrease in our total shareholders' equity of $1.1 billion
as at November 1, 2010 included a $1.9 billion decrease in our
retained earnings and a $0.8 billion increase in our AOCI. The
decrease in our retained earnings was primarily due to the
recognition of cumulative unamortized actuarial losses for
post-employment defined benefit plans, along with other employee
benefit adjustments, totalling a $1.1 billion charge (net of tax),
and the reclassification of cumulative translation losses for
foreign operations of $575 million at November 1, 2010 from AOCI to
retained earnings.
The majority of the gross-up of the consolidated balance sheet
was the result of the impact of our accounting for residential
mortgages securitized through the creation of MBS, which were
derecognized under Canadian GAAP upon sale to the Canada Housing
Trust, but which are accounted for as secured borrowings under
IFRS.
Other areas of adjustment to our opening IFRS consolidated
balance sheet include, but are not limited to, consolidations,
accounting for share-based compensation, measurement and impairment
of equity instruments and the accounting for joint ventures. For
more information on financial impacts, refer to Note 32 of our
consolidated financial statements.
Management's discussion and analysis
In addition, in the third quarter of our 2011 comparative year,
we expect to record a goodwill impairment charge of about US$200
million related to our CIBC FirstCaribbean cash generating unit.
This charge results under IFRS because the determination of
goodwill impairment is based on a single test similar to the step 1
test under Canadian GAAP. As discussed in the "Asset impairment"
part of the "Critical accounting policies and estimates" section, a
goodwill impairment charge did not result under Canadian GAAP
because the step 2 impairment test, that is only required under
Canadian GAAP, determined that the implied fair value of the
goodwill still exceeded its carrying value. The goodwill impairment
charge expected under IFRS in our comparative year is a non-cash
item and does not impact our regulatory capital as goodwill is
excluded from the calculation of Tier 1 Capital.
Regulatory capital impacts
The transition to IFRS is estimated to reduce Tier 1 capital and
the Tier 1 ratio under Basel II as at November 1, 2011 by
approximately $1.4 billion and 110 basis points, respectively,
before the impact of OSFI's transitional relief guideline. Pursuant
to this guideline, we will phase-in approximately $1.3 billion of
the negative Tier 1 impact on a straight-line basis such that we
will obtain relief for 80% of the amount as at January 31, 2012,
60% of the amount as at April 30, 2012, 40% of the amount as at
July 31, 2012, and 20% of the amount as at October 31, 2012.
The transition to IFRS will also increase our ACM of 16.0x as at
October 31, 2011 under Canadian GAAP to a pro-forma ACM of
approximately 18.6x under IFRS as at November 1, 2011, before the
impact of OSFI's transitional relief. The application of OSFI's
IFRS transition guideline, that excludes the mortgages that are
recognized back on the consolidated balance sheet with respect to
securitizations completed prior to March 31, 2010 under the CMB
program, will decrease the pro-forma November 1, 2011 ACM to
approximately 17.4x, while the impact of 100% of the estimated $1.3
billion of Tier 1 relief as at November 1, 2011 will further reduce
the pro forma November 1, 2011 ACM to approximately 16.3x.
Future changes
The opening IFRS balance sheet has been prepared on the basis of
accounting policies that we expect to apply in the preparation of
our first annual IFRS consolidated financial statements for the
year ending October 31, 2012, which reflect the currently effective
requirements of IFRS.
The evolving nature of IFRS will result in additional accounting
changes, some of which may be significant, in the years following
our initial transition.
A future change to IFRS which may be significant for us is in
the area of employee benefits, which will require us to reflect the
funded status of our post-employment defined benefit plans on our
consolidated balance sheet beginning in fiscal 2014. In addition,
the IASB has issued a new standard for the classification and
measurement of financial instruments, which will be effective for
us in fiscal 2016, although significant revisions to the
requirements of the standard may be made prior to the standard
becoming effective.
Additional possible future changes to IFRS that may have a
significant impact on CIBC include the areas of loan loss
provisioning, hedge accounting, and lease accounting. Any changes
arising from the proposed standards or revisions to existing
standards will not be effective for us until the years following
our IFRS transition in fiscal 2012. We will continue to monitor
these proposed changes to IFRS through 2012.
Related-party transactions
We have various processes in place to ensure that the relevant
related-party information is identified and reported to the
Corporate Governance Committee (CGC) of the Board on a quarterly
basis, as required by the Bank Act. The CGC has the responsibility
for reviewing our policies and practices in identifying
transactions with our related parties that may materially affect
us, and reviewing the associated procedures for promoting
compliance with the Bank Act.
For further details, see Note 26 to the consolidated financial
statements.
Controls and procedures
Disclosure controls and procedures
CIBC's management, with the participation of the President and
Chief Executive Officer and the Chief Financial Officer, has
evaluated the effectiveness of CIBC's disclosure controls and
procedures (as defined in the rules of the SEC and the Canadian
Securities Administrators) as at October 31, 2011, and has
concluded that such disclosure controls and procedures were
effective.
Management's annual report on internal control over financial
reporting
CIBC's management is responsible for establishing and
maintaining adequate internal control over financial reporting for
CIBC.
Internal control over financial reporting is a process designed
by, or under the supervision of, the President and Chief Executive
Officer and the Chief Financial Officer and effected by the Board,
management and other personnel to provide reasonable assurance
regarding the reliability of financial
Management's discussion and analysis
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. CIBC's internal control over financial reporting
includes those policies and procedures that (i) pertain to the
maintenance of records, that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of
CIBC; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and
that receipts and expenditures of CIBC are being made only in
accordance with authorizations of CIBC's management and directors;
and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of
CIBC's assets that could have a material effect on the financial
statements.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
CIBC's management has used the COSO framework to evaluate the
effectiveness of CIBC's internal control over financial
reporting.
As at October 31, 2011, management assessed the effectiveness of
CIBC's internal control over financial reporting and concluded that
such internal control over financial reporting was effective and
that there were no material weaknesses in CIBC's internal control
over financial reporting that have been identified by
management.
Ernst & Young LLP, who has audited the consolidated
financial statements of CIBC for the year ended October 31, 2011,
has also issued a report on internal control over financial
reporting under Auditing Standard No. 5 of the Public Company
Accounting Oversight Board (United States). This report is located
on page 112 of this Annual Report.
Changes in internal control over financial reporting
There have been no changes in CIBC's internal control over
financial reporting during the year ended October 31, 2011, that
have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting.
Management's discussion and analysis
Supplementary annual financial information
Average balance sheet, net interest income and margin
Average balance Interest Average rate
$ millions, for the year ended
October 31 2011 2010 2009 2011 2010 2009 2011 2010 2009
Domestic assets(1)
Cash and deposits with
banks............ $ 3,663 $ 3,359 $ 2,370 $ 29 $ 16 $ 26 0.79 % 0.48 % 1.10 %
Trading....
...........
Securities. ...........
........ . 32,413 14,895 10,423 911 368 269 2.81 2.47 2.58
AFS.....................
........... 14,322 19,969 21,661 479 598 589 3.34 2.99 2.72
FVO.....................
........... 19,543 19,713 23,602 356 282 435 1.82 1.43 1.84
Securities borrowed or
purchased under resale
agreements...................
.... 21,916 18,910 19,575 249 90 190 1.14 0.48 0.97
Residential
mortgages..
Loans..... .. 95,547 89,714 80,551 2,913 2,566 2,284 3.05 2.86 2.84
Personal and credit card. 43,225 43,851 41,823 2,824 2,786 2,612 6.53 6.35 6.25
Business and
government... 24,216 20,041 21,413 1,086 927 1,023 4.48 4.63 4.78
Total
loans........................
................ 162,988 153,606 143,787 6,823 6,279 5,919 4.19 4.09 4.12
Other interest-bearing
assets............. 530 419 429 83 55 110 15.66 13.13 25.64
Derivative
instruments..................
..... 10,093 9,459 12,120 - - - - - -
Customers' liability under
acceptances 8,507 7,774 9,490 - - - - - -
Other non-interest-bearing
assets...... 11,102 13,761 17,977 - - - - - -
Total domestic
assets.......................
. 285,077 261,865 261,434 8,930 7,688 7,538 3.13 2.94 2.88
Foreign assets(1)
Cash and deposits with
banks............ 16,242 7,694 5,973 34 36 59 0.21 0.47 0.99
Trading....
...........
Securities. ...........
........ . 2,169 5,647 6,481 47 89 149 2.17 1.58 2.30
AFS.....................
........... 11,456 14,649 15,382 157 198 225 1.37 1.35 1.46
FVO.....................
........... 379 416 634 13 27 38 3.43 6.49 5.99
Securities borrowed or
purchased under resale
agreements...................
.... 15,273 16,933 14,995 116 103 134 0.76 0.61 0.89
Residential
mortgages..
Loans..... .. 2,138 2,210 2,428 129 177 140 6.03 8.01 5.77
Personal and credit card. 991 1,058 1,260 72 79 100 7.27 7.47 7.94
Business and
government... 15,035 17,582 18,584 571 685 911 3.80 3.90 4.90
Total
loans........................
................ 18,164 20,850 22,272 772 941 1,151 4.25 4.51 5.17
Other interest-bearing
assets............. 43 166 140 30 13 3 69.77 7.83 2.14
Derivative
instruments..................
..... 13,252 14,487 19,199 - - - - - -
Customers' liability under
acceptances - - 1 - - - - - -
Other non-interest-bearing
assets...... 2,918 3,236 4,195 - - - - - -
Total foreign
assets.......................
.... 79,896 84,078 89,272 1,169 1,407 1,759 1.46 1.67 1.97
Total assets $ 364,973 $ 345,943 $ 350,706 $ 10,099 $ 9,095 $ 9,297 2.77 % 2.63 % 2.65 %
Domestic liabilities(1)
Personal...
...........
Deposits. ........... $ 107,384 $ 104,862 $ 96,292 $ 1,276 $ 1,398 $ 1,739 1.19 % 1.33 % 1.81 %
Business and
government... 101,663 82,697 76,029 1,190 571 657 1.17 0.69 0.86
Bank....................
........... 1,116 1,156 1,881 6 4 7 0.54 0.35 0.37
Total
deposits.....................
............. 210,163 188,715 174,202 2,472 1,973 2,403 1.18 1.05 1.38
Derivative
instruments..................
.... 10,514 10,357 13,751 - - - - - -
Acceptances..................
.................. 8,508 7,774 9,499 - - - - - -
Obligations related to
securities sold
short........................
................... 11,702 8,492 6,054 388 209 156 3.32 2.46 2.58
Obligations related to
securities lent or sold under
repurchase agreements 15,277 25,885 32,158 215 186 252 1.41 0.72 0.78
Other
liabilities..................
.............. 11,147 10,183 11,574 21 (5 ) 18 0.19 (0.05 ) 0.16
Subordinated
indebtedness............. 5,011 4,767 5,387 207 180 183 4.13 3.78 3.40
Preferred share
liabilities................. - 598 600 - 35 31 - 5.85 5.17
Total domestic
liabilities................. 272,322 256,771 253,225 3,303 2,578 3,043 1.21 1.00 1.20
Foreign liabilities(1)
Personal...
...........
Deposits. ........... 6,030 6,217 6,766 73 85 119 1.21 1.37 1.76
Business and
government... 37,011 30,437 32,176 209 111 263 0.56 0.36 0.82
Bank....................
........... 5,532 5,678 7,839 33 23 94 0.60 0.41 1.20
Total
deposits.....................
............. 48,573 42,332 46,781 315 219 476 0.65 0.52 1.02
Derivative
instruments..................
.... 13,804 15,863 21,783 - - - - - -
Acceptances...................
................. - - 1 - - - - - -
Obligations related to
securities sold
short........................
.................. 77 128 407 2 2 2 2.60 1.56 0.49
Obligations related to
securities lent or sold under
repurchase agreements 11,880 13,494 11,214 82 109 269 0.69 0.81 2.40
Other
liabilities..................
.............. 919 1,637 2,516 39 (25 ) 88 4.24 (1.53 ) 3.50
Subordinated
indebtedness............. 566 622 866 8 8 25 1.41 1.29 2.89
Non-controlling
interests.................. 161 168 179 - - - - - -
Total foreign
liabilities..................
.. 75,980 74,244 83,747 446 313 860 0.59 0.42 1.03
Total
liabilities..................
.............. 348,302 331,015 336,972 3,749 2,891 3,903 1.08 0.87 1.16
Shareholders'
equity.......................
. 16,671 14,928 13,734 - - - - - -
Total liabilities and
shareholders' equity $ 364,973 $ 345,943 $ 350,706 $ 3,749 $ 2,891 $ 3,903 1.03 % 0.84 % 1.11 %
Net interest income and
margin........ $ 6,350 $ 6,204 $ 5,394 1.74 % 1.79 % 1.54 %
Additional disclosures:
Non-interest-bearing deposit
liabilities...................
................
Domestic................
... $ 26,505 $ 26,125 $ 22,977
Foreign.................
.... $ 2,875 $ 2,234 $ 3,405
(1) Classification as domestic or foreign is based on domicile of debtor or customer.
Management's discussion and analysis
Volume/rate analysis of changes in net interest income
$ millions in 2011/2010 2010/2009
Increase (decrease) Increase (decrease)
due to change: due to change in:
Average Average Average Average
balance rate Total balance rate Total
--------------------
Domestic assets(1)
Cash and deposits with
banks........................
............................ $ 1 $ 12 $ 13 $ 11 $ (21 ) $ (10 )
Trading....
...........
...........
...........
...........
Securities. ...........
........ ........ 433 110 543 115 (16 ) 99
AFS.....................
........................
........................
.... (169 ) 50 (119 ) (46 ) 55 9
FVO.....................
........................
........................
... (2 ) 76 74 (72 ) (81 ) (153 )
Securities borrowed or
purchased under resale
agreements...... 14 145 159 (6 ) (94 ) (100 )
--------------------
Residential
mortgages..
...........
...........
...........
Loans..... ......... 167 180 347 260 22 282
Personal and credit
card....................
..................... (40 ) 78 38 127 47 174
Business and
government..............
........................
. 193 (34 ) 159 (66 ) (30 ) (96 )
--------------------
Total
loans........................
.............................
........................... 320 224 544 321 39 360
Other interest-bearing
assets.......................
.............................
.. 15 13 28 (3 ) (52 ) (55 )
--------------------
Change in domestic interest
income.......................
.................. 612 630 1,242 320 (170 ) 150
--------------------
Foreign assets(1)
Cash and deposits with
banks........................
............................ 40 (42 ) (2 ) 17 (40 ) (23 )
Trading....
...........
...........
...........
...........
Securities. ...........
........ ........ (55 ) 13 (42 ) (19 ) (41 ) (60 )
AFS.....................
........................
........................
.... (43 ) 2 (41 ) (11 ) (16 ) (27 )
FVO.....................
........................
........................
... (2 ) (12 ) (14 ) (13 ) 2 (11 )
Securities borrowed or
purchased under resale
agreements...... (10 ) 23 13 17 (48 ) (31 )
--------------------
Residential
mortgages..
...........
...........
...........
Loans..... ......... (6 ) (42 ) (48 ) (13 ) 50 37
Personal and credit
card....................
..................... (5 ) (2 ) (7 ) (16 ) (5 ) (21 )
Business and
government..............
........................
. (99 ) (15 ) (114 ) (49 ) (177 ) (226 )
--------------------
Total
loans........................
.............................
........................... (110 ) (59 ) (169 ) (78 ) (132 ) (210 )
Other interest-bearing
assets.......................
.............................
.. (10 ) 27 17 1 9 10
--------------------
Change in foreign interest
income.......................
..................... (190 ) (48 ) (238 ) (86 ) (266 ) (352 )
--------------------
Total change in interest
income $ 422 $ 582 $ 1,004 $ 234 $ (436 ) $ (202 )
--------------------
Domestic liabilities(1)
Personal...
...........
...........
...........
...........
...........
Deposits. ........ $ 34 $ (156 ) $ (122 ) $ 155 $ (496 ) $ (341 )
Business and
government..............
........................
. 131 488 619 58 (144 ) (86 )
Bank....................
........................
........................
.... - 2 2 (3 ) - (3 )
--------------------
Total
deposits.....................
.............................
.......................... 165 334 499 210 (640 ) (430 )
Obligations related to
securities sold
short........................
......... 79 100 179 63 (10 ) 53
Obligations related to
securities lent or sold under
repurchase
agreements...................
.............................
.......................... (76 ) 105 29 (49 ) (17 ) (66 )
Other
liabilities..................
.............................
........................... - 26 26 (2 ) (21 ) (23 )
Subordinated
indebtedness.................
.............................
......... 9 18 27 (21 ) 18 (3 )
Preferred share
liabilities..................
.............................
............ (35 ) - (35 ) - 4 4
--------------------
Change in domestic interest
expense......................
.................. 142 583 725 201 (666 ) (465 )
--------------------
Foreign liabilities(1)
Personal...
...........
...........
...........
...........
...........
Deposits. ........ (3 ) (9 ) (12 ) (10 ) (24 ) (34 )
Business and
government..............
........................
. 24 74 98 (14 ) (138 ) (152 )
Bank....................
........................
........................
.... (1 ) 11 10 (26 ) (45 ) (71 )
--------------------
Total
deposits.....................
.............................
.......................... 20 76 96 (50 ) (207 ) (257 )
Obligations related to
securities sold
short........................
......... (1 ) 1 - (1 ) 1 -
Obligations related to
securities lent or sold under
repurchase
agreements...................
.............................
.......................... (13 ) (14 ) (27 ) 55 (215 ) (160 )
Other
liabilities..................
.............................
........................... 11 53 64 (31 ) (82 ) (113 )
Subordinated
indebtedness.................
.............................
......... (1 ) 1 - (7 ) (10 ) (17 )
--------------------
Change in foreign interest
expense......................
..................... 16 117 133 (34 ) (513 ) (547 )
--------------------
Total change in interest
expense $ 158 $ 700 $ 858 $ 167 $ (1,179 ) $ (1,012 )
--------------------
Change in total net interest
income $ 264 $ (118 ) $ 146 $ 67 $ 743 $ 810
--------------------
(1) Classification as domestic or foreign is based on domicile of debtor or customer.
Management's discussion and analysis
Analysis of net loans and acceptances
Canada(1) U.S.(1)
----------------------- -------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------
$ millions, as at
October 31 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Residential
mortgages....... $ 97,365 $ 91,338 $ 83,837 $ 88,185 $ 89,772 $ 1 $ 1 $ 1 $ 1 $ 3
Student...............
.............. 384 523 677 858 1,060 - - - - -
Personal..............
.............. 33,202 32,365 31,729 29,648 26,640 132 241 162 215 155
Credit
card..................
....... 9,855 11,508 11,121 10,329 8,737 24 30 28 25 23
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Total net consumer
loans.. 140,806 135,734 127,364 129,020 126,209 157 272 191 241 181
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Non-residential
mortgages. 7,055 6,339 5,789 5,790 4,892 2 2 3 77 531
Financial
institutions......... 2,115 1,852 2,422 4,107 2,757 427 352 644 1,045 310
Retail and
wholesale......... 2,645 2,487 1,926 2,261 2,088 43 52 115 193 266
Business
services..............
. 3,323 2,773 2,701 2,951 3,106 221 403 455 558 365
Manufacturing - capital
goods.................
.......... 1,078 970 709 860 829 129 12 26 296 250
Manufacturing -
consumer
goods.................
.......... 1,287 1,016 787 951 1,123 50 18 17 90 195
Real estate and
construction..........
........ 4,114 3,123 2,903 2,975 2,602 3,215 1,563 2,054 2,138 999
Agriculture...........
.............. 3,584 3,240 2,897 3,058 2,890 - (1 ) (1 ) - 10
Oil and
gas...................
..... 2,883 2,418 3,091 3,605 3,851 413 145 12 58 114
Mining................
............... 285 123 501 1,763 513 78 32 - 39 11
Forest
products..............
.... 415 376 299 340 474 52 - 61 93 94
Hardware and
software...... 243 223 172 190 238 73 33 43 140 169
Telecommunications and
cable.................
........... 213 264 148 565 507 12 13 34 107 112
Publishing, printing,
and
broadcasting..........
...... 404 386 505 580 523 - - - 59 100
Transportation........
........... 699 750 800 627 616 338 359 294 460 623
Utilities.............
................. 674 795 667 862 258 246 99 57 162 179
Education, health and
social
services.............. 1,753 1,301 1,240 1,296 1,222 46 46 47 119 83
Governments...........
.......... 785 759 685 856 824 - - - - -
Others................
................ 1,972 358 96 - - 845 1,031 1,128 - -
General allowance
allocated to business
and government loans. (246 ) (217 ) (254 ) (282 ) (279) (54 ) (67 ) (76 ) (42 ) (54)
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Total net business and
government loans
including acceptances. 35,281 29,336 28,084 33,355 29,034 6,136 4,092 4,913 5,592 4,357
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Total net loans and
acceptances $ 176,087 $ 165,070 $ 155,448 $ 162,375 $ 155,243 $ 6,293 $ 4,364 $ 5,104 $ 5,833 $ 4,538
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Analysis of net loans and acceptances (continued)
Other(1) Total
----------------------- -------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------
$ millions, as at
October 31 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Residential
mortgages....... $ 2,191 $ 2,190 $ 2,272 $ 2,463 $ 1,848 $ 99,557 $ 93,529 $ 86,110 $ 90,649 $ 91,623
Student...............
.............. 1 1 1 1 1 385 524 678 859 1,061
Personal..............
.............. 637 688 759 909 782 33,971 33,294 32,650 30,772 27,577
Credit
card..................
....... 118 111 110 126 102 9,997 11,649 11,259 10,480 8,862
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Total net consumer
loans.. 2,947 2,990 3,142 3,499 2,733 143,910 138,996 130,697 132,760 129,123
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Non-residential
mortgages. 291 392 495 519 343 7,348 6,733 6,287 6,386 5,766
Financial
institutions......... 1,003 1,032 971 1,245 1,498 3,545 3,236 4,037 6,397 4,565
Retail and
wholesale......... 351 391 462 775 726 3,039 2,930 2,503 3,229 3,080
Business
services..............
. 1,033 1,053 1,361 1,837 1,468 4,577 4,229 4,517 5,346 4,939
Manufacturing-capital
goods.................
.......... 233 269 329 73 105 1,440 1,251 1,064 1,229 1,184
Manufacturing-consumer
goods.................
.......... 268 253 296 365 373 1,605 1,287 1,100 1,406 1,691
Real estate and
construction..........
........ 572 681 755 613 231 7,901 5,367 5,712 5,726 3,832
Agriculture...........
.............. 94 104 114 142 116 3,678 3,343 3,010 3,200 3,016
Oil and
gas...................
..... - - - - - 3,296 2,563 3,103 3,663 3,965
Mining................
............... 109 129 348 1,149 1,319 472 284 849 2,951 1,843
Forest
products..............
.... 32 31 21 28 73 499 407 381 461 641
Hardware and
software...... 22 242 271 243 169 338 498 486 573 576
Telecommunications and
cable.................
........... 58 33 44 213 465 283 310 226 885 1,084
Publishing, printing
and
broadcasting..........
...... 41 36 39 10 133 445 422 544 649 756
Transportation........
........... 380 249 273 369 397 1,417 1,358 1,367 1,456 1,636
Utilities.............
................. 272 310 351 247 264 1,192 1,204 1,075 1,271 701
Education, health and
social
services.............. 23 27 19 - 52 1,822 1,374 1,306 1,415 1,357
Governments...........
.......... 901 633 567 822 473 1,686 1,392 1,252 1,678 1,297
Others................
................ 3,389 6,312 5,255 - - 6,206 7,701 6,479 - -
General allowance
allocated to business
and government loans. (20 ) (25 ) (56 ) (34 ) (41) (320 ) (309 ) (386 ) (358 ) (374)
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Total net business and
government loans
including acceptances. 9,052 12,152 11,915 8,616 8,164 50,469 45,580 44,912 47,563 41,555
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
Total net loans and
acceptances $ 11,999 $ 15,142 $ 15,057 $ 12,115 $ 10,897 $ 194,379 $ 184,576 $ 175,609 $ 180,323 $ 170,678
----------------------- ---------------- ----------------- ----------------- ----------------- ----------------- ------------------ ------------------- ------------------- ----------------- -----------------
(1) Classification by country is based on domicile of debtor or customer.
Management's discussion and analysis
Summary of allowance for credit losses
$ millions, as at or for
the year ended October
31 2011 2010 2009 2008 2007
------------------ ----------------- ----------------- ---------------- ----------------
Balance at beginning of
year...................
.......................
.......................
......... $ 1,784 $ 2,043 $ 1,523 $ 1,443 $ 1,444
Provision for credit
losses.................
.......................
.......................
.................. 841 1,046 1,649 773 603
Write-offs..............
........................
........................
........................
....................
Domestic............
....................
....................
....................
....................
........
Residential
mortgages......
...............
...............
...............
...............
........ 14 9 7 4 5
Student........
...............
...............
...............
...............
...............
.............. 5 9 11 11 13
Personal and
credit
card...........
...............
...............
...............
............... 840 1,054 1,034 681 673
Other business
and
government.....
...............
...............
...............
.......... 103 150 115 113 131
Foreign.............
....................
....................
....................
....................
..........
Residential
mortgages......
...............
...............
...............
...............
........ 1 3 2 - 2
Personal and
credit
card...........
...............
...............
...............
............... 14 17 13 6 22
Other business
and
government.....
...............
...............
...............
.......... 55 176 41 35 15
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Total
write-offs.............
.......................
.......................
.......................
............... 1,032 1,418 1,223 850 861
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Recoveries
Domestic............
....................
....................
....................
....................
........
Student........
...............
...............
...............
...............
...............
.............. - - 1 1 2
Personal and
credit
card...........
...............
...............
...............
............... 99 109 89 87 77
Other business
and
government.....
...............
...............
...............
.......... 10 8 8 13 19
Foreign.............
....................
....................
....................
....................
..........
Personal and
credit
card...........
...............
...............
...............
............... 1 2 3 5 2
Other business
and
government.....
...............
...............
...............
.......... 2 4 20 8 47
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Total
recoveries.............
.......................
.......................
.......................
............. 112 123 121 114 147
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Net
write-offs.............
.......................
.......................
.......................
.................. 920 1,295 1,102 736 714
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Foreign exchange and
other
adjustments............
.......................
..................... (10 ) (10 ) (27 ) 43 110
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Balance at end of
year...................
.......................
.......................
................... $ 1,695 $ 1,784 $ 2,043 $ 1,523 $ 1,443
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Comprised of:
Loans..............
...................
...................
...................
...................
............... $ 1,647 $ 1,720 $ 1,960 $ 1,446 $ 1,443
Letters of
credit..............
....................
....................
....................
................. - - 1 - -
Undrawn credit
facilities.........
...................
...................
...................
........... 48 64 82 77 -
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Ratio of net write-offs
during year to average
loans outstanding
during year... 0.51 % 0.74 % 0.66 % 0.45 % 0.46 %
------------------------ ------------------ ----------------- ----------------- ---------------- ----------------
Specific allowances for credit losses as a percentage of gross
impaired loans
Specific allowance for credit losses Specific allowance as a % of gross impaired loans
------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------
$ millions, as
at October 31 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
------------- ------------- ------------- ------------- ------------- ----------------- ----------------- ----------------- ----------------- -----------------
Domestic(1)
Residential
mortgages. $ 16 $ 19 $ 14 $ 9 $ 11 7.0 % 7.3 % 6.1 % 6.3 % 9.2 %
Personal
loans......
....... 186 193 226 169 183 87.7 88.9 94.2 79.0 83.9
Business and
government.
........... 92 120 134 121 133 58.6 55.3 51.9 71.2 66.2
---------------- ------------- ------------- ------------- ------------- ------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total
domestic.......
........... $ 294 $ 332 $ 374 $ 299 $ 327 49.1 % 47.9 % 51.4 % 56.7 % 60.8 %
---------------- ------------- ------------- ------------- ------------- ------------- ----------------- ----------------- ----------------- ----------------- -----------------
Foreign(1)
Residential
mortgages. $ 18 $ 11 $ 21 $ 27 $ 19 8.1 % 5.7 % 12.2 % 18.8 % 19.0 %
Personal
loans......
....... 25 31 32 38 24 31.6 35.6 37.6 45.8 42.9
Business and
government.
........... 292 257 308 79 61 30.9 29.8 33.3 34.5 36.1
---------------- ------------- ------------- ------------- ------------- ------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total
foreign........
............. $ 335 $ 299 $ 361 $ 144 $ 104 26.9 % 26.2 % 30.5 % 31.6 % 32.0 %
---------------- ------------- ------------- ------------- ------------- ------------- ----------------- ----------------- ----------------- ----------------- -----------------
Total specific
allowance.... $ 629 $ 631 $ 735 $ 443 $ 431 34.1 % 34.4 % 38.5 % 45.1 % 49.9 %
---------------- ------------- ------------- ------------- ------------- ------------- ----------------- ----------------- ----------------- ----------------- -----------------
(1) Classification as domestic or foreign is based on domicile of debtor or customer.
Management's discussion and analysis
General allowance as a percentage of total net loans
$ millions, as
at October 31 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
----------------- ----------------- ----------------- ----------------- ----------------- -------------- -------------- -------------- -------------- --------------
Domestic(1)
Residential
mortgages..
......... $ 10 $ 5 $ 4 $ 6 $ 8 - % - % - % - % - %
Personal
loans......
...........
...... 270 287 279 280 354 0.8 0.9 0.9 0.9 1.3
Credit
cards......
...........
.......... 410 477 548 348 258 4.2 4.1 4.9 3.4 3.0
Business and
government.
..... 246 217 254 282 279 0.7 0.7 0.9 0.8 1.0
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- -------------- -------------- -------------- -------------- --------------
Total
domestic.......
...............
...... $ 936 $ 986 $ 1,085 $ 916 $ 899 0.5 % 0.6 % 0.7 % 0.6 % 0.6 %
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- -------------- -------------- -------------- -------------- --------------
Foreign(1)
Residential
mortgages..
......... $ 2 $ 4 $ 3 $ 4 $ 3 0.1 % 0.2 % 0.1 % 0.2 % 0.2 %
Personal
loans......
...........
...... 5 6 4 6 14 0.6 0.6 0.4 0.5 1.5
Credit
cards......
...........
.......... 1 1 1 1 1 0.7 0.7 0.7 0.7 0.8
Business and
government.
..... 74 92 132 76 95 0.5 0.6 0.8 0.5 0.8
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- -------------- -------------- -------------- -------------- --------------
Total
foreign........
...............
........ $ 82 $ 103 $ 140 $ 87 $ 113 0.4 % 0.5 % 0.7 % 0.5 % 0.7 %
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- -------------- -------------- -------------- -------------- --------------
Total general
allowance......
....... $ 1,018 $ 1,089 $ 1,225 $ 1,003 $ 1,012 0.5 % 0.6 % 0.7 % 0.6 % 0.6 %
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- -------------- -------------- -------------- -------------- --------------
(1) Classification as domestic or foreign is based on domicile of debtor or customer.
Net loans and acceptances by geographic location(1)
$ millions, as
at October 31 2011 2010 2009 2008 2007
--------------------- --------------------- -------------------- --------------------- ---------------------
Canada..........
................
................
................
................
..............
Atlantic
provinces..
...........
...........
...........
...........
...........
........... $ 9,724 $ 9,446 $ 8,903 $ 8,977 $ 8,848
Quebec.....
...........
...........
...........
...........
...........
...........
...........
. 14,726 13,779 12,435 12,693 12,052
Ontario....
...........
...........
...........
...........
...........
...........
...........
... 84,427 77,791 72,527 76,065 74,362
Prairie
provinces..
...........
...........
...........
...........
...........
...........
. 8,393 7,934 7,348 7,152 6,281
Alberta,
Northwest
Territories
and
Nunavut....
...........
...........
... 28,658 27,667 27,336 28,145 26,654
British
Columbia
and
Yukon......
...........
...........
...........
...........
.. 31,095 29,439 27,984 30,259 27,945
General
allowance
allocated
to
Canada.....
...........
...........
...... (936 ) (986 ) (1,085 ) (916 ) (899 )
---------------- --------------------- --------------------- -------------------- --------------------- ---------------------
Total
Canada.........
...............
...............
...............
...............
.......... $ 176,087 $ 165,070 $ 155,448 $ 162,375 $ 155,243
---------------- --------------------- --------------------- -------------------- --------------------- ---------------------
U.S............
...............
...............
...............
...............
...............
........ $ 6,293 $ 4,364 $ 5,104 $ 5,833 $ 4,538
---------------- --------------------- --------------------- -------------------- --------------------- ---------------------
Other
countries......
...............
...............
...............
...............
........... $ 11,999 $ 15,142 $ 15,057 $ 12,115 $ 10,897
---------------- --------------------- --------------------- -------------------- --------------------- ---------------------
Total net loans
and
acceptances....
...............
...............
...............
. $ 194,379 $ 184,576 $ 175,609 $ 180,323 $ 170,678
---------------- --------------------- --------------------- -------------------- --------------------- ---------------------
(1) Classification by country is based on domicile of debtor or customer.
Management's discussion and analysis
Impaired loans before general allowance
Canada(1) U.S.(1)
$ millions, as at
October 31 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
Gross impaired loans
Residential
mortgages..........
......... $ 230 $ 259 $ 230 $ 143 $ 119 $ - $ - $ - $ - $ -
Student............
...................
.......... 17 23 29 33 41 - - - - -
Personal...........
...................
.......... 195 194 211 181 177 - - - - -
Total gross impaired
consumer
loans..............
...................
....... 442 476 470 357 337 - - - - -
Non-residential
mortgages..........
... 4 8 8 4 3 - - - - -
Financial
institutions.......
.............. 1 1 1 4 6 - - 135 - -
Retail, wholesale
and business
services...........
...................
...... 47 57 97 89 95 51 51 45 - 20
Manufacturing -
consumer and
capital
goods..............
............. 16 46 49 17 26 5 16 31 2 3
Real estate and
construction.......
.. 24 54 16 8 19 211 183 244 2 -
Agriculture........
...................
.......... 15 6 9 20 33 - - - - -
Resource-based
industries.........
.... 4 26 26 20 4 - - - - -
Telecommunications,
media and
technology.........
...................
... 39 10 44 3 6 - - - 2 1
Transportation.....
...................
....... 5 7 5 3 5 3 13 19 - -
Utilities...........
....................
........... - - - - - - - - - -
Other..............
...................
............ 2 2 3 2 4 - - - - -
Total gross impaired
- business and
government
loans............. 157 217 258 170 201 270 263 474 6 24
Total gross impaired
loans............ 599 693 728 527 538 270 263 474 6 24
Other past due
loans(2)
................... 325 376 472 366 60 - - - 5 -
Total gross impaired
and other past due
loans..............
............ $ 924 $ 1,069 $ 1,200 $ 893 $ 598 $ 270 $ 263 $ 474 $ 11 $ 24
Allowance for credit
losses
Residential
mortgages..........
......... $ 16 $ 19 $ 14 $ 9 $ 11 $ - $ - $ - $ - $ -
Student............
...................
.......... 5 7 12 11 16 - - - - -
Personal...........
...................
.......... 181 186 214 158 167 - - - - -
Total allowance -
consumer loans 202 212 240 178 194 - - - - -
Non-residential
mortgages..........
... 3 2 2 1 1 - - - - -
Financial
institutions.......
.............. 1 1 1 1 1 - - 17 - -
Retail, wholesale
and business
services...........
...................
...... 36 36 59 74 66 19 22 10 - 14
Manufacturing -
consumer and
capital
goods..............
............. 8 23 27 11 17 4 7 17 1 3
Real estate and
construction.......
.. 11 18 8 8 13 72 63 89 2 -
Agriculture........
...................
.......... 5 4 6 10 18 - 1 1 - -
Resource-based
industries.........
.... 3 19 12 7 3 - - - - -
Telecommunications,
media and
technology.........
...................
... 18 9 13 3 6 - - - 1 -
Transportation.....
...................
....... 5 7 5 4 5 3 9 13 - -
Utilities...........
....................
........... - - - - - - - - - -
Other..............
...................
............ 2 1 1 2 3 - - - - -
Total allowance -
business and
government
loans..............
...... 92 120 134 121 133 98 102 147 4 17
Total
allowance..........
.................. $ 294 $ 332 $ 374 $ 299 $ 327 $ 98 $ 102 $ 147 $ 4 $ 17
Net impaired loans
Residential
mortgages..........
......... $ 214 $ 240 $ 216 $ 134 $ 108 $ - $ - $ - $ - $ -
Student............
...................
.......... 12 16 17 22 25 - - - - -
Personal...........
...................
.......... 14 8 (3 ) 23 10 - - - - -
Total net impaired
consumer
loans..............
...................
............... 240 264 230 179 143 - - - - -
Non-residential
mortgages..........
... 1 6 6 3 2 - - - - -
Financial
institutions.......
.............. - - - 3 5 - - 118 - -
Retail, wholesale
and business
services...........
...................
...... 11 21 38 15 29 32 29 35 - 6
Manufacturing -
consumer and
capital
goods..............
............. 8 23 22 6 9 1 9 14 1 -
Real estate and
construction.......
.. 13 36 8 - 6 139 120 155 - -
Agriculture........
...................
.......... 10 2 3 10 15 - (1 ) (1 ) - -
Resource-based
industries.........
.... 1 7 14 13 1 - - - - -
Telecommunications,
media and
technology.........
...................
... 21 1 31 - - - - - 1 1
Transportation.....
...................
....... - - - (1 ) - - 4 6 - -
Utilities...........
....................
........... - - - - - - - - - -
Other..............
...................
............ - 1 2 - 1 - - - - -
Total net impaired -
business and
government
loans..............
...... 65 97 124 49 68 172 161 327 2 7
Total net impaired
loans..............
. $ 305 $ 361 $ 354 $ 228 $ 211 $ 172 $ 161 $ 327 $ 2 $ 7
(1) Classification by country is based on domicile of debtor or customer.
(2) Represents loans where repayment of principal or payment of
interest is contractually in arrears between 90 and 180 days.
Commencing 2008, other past due loans also include
government-guaranteed loans.
Management's discussion and analysis
Impaired loans before general allowance (continued)
Other
(1) Total
$ millions, as at
October 31 2011 2010 2009 2008 2007 2011 2010 2009 2008 2007
Gross impaired loans
Residential
mortgages..........
..... $ 222 $ 193 $ 172 $ 144 $ 100 $ 452 $ 452 $ 402 $ 287 $ 219
Student............
...................
...... - - - - - 17 23 29 33 41
Personal...........
...................
...... 79 87 85 83 56 274 281 296 264 233
Total gross impaired
consumer
loans..............
...................
... 301 280 257 227 156 743 756 727 584 493
Non-residential
mortgages......... 71 67 57 28 34 75 75 65 32 37
Financial
institutions.......
.......... 3 4 3 1 - 4 5 139 5 6
Retail, wholesale
and business
services...........
...................
.. 213 172 132 70 28 311 280 274 159 143
Manufacturing -
consumer and
capital
goods..............
......... 56 51 16 7 4 77 113 96 26 33
Real estate and
construction..... 269 228 115 76 59 504 465 375 86 78
Agriculture........
...................
...... 23 20 14 15 10 38 26 23 35 43
Resource-based
industries......... 3 - - 1 - 7 26 26 21 4
Telecommunications,
media and
technology.........
........... 9 32 90 - - 48 42 134 5 7
Transportation.....
...................
... 28 25 24 23 10 36 45 48 26 15
Utilities..........
...................
......... - 1 1 1 - - 1 1 1 -
Other..............
...................
........ - - - 1 - 2 2 3 3 4
Total gross impaired
- business and
government
loans......... 675 600 452 223 145 1,102 1,080 1,184 399 370
Total gross impaired
loans........ 976 880 709 450 301 1,845 1,836 1,911 983 863
Other past due
loans(2)
............... 11 5 6 3 - 336 381 478 374 60
Total gross impaired
and other past due
loans..............
........ $ 987 $ 885 $ 715 $ 453 $ 301 $ 2,181 $ 2,217 $ 2,389 $ 1,357 $ 923
Allowance for credit
losses
Residential
mortgages..........
..... $ 18 $ 11 $ 21 $ 27 $ 19 $ 34 $ 30 $ 35 $ 36 $ 30
Student............
...................
...... - - - - - 5 7 12 11 16
Personal...........
...................
...... 25 31 32 38 24 206 217 246 196 191
Total allowance -
consumer
loans..............
...................
... 43 42 53 65 43 245 254 293 243 237
Non-residential
mortgages......... 26 14 9 4 3 29 16 11 5 4
Financial
institutions.......
.......... 1 1 1 - - 2 2 19 1 1
Retail, wholesale
and business
services...........
...................
.. 61 50 46 30 13 116 108 115 104 93
Manufacturing -
consumer and
capital
goods..............
......... 37 17 5 3 2 49 47 49 15 22
Real estate and
construction..... 40 46 27 27 19 123 127 124 37 32
Agriculture........
...................
...... 12 9 6 4 2 17 14 13 14 20
Resource-based
industries......... 1 - - - - 4 19 12 7 3
Telecommunications,
media and
technology.........
........... 9 11 59 - - 27 20 72 4 6
Transportation.....
...................
... 7 7 7 6 5 15 23 25 10 10
Utilities..........
...................
......... - - 1 1 - - - 1 1 -
Other..............
...................
........ - - - - - 2 1 1 2 3
Total allowance -
business and
government
loans..............
.. 194 155 161 75 44 384 377 442 200 194
Total
allowance..........
.............. $ 237 $ 197 $ 214 $ 140 $ 87 $ 629 $ 631 $ 735 $ 443 $ 431
Net impaired loans
Residential
mortgages..........
..... $ 204 $ 182 $ 151 $ 117 $ 81 $ 418 $ 422 $ 367 $ 251 $ 189
Student............
...................
...... - - - - - 12 16 17 22 25
Personal...........
...................
...... 54 56 53 45 32 68 64 50 68 42
Total net impaired
consumer
loans..............
...................
... 258 238 204 162 113 498 502 434 341 256
Non-residential
mortgages......... 45 53 48 24 31 46 59 54 27 33
Financial
institutions.......
.......... 2 3 2 1 - 2 3 120 4 5
Retail, wholesale
and business
services...........
...................
.. 152 122 86 40 15 195 172 159 55 50
Manufacturing -
consumer and
capital
goods..............
......... 19 34 11 4 2 28 66 47 11 11
Real estate and
construction..... 229 182 88 49 40 381 338 251 49 46
Agriculture........
...................
...... 11 11 8 11 8 21 12 10 21 23
Resource-based
industries......... 2 - - 1 - 3 7 14 14 1
Telecommunications,
media and
technology.........
........... - 21 31 - - 21 22 62 1 1
Transportation.....
...................
... 21 18 17 17 5 21 22 23 16 5
Utilities..........
...................
......... - 1 - - - - 1 - - -
Other..............
...................
........ - - - 1 - - 1 2 1 1
Total net impaired -
business and
government
loans......... 481 445 291 148 101 718 703 742 199 176
Total net impaired
loans........... $ 739 $ 683 $ 495 $ 310 $ 214 $ 1,216 $ 1,205 $ 1,176 $ 540 $ 432
(1) Classification by country is based on domicile of debtor or customer.
(2) Represents loans where repayment of principal or payment of
interest is contractually in arrears between 90 and 180 days.
Commencing 2008, other past due loans also include
government-guaranteed loans.
Management's discussion and analysis
Deposits
Average balance Interest Rate
$ millions,
for the year
ended October 31 2011 2010 2009 2011 2010 2009 2011 2010 2009
Deposits in
domestic bank
offices(1)
Payable on
demand.......
Personal...
...........
...... $ 7,390 $ 7,026 $ 5,967 $ 7 $ 3 $ 5 0.09 % 0.04 % 0.08%
Business and
government.
...........
...........
...... 28,630 25,632 23,539 113 46 59 0.39 0.18 0.25
Bank.......
...........
........ 1,406 1,299 1,193 4 2 4 0.28 0.15 0.34
Payable after
notice........
Personal...
...........
...... 60,364 56,735 45,135 383 286 329 0.63 0.50 0.73
Business and
government.
...........
...........
...... 12,868 11,812 8,622 123 62 48 0.96 0.52 0.56
Bank.......
...........
........ 9 4 1 - - - - - -
Payable on a
fixed date..
Personal...
...........
...... 41,322 42,749 46,932 905 1,143 1,438 2.19 2.67 3.06
Business and
government.
...........
...........
...... 60,894 46,073 45,192 954 493 448 1.57 1.07 0.99
Bank.......
...........
........ 566 560 1,062 6 2 4 1.06 0.36 0.38
Total
domestic.......
......... 213,449 191,890 177,643 2,495 2,037 2,335 1.17 1.06 1.31
Deposits in
foreign bank
offices
Payable on
demand.......
Personal...
...........
...... 435 439 482 3 3 5 0.69 0.68 1.04
Business and
government.
...........
...........
...... 2,356 2,320 2,912 3 6 5 0.13 0.26 0.17
Bank.......
...........
........ 36 80 272 4 4 4 11.11 5.00 1.47
Payable after
notice........
Personal...
...........
...... 1,884 1,916 2,055 35 39 49 1.86 2.04 2.38
Business and
government.
...........
...........
...... 506 647 662 1 1 1 0.20 0.15 0.15
Payable on a
fixed date..
Personal...
...........
...... 2,019 2,214 2,487 16 9 32 0.79 0.41 1.29
Business and
government.
...........
...........
...... 33,420 26,650 27,278 205 74 359 0.61 0.28 1.32
Bank.......
...........
........ 4,631 4,891 7,192 25 19 89 0.54 0.39 1.24
Total
foreign........
........... 45,287 39,157 43,340 292 155 544 0.64 0.40 1.26
Total
deposits.......
.......... $ 258,736 $ 231,047 $ 220,983 $ 2,787 $ 2,192 $ 2,879 1.08 % 0.95 % 1.30%
(1) Deposits by foreign depositors in our domestic bank offices amounted to $3.8 billion (2010:
$3.6 billion; 2009: $4.2 billion).
Short-term borrowings
$ millions, as at or for the year ended October 31 2011 2010 2009
Amounts outstanding at end of year
Obligations related to securities sold
short.................................................................................................................... $ 10,316 $ 9,673 $ 5,916
Obligations related to securities lent or sold under repurchase agreements.................................................................. 14,306 28,220 37,453
Total short-term
borrowings...................................................................................................................................
........ $ 24,622 $ 37,893 $ 43,369
Obligations related to securities sold short
Average
balance......................................................................................................................................
..................... $ 11,779 $ 8,620 $ 6,461
Maximum month-end
balance...................................................................................................................................... 13,410 10,554 7,368
Average interest
rate.........................................................................................................................................
............ 3.30 % 2.45 % 2.45%
Obligations related to securities lent or sold under repurchase agreements
Average
balance......................................................................................................................................
..................... 27,157 39,379 43,372
Maximum month-end
balance...................................................................................................................................... 36,410 45,886 49,211
Average interest
rate.........................................................................................................................................
............ 1.09 % 0.75 % 1.20%
Fees paid to the shareholders' auditors
$ millions, for the year ended October 31 2011 2010 2009
Audit fees(1)
.............................................................................................................................................
...................... $ 17.9 $ 16.3 $ 19.0
Audit related fees(2)
.............................................................................................................................................
.......... 2.6 2.8 2.2
Tax fees(3)
.............................................................................................................................................
........................ 0.8 0.4 0.4
Other.........................................................................................................................................
................................... 0.1 - -
Total........................................................................................................................................
.................................... $ 21.4 $ 19.5 $ 21.6
(1) For the audit of CIBC's annual financial statements and
services normally provided by the principal auditor in connection
with CIBC's statutory and regulatory filings. Audit fees also
include the audit of internal control over financial reporting
under standards of the Public Company Accounting Oversight Board
(United States).
(2) For the assurance and related services that are reasonably
related to the performance of the audit or review of CIBC's
financial statements, including accounting consultation, various
agreed upon procedures and translation of financial reports.
(3) For tax compliance services.
Consolidated financial statements
Consolidated financial statements
118 Financial reporting responsibility
119 Independent auditors' report of registered public accounting firm to shareholders
121 Consolidated balance sheet
122 Consolidated statement of operations
123 Consolidated statement of comprehensive income
124 Consolidated statement of changes in shareholders' equity
125 Consolidated statement of cash flows
126 Notes to the consolidated financial statements
126 Note 1 - Summary of significant accounting policies
136 Note 2 - Fair value of financial instruments
144 Note 3 - Significant acquisitions and disposition
146 Note 4 - Securities
150 Note 5 - Loans
153 Note 6 - Securitizations and variable interest entities
159 Note 7 - Land, buildings and equipment
160 Note 8 - Goodwill, software and other intangible assets
161 Note 9 - Other assets
162 Note 10 - Deposits
162 Note 11 - Other liabilities
163 Note 12 - Trading activities
164 Note 13 - Financial instruments designated at fair value
165 Note 14 - Derivative instruments
171 Note 15 - Designated accounting hedges
172 Note 16 - Subordinated indebtedness
174 Note 17 - Common and preferred share capital and preferred share liabilities
178 Note 18 - Capital Trust securities
180 Note 19 - Interest rate sensitivity
182 Note 20 - Stock-based compensation
187 Note 21 - Employee future benefits
193 Note 22 - Income taxes
196 Note 23 - Earnings per share
196 Note 24 - Commitments, guarantees, pledged assets and contingent liabilities
201 Note 25 - Concentration of credit risk
202 Note 26 - Related-party transactions
203 Note 27 - Investments in joint ventures and equity-accounted associates
204 Note 28 - Significant subsidiaries
205 Note 29 - Segmented and geographic information
208 Note 30 - Financial instruments - disclosures
210 Note 31 - Reconciliation of Canadian and U.S. generally accepted accounting principles
233 Note 32 - Transition to International Financial Reporting Standards
Consolidated financial statements
Financial reporting responsibility
The management of Canadian Imperial Bank of Commerce (CIBC) is
responsible for the preparation of the Annual Report, which
includes the consolidated financial statements and management's
discussion and analysis (MD&A), and for the timeliness and
reliability of the information disclosed. The consolidated
financial statements have been prepared in accordance with Canadian
generally accepted accounting principles as well as the
requirements of the Bank Act (Canada). The MD&A has been
prepared in accordance with the requirements of applicable
securities laws.
The consolidated financial statements and MD&A, of
necessity, contain items that reflect the best estimates and
judgments of the expected effects of current events and
transactions with appropriate consideration to materiality. All
financial information appearing throughout the Annual Report is
consistent with the consolidated financial statements.
Management has developed and maintains effective systems,
controls and procedures to ensure that information used internally
and disclosed externally is reliable and timely. During the past
year, we have continued to improve, document and test the design
and operating effectiveness of internal control over external
financial reporting. The results of our work have been subjected to
audit by the shareholders' auditors. As at year end, we have
determined that internal control over financial reporting is
effective and CIBC is in compliance with the requirements set by
the U.S. Securities and Exchange Commission (SEC) under the U.S.
Sarbanes-Oxley Act (SOX). CIBC's Chief Executive Officer and Chief
Financial Officer have certified CIBC's annual filings with the SEC
under SOX and with the Canadian Securities Administrators under
Canadian securities laws.
The Chief Auditor and his staff review and report on CIBC's
internal controls, including computerized information system
controls and security, the overall control environment, and
accounting and financial controls. The Chief Auditor has full and
independent access to the Audit Committee.
The Board of Directors oversees management's responsibilities
for financial reporting through the Audit Committee, which is
composed of directors who are not officers or employees of CIBC.
The Audit Committee reviews CIBC's interim and annual consolidated
financial statements and MD&A and recommends them for approval
by the Board of Directors. Other key responsibilities of the Audit
Committee include monitoring CIBC's system of internal control,
monitoring its compliance with legal and regulatory requirements,
and reviewing the qualifications, independence and performance of
the shareholders' auditors and internal auditors.
Ernst & Young LLP, the shareholders' auditors, obtain an
understanding of CIBC's internal controls and procedures for
financial reporting to plan and conduct such tests and other audit
procedures as they consider necessary in the circumstances to
express their opinions in the reports that follow. The
shareholders' auditors have full and independent access to the
Audit Committee to discuss their audit and related matters.
The Office of the Superintendent of Financial Institutions
(OSFI) Canada is mandated to protect the rights and interest of
depositors and creditors of CIBC. Accordingly, OSFI examines and
enquires into the business and affairs of CIBC, as deemed
necessary, to ensure that the provisions of the Bank Act (Canada)
are being complied with and that CIBC is in sound financial
condition.
Gerald T. McCaughey Kevin Glass
President and Chief Executive Officer Chief Financial Officer November 30, 2011
Consolidated financial statements Independent auditors' report
of registered public accounting firm to shareholders
Report on financial statements
We have audited the accompanying consolidated financial
statements of Canadian Imperial Bank of Commerce (CIBC), which
comprise the consolidated balance sheet as at October 31, 2011 and
2010 and the consolidated statements of operations, comprehensive
income, changes in shareholders' equity and cash flows for each of
the years in the three-year period ended October 31, 2011, and a
summary of significant accounting policies and other explanatory
information.
Management's responsibility for the consolidated financial
statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with Canadian generally accepted accounting principles,
and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or
error.
Auditors' responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors'
judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity's preparation and
fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the
circumstances. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements, evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of CIBC as
at October 31, 2011 and 2010, and the results of its operations and
its cash flows for each of the years in the three-year period ended
October 31, 2011, in accordance with Canadian generally accepted
accounting principles.
Other matter
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), CIBC's
internal control over financial reporting as of October 31, 2011,
based on the criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated November 30, 2011
expressed an unqualified opinion on CIBC's internal control over
financial reporting.
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
November 30, 2011
Consolidated financial statements
Independent auditors' report of registered public accounting
firm to shareholders Report on internal controls under standards of
the Public Company Accounting Oversight Board (United States)
We have audited Canadian Imperial Bank of Commerce's (CIBC)
internal control over financial reporting as of October 31, 2011,
based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). CIBC's management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying management's annual report on internal control over
financial reporting contained in the accompanying management's
discussion and analysis. Our responsibility is to express an
opinion on CIBC's internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, CIBC maintained, in all material respects,
effective internal control over financial reporting as of October
31, 2011, based on the COSO criteria.
We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States), the consolidated
balance sheet of CIBC as at October 31, 2011 and 2010 and the
consolidated statements of operations, comprehensive income,
changes in shareholders' equity and cash flows for each of the
years in the three-year period ended October 31, 2011 of CIBC and
our report dated November 30, 2011 expressed an unqualified opinion
thereon.
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
November 30, 2011
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BUBDDGUGBGBI
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