Tariff risks have clouded the economic picture in 2025 and could impact corporate earnings. Canada’s Big Six banks can endure the headwinds but might need to allocate more provisions for credit losses (PCL). The first-quarter (Q1) fiscal 2025 results are out, except that the increase in PCLs or financial cushion was moderate.
Bank of Nova Scotia analyst Meny Grauman singled out Canadian Imperial Bank of Commerce (TSX:CM) for its impressive results, notwithstanding macro fears connected to tariffs. He added that the strong financial performance deserves to drive the stock’s outperformance.
Jefferies analyst John Aiken said, “CIBC’s underlying growth remains impressive despite some deterioration in its customers’ credit quality and higher-than-expected provisions.” As of this writing, CIBC trades at $81.40 per share, down -10.48% year to date, and pays a lucrative 4.77% dividend.
Canada’s fifth-largest lender remains a buy-and-hold stock like its big bank peers. Victor Dodig, president and chief executive officer (CEO) of CIBC, said, “Clients are more resilient than one gives them credit for.”
He added that businesses had faced a surge in interest rates, currency volatility, supply chain disruptions and labour supply issues in the past decade but managed through them. Each of the bank’s business streams posted higher first-quarter profits.
Financial performance
In the three months ending January 31, 2025, CIBC’s revenue and net income increased 17% and 26% to $7.3 billion and $2.2 billion compared to Q1 fiscal 2024. According to Dodig, the bank’s client-focused strategy generated consistent results for stakeholders. Notably, the $573 million PCL during the quarter was 2% lower from a year ago.
Net incomes of the Canadian Commercial Banking and Wealth Management and Canadian Personal and Business Banking segments increased 13% (to $591 million) and 7% (to $765 million) year over year. Capital Market’s profit climbed 19% to $619 million. Because of lower PCL, U.S. Commercial Banking and Wealth Management reported a $256 million net income versus the $8 million net loss in Q1 fiscal 2024.
Strong foundation
Dodig emphasized that CIBC’s diversified business platform, robust capital position and strong credit quality are the foundation to deliver for stakeholders in the year ahead. He said, “We are a strong bank with deep client relationships, and we know the clients, companies and industries we serve very well, which positions our team to offer impactful advice and solutions.” Overall, the $2.19 earnings per share beat consensus estimates.
CIBC expects soft economic conditions and tariff uncertainties to impact corporate earnings in the near term but looks ahead to a more supportive interest rate environment. The financial services sector should benefit from further rate reductions by the Bank of Canada in 2025.
Conservative credit guidance
PCLs did not impact CIBC and other Big Banks in Q1 fiscal 2025. However, National Bank analyst Gabriel Dechaine sees a higher probability of loan-loss provisions rising massively in future quarters, similar to 2020 during the global pandemic. Economic uncertainty will slow loan growth, resulting in greater conservatism in the banks’ credit guidance.
Still, market analysts remain bullish on CIBC. Their 12-month average price target is $97.45, a +20% potential upside. Also, given the 44.66% payout ratio, the quarterly dividend payments are safe.
