The threat of rising tariffs is making Canadian Imperial Bank of Commerce CM-T clients “more tentative” as businesses and consumers brace for the possibility that trade tensions could ratchet up in the coming months, chief executive officer Victor Dodig said Thursday.
Tariffs are already disrupting some sectors of the economy, in Canada and the United States, Mr. Dodig said, as he urged political leaders to work to “strengthen and secure the North American economy.”
CIBC reported a 26-per-cent rise in quarterly profit in its fiscal first quarter on Thursday, but tweaked its outlook for losses on loans to be slightly more pessimistic.
As trade tensions play out, “we all have that on our minds,” Mr Dodig said, but he thinks the bank is well set up to respond to an economic shock. And after CIBC’s customers endured surging interest rates, currency volatility, as well as upheavals in supply chains and the labour force over the past five years, he stressed that “clients are more resilient than one gives them credit for.”
“Clients across the board, across the country, are feeling a little more tentative in terms of commitments going forward until there’s more certainty. I think that holds true on both sides of the border,” he said on a conference call with analysts.
“Businesses and personal clients like certainty to move forward, so the sooner we can get that certainty, the better,” he added.
The bank’s provisions for credit losses crept higher when compared with last quarter, to $573-million, but were still 2 per cent lower than a year ago.
Of that total, CIBC added $127-million of provisions against loans that are still being repaid, citing “a worsening in our economic outlook including with respect to the uncertainty that tariffs could be imposed by the U.S. government.”
The Toronto-based bank reported profit of $2.17-billion, or $2.19 per share, in the fiscal first quarter that ended Jan. 31. That compared with $1.73-billion, or $1.77 per share, in the same quarter last year.
After adjusting to exclude certain costs, CIBC said it earned $2.20 per share, well ahead of the consensus estimate of $1.96 per share among analysts, as calculated by the London Stock Exchange Group.
Mr. Dodig said CIBC’s share of the lending market in sectors that could be hardest hit by tariffs – he named forestry, auto parts, aluminum and steel, and agriculture – is comparatively low relative to other major banks.
Profit from Canadian commercial banking and wealth management was up $68-million to $591-million, while the U.S. commercial and wealth division bounced back from a small one-time loss last year, with earnings of $256-million.
Commercial loans, which could come under pressure from tariffs and the resulting economic uncertainty, were up 8 per cent in Canada and 4 per cent in the U.S. in the quarter.
“We go into this feeling what our clients are feeling, but as a strong bank and a well-built portfolio,” he said.
In the short term, he said, Canada’s government is doing what it can. “When it comes to border protection and security, I think Canada is responding,” he said.
But he urged political leaders to do more in two areas. The controversial digital services tax, which applies to revenue that foreign technology giants earn in Canada, “is not something that we think has got a long life, so let’s tackle it,” Mr. Dodig said.
And after the U.S. accused Canada of being a dumping ground for cheap steel from abroad, he said if aluminum and steel “is indeed getting dumped through Canada, we should definitely halt it.”
“I think those facts would basically address some of the issues that our American trading partners have identified,” Mr. Dodig said.
All six of Canada’s largest banks beat analysts’ profit estimates in the fiscal first quarter, helped in part by strong trading revenues in their capital markets divisions. Royal Bank of Canada and Toronto-Dominion Bank also reporting results on Thursday.
But lenders have sounded a note of caution about the prospect that the pace of growth in their loan portfolios could slow, and losses on loans could creep higher, as the impact of tariffs ripples through North American economies.
CIBC’s profit from capital markets rose 19 per cent to $619-million, with trading revenue up sharply, particularly on equity derivatives.
In Canadian personal and business banking, profit of $765-million was up 7 per cent from a year earlier, with loans and deposits each up 2 per cent.
CIBC bought back 3.5 million shares in the quarter, and is expected to continue returning capital to shareholders after it boosted its capital reserves, ending the quarter with a common equity Tier 1 (CET1) ratio of 13.5 per cent, up from 13.3 per cent at the end of the fourth quarter.
The bank kept its quarterly dividend unchanged at 97 cents per share.