CIBC’s Quarterly Report & Are we heading for another bubble burst?

CIBC’s Quarterly Report

By: Devan Neziol

Beating analysts’ estimates seems to be all in a day’s work for Canadian Imperial Bank of Commerce (CIBC) after the bank posted profit that surpassed expectations on lower loan losses, gains from selling part of its credit card arm and growth in wealth management. The profit posted across its three main business units is up almost 50 percent from last year and can be largely be attributed to the sale of its Aerogold Visa credit card portfolio to Toronto-Dominion (TD) Bank.

A record $1.18 billion net income was reported for CIBC’s fiscal first quarter ended January 31 as analysts’ earnings estimates of $2.14 a share were topped by the company’s earnings (excluding some items) of $2.31 a share. Even the adjusted net income, which excludes unusual items like the Aeroplan deal, grew 6.3 percent to $951 million. The bank will raise its quarterly dividend by 2 cents to 98 cents, payable April 28.

Over the past two decades, CIBC has been the primary issuer of Aerogold Visa cards. TD has now replaced CIBC and will fill that role for the next ten years distributing the new Aeroplan Visa. However, Aeroplan’s operator and the two banks reached an agreement allowing CIBC to keep half of its Aerogold Visa customers while selling the other half to TD; the deal accounted for 48 cents per share of net income. Additionally, CIBC is allowed to continue signing up new customers under its Aeroplan loyalty program until the new TD cards are issued.

Aside from this one-time item, CIBC’s earnings from core operations have also contributed to significant profit increases. Lower loan losses and solid loan volumes in retail and business banking helped boost core earnings in these operations by 11 percent to $643 million. A $114 million wealth management profit also topped the year prior by 28 percent. Although capital markets did not exhibit core earnings growth, the unit benefited from a $78 million gain from the sale of CIBC’s European leveraged finance portfolio.
Despite these substantial earnings improvements, one time charges like the $24 million credit card marketing expense and $39 million hit for restructuring one of its Caribbean banks (where tourism has suffered since being weakened by the financial crisis) make it difficult to see the promising signs illustrated by CIBC’s core earnings. However, as the bank looks to the future, it plans on expanding wealth management to diversify its operations in an effort to increase the proportion of earnings that come from this division.

Are we heading for another bubble burst?

By Devang Desai

According to the stock market, the UK economy is in a boom. Not just any old boom, but a historic one. On 28 October 2013, the FTSE 100 index hit 6,734, breaching the level achieved at the height of the economic boom before the 2008 global financial crisis, that was 6,730, recorded in October 2007.

Since then, it has had ups and downs, but on 21 February 2014 the FTSE 100 climbed to a new height of 6,838. At this rate, it may soon surpass the highest ever level reached since the index began in 1984 – that was 6,930, recorded in December 1999, during the heady days of the dotcom bubble.

The current levels of share prices are extraordinary considering the UK economy has not yet recovered the ground lost since the 2008 crash; per capita income in the UK today is still lower than it was in 2007. And let us not forget that share prices back in 2007 were themselves definitely in bubble territory of the first order.

The situation is even more worrying in the US. In March 2013, the S&P 500 stock market index reached the highest ever level, surpassing the 2007 peak, which was higher than the peak during the dotcom boom, despite the fact that the country’s per capita income had not yet recovered to its 2007 level. Since then, the index has risen about 20%, although the US per capita income has not increased even by 2% during the same period.
Eyebrows are raised and there are whispers around which are getting louder with every passing week, everyone is wondering, “Are we heading for another bubble burst?”
With tech companies like Facebook, Twitter, Amazon, Netflix and other big companies already on the stock market creating news. There is a high increase in other tech companies going public.

The 2014 IPO calendar has been full, there has been 51 companies that had already filed for initial public offerings, up 143% from the same time frame in 2013.

And there are two similar tech IPOs have just joined the IPO must-watch list. They are both file-hosting services that offer customers cloud computing, they are both based in California, and they both share half a name. Now they’re both planning to go public in 2014.
Meet Box Inc. and Dropbox Inc. are going public and have captured a lot of debate in recent weeks fueling speculation of another bubble burst.

Few stock market investors really believe in these rumours. But, most expereinced investors know that current levels of share prices are unsustainable; it is said that George Soros has already started betting against the US stock market. They are aware that share prices are high mainly because of the huge amount of money sloshing around thanks to quantitative easing, not because of the strength of the underlying real economy. This is why they react so nervously to any slight sign that QE may be wound down on a significant scale.

However, stock market investors pretend to believe – or even have to pretend to believe – in those feeble and ephemeral stories because they need those stories to justify to  their clients for staying in the stock market, given the low returns everywhere else.
The result, unfortunately, is that stock market bubbles of historic proportion are developing in the US and the UK, the two most important stock markets in the world, threatening to create yet another financial crash.

Economists are split, some believe that the unfullied dreams left by the tech surge in the stock market in 2000 would this time be fulfilled since the companies that have entered this term have a better base and a business plan to back it and sustain in the market. While others believe it is the same notion we had in 2000 before the bubble actually burst.
So the jury is out on the stock markets unprecedentedly high levels, but the question still lingers, “Are we heading for another bubble burst?”