CM Tier 1 Capital : October 2007

The Canadian Imperial Bank of Commerce has released its Fourth Quarter Supplementary Information; I will analyze this in the same format as was has been recently done for RY, NA, TD and BMO.

Step One is to analyze their Tier 1 Capital, reproducing the summary produced last year:

CM Capital Structure
October, 2007
& October 2006
  2007 2006
Total Tier 1 Capital 12,379 11,935
Common Shareholders’ Equity 90.1% 83.2%
Preferred Shares 23.7% 25.0%
Innovative Tier 1 Capital Instruments 0% 0%
Non-Controlling Interests in Subsidiaries 1.1% 0%
Goodwill -14.9% -8.2%

Next, the issuance capacity (from Part 3 of last year’s series):

Tier 1 Issuance Capacity
October 2007
& October 2006
  2007 2006
Equity Capital (A) 9,448 8,954
Non-Equity Tier 1 Limit (B=A/3) 3,149 2,985
Innovative Tier 1 Capital (C) 0 0
Preferred Limit (D=B-C) 3,149 2,985
Preferred Y/E Actual (E) 2,931 2,981
New Issuance Capacity (F=D-E) 218 4
Items A, C & E are taken from the table
“Regulatory Capital”
of the supplementary information;
Note that Item A includes Goodwill and non-controlling interest
Item B is as per OSFI Guidelines
Items D & F are my calculations.

We can now show the all important Risk-Weighted Asset Ratios!

Risk-Weighted Asset Ratios
October 2007
& October 2006
  Note 2007 2006
Equity Capital A 9,448 8,954
Risk-Weighted Assets B 127,424 114,780
Equity/RWA C=A/B 7.41% 7.80%
Tier 1 Ratio D 9.7% 10.4%
Capital Ratio E 13.9% 14.5%
A is taken from the table “Issuance Capacity”, above
B, D & E are taken from the Supplementary Report
C is my calculation.

Note that, as with all banks examined thus far, the Equity/RWA ratio and Tier 1 Ratio have both deteriorated over the year; for CM, NA and RY the Total Capital Ratio has also declined. CM’s Subordinated Debt outstanding has actually declined over the past year.

The acquisition of FirstCarribean in the first quarter complicates the task of tracing changes in capital; but I think it’s fair to say – as a ballpark approximation – that the change in Total Capital is due to retention of earnings rather than issuance of new capital instruments.

It is disappointing to see the deterioration in the Equity/RWA ratio over the year – I consider this to be a measure of the safety of the preferred shares, as it is the “total risk” of the bank’s assets (as defined by the regulators) divided by the value of capital junior to preferreds (which therefore takes the first loss). It is by no means anything to lose a lot of sleep over, as it still remains strong – the preferreds are better protected than the sub-debt of a lot of global banks – but … geez, the direction’s wrong!

I won’t discuss the annual results to any great extent – there will be innumerable reports over the next few months released by analysts with a great deal more time to spend on the matter than I have.

5 Responses to “CM Tier 1 Capital : October 2007”

  1. […] After CIBC’s earnings release this morning, Moody’s announced that it had: affirmed the ratings of Canadian Imperial Bank of Commerce (CIBC) and rated subsidiaries and changed their rating outlooks to negative from stable. CIBC is rated B- for bank financial strength, Aa2 for long-term deposits, and P-1 for short-term obligations. This rating action follows CIBC’s earnings report for the fourth quarter of 2007 in which it disclosed details of a hedged portfolio of Collateralized Debt Obligations (CDO).  […]

  2. […] The Bank of Nova Scotia has released its Fourth Quarter Supplementary Information; I will analyze this in the same format as was has been recently done for CM, RY, NA, TD and BMO. […]

  3. lafontaine says:

    ……….Otherwise, it is interesting to note that CM has the best protected Preferreds (with “protection” defined solely in terms of the regulatory risk-weighted-assets and capital that is junior to preferreds) while RY has the least protected…………

    How do you compare the Insurance Corps and POW and PWF in term of Protection ?

    Louis Lafontaine

  4. jiHymas says:

    I’ll do a series soon on the Lifeco’s and their MCCSR ratio.

  5. […] These are very strong numbers compared with Year-end levels; with the entry of new equity holders kindly offering to take the first loss, the credit watch should probably be cancelled. Now, if only we could be sure that the bank can avoid shooting itself in the foot for another little while! […]

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