Canadian Imperial Bank of Commerce (CM) 2001 Q2 法說會逐字稿

CIBC SECOND QUARTER FINANCIAL RESULTS CONFERENCE CALL

Ladies and gentlemen, thank you for standing by. Welcome to the CIBC second quarter financial results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards you'll be invited to participate in a question and answer session. At that time if you have a question, you will need to press the '1' followed by the '4' on your telephone. As a reminder, this conference is being recorded Tuesday, May 29, 2001. I would now like to turn the conference over to Ms. Kathy Humber, Senior Vice President of Investor Relations. Please go ahead.

Thank you very much and good morning every one. Welcome to everyone joining us here in the room and on the phones and live video webcast. Here to speak to you today are John Hunkin, Chairman and CEO; Brian Cassidy, CEO of Amicus; Tom Woods, CFO; and Bob Mark, Head of Wealth Management. As usual, following our formal remarks we'll open the meeting to questions from investors and analysts. In the room please remember to press the green switch in front of you before speaking. In the room to respond to your questions are Wayne Fox, Vice Chairman Treasury and Balance Sheet Management and Dan Ferguson, Head of Credit Risk Management. In addition, we have each of the heads of our business segments here today as well. David Kassie, Head of World Markets; Mike Pedersen, Head of Retail and Small Business Banking; Gerry McCaughey, Head of Wealth Management; and David Marshall, Head of e-commerce. As you know and as detailed in your handouts some of our comments today may include forward-looking statements that are subject to a variety of risks and uncertainties. Actual results may differ due to a variety of factors as detailed in our quarterly and annual report. Thanks for your attention and I'll turn it over to John Hunkin.

Thanks very much Kathy and good morning everyone. I would describe our quarter as providing solid earnings despite more difficult markets and a slowing economy. Our operating ROE is over 19% and above our target range. As we expected, we saw upward pressure on non-performing assets in the quarter and consequently increased our loan loss provisions. We're continuing to take a prudent course and continuing to maintain the strength of our balance sheet with Tier 1 capital at 9.1%. Allowance for credit losses still exceed impaired loans. Our general provisions to risk-weighted assets are the highest of our bank group and our market to book surplus on investment securities is $2.2 billion. We continued with our share repurchase program and we bought 4.4 million shares in the quarter. We've also continued to focus very much on how we use our capital. Trying to direct our capital and other balance sheet resources to those businesses where we have the greatest sustainable competitive advantage. The sale in this quarter of our merchant acquiring business to global payments is a small but good example of this mindset. CIBC entered into a long-term marketing alliance with Global Payments. We now have access to a North American platform that has better technology, three times the processing capability that CIBC has on a standalone basis. So we maintain an equity interest, which has appreciated, by the way, since the closing of the deal and we generated a gain on sale and continue to participate and a larger, more competitive entity. We continue to focus on building value in the three main pieces of our business, Amicus, our Domestic Retail Operations, and World Markets. Amicus continues to exceed expectations, and yesterday Amicus announced a strategic alliance with Ahold USA to offer electronic banking services to new customers in the US, which will provide us with a solid presence in the North East region. A little later on, Brian Cassidy who is chief executive officer of Amicus will speak on this. We have a number of successes in each of our business segments, and as Kathy mentioned the heads of each are here to answer questions. Thank you. I am now going to turn it over to Brian Cassidy.

Good morning. Thank you John. Before I speak about Ahold, just a brief update on Amicus overall. We now exceed 675 thousand customers. We have 342 sales pavilions, 191 through PCF, 104 with Marketplace, and 47 with Safeway SELECT. Safeway SELECT roll out has begun, we are rolling out at the rate of 15 per month, and we will have over 400 there over the next two years. Overall customer acquisition remains strong as John indicated and we're averaging about a 1000 customers per pavilion per year. Our funds growth in President's Choice Financial is exceptionally strong, exceeding our expectations and now our focus is on funds management in the US. We must keep reminding ourselves how young our business Amicus is. PCF which some of us think has been around forever. The average age of a customer at PCF is still only 14 months. That's because most of the concentration of customer acquisition has been in the most recent times as our pavilions roll out. So we must keep in mind that funds managing cross-sale grow as we [_______________] the customer base. While customer acquisition is critical, customer retention is obviously more critical, but they were very pleased with the most recent Canadian industry survey that indicated that once again President's Choice Financial moved up with customer loyalty over 84% compared to the status banks with mid-60s range and IMG at 67, so, again a very strong indication of the quality of service that we are delivering through Amicus. Amicus launched Amicus Financial at Sympatico-Lycos this quarter. Again, with a bricks-and-clicks strategy it might seem somewhat out of place, but it's also the strength of our multi-brand approach. We can use a subset of our system to leverage and subsequently [_______________] and capture that property and ensure that competition doesn't form relationships with the largest portal Canada in Sympatico, and because our cost stake is so small, because for the most part Amicus is leveraging acquisition through multiple brands, it's a very economically reasonable approach. Well, lets go to Ahold and spend a few minutes there. Why is Ahold so important to Amicus? There are five key points. Firstly, a point to reality, that the health of our existing relationships is very strong. This is a very tight industry and each of our existing partners is our reference to future opportunity, and the very fact that a company the size of Ahold would come to us is indicative of the quality of the existing relationships. Secondly, the real Ahold brand is a great brand. Globally, it's in the top five grocers in the world with sales over $52 billion, 60% of those sales are in United States and they operate in 16 states under the brands Stop & Shop, Giant Food, Tops, and BI-LO. And thirdly, it provides Amicus a presence in the key North East. As you know, Safeway dominates in the west and [_______________] Marketplace is concentrated in the South East. So, filling in that key geography is very, very critical to our overall Amicus strategy. Fourthly, every move is an option for those that may follow us in our approach. Ahold is one of the best brands in the world, and while our strategy could be copied, what can't be copied is the long-term relationships we formed with the world's best retailers and brands. So we are moving that as an option for others is critical. And fifthly and finally, it indicates maturing of our business. In that, we now have capability to simultaneously rollout both in the west coast and the east coast at a very rapid pace. So this fall, we will be rolling in multiple occasions across multiple states. Just a few short things like, months ago we were only able to rollout pavilions in a very small geographic location and in fact it took us well over a year and a half to rollout across Canada, and now simultaneously we are in a position, we have the resources, the knowhow and the capability to rollout in multiple locations in multiple states, and we'll be doing that with Ahold and the aggressive rollout of Safeway as well with the continuing growth as opportunity presents itself in Marketplace and PCF. So to summarize the [_______________] showed continued strong growth in Amicus, we are now positioned for significant presence in key geographies throughout the US. We, once again, expanded our relationship with great brands, which gives us opportunity into the future. And now we're focusing on developing these opportunities and turning them into retail bank in North America. Now, I'll turn over to Tom.

Thanks Brian and good morning everyone. I am going to go through just some of the slides that you have back here in the room, and on the web. Just continuing on the tradition of transparency that we have provided you. On the first slide, you can see reported EPS of $1.13, less the asset sales of $0.11 a share. That relates to the merchant acquiring business we had in Canada, the processes of Visa came as we wedded that in, as John said, to a US company, and as a result, we've taken that out from our reported earnings to provide an adjusted earnings. We also report operating earnings as we call it adding back the impact of the build out of Amicus. We do that as analogous to a goodwill adjustment that companies make when they buy assets as opposed to build them. That 119 is the operating measure that we focus on most at CIBC. Operating ROE as you can see was 19.4%, operating efficiency ratio just under 66%, the loan loss provision, specific provision, increased from a run rate of 760 in Q1 to 950 in going forward and that means we've increased our per quarter specific provision from the 190 you saw in Q1 up to 253 in Q2 going forward. The strong balance sheet ratio, as John mentioned, and you can see those at the bottom of the page. I'd ask you now to go to page 6, the top slide. I'm going to give you a drill down for each of our 4 main businesses on revenue and then bridge to a net income after tax as I always do, just touching on the main subbusinesses. First, the card business. You can see in Q2, we generated $254 million of revenue. Year-on-year, that revenue was up 13% versus the 224 you saw in Q2 last year, and that's a result of the following. Outstandings were up, that's the loans we have to our credit card holders, 22%, year-on-year, spreads were up as well on the year, but revenue this quarter was hurt because of the merchant acquiring deal. Merchant acquiring prior to March 20th this year was fully consolidated in our results. By wedding that in, we've taken back an equity interest and the equity accounting treatment on that, and this quarter hurt us on the revenue line by about $20 million. Going forward, that should normalize within a year. But the transaction cost [_______________] at the revenue line had a drag because of that. So, that 254 apples-to-apples to the 260 or so in Q1 would be roughly 274. Quarter on quarter, outstandings were up only a point and a half, and that's to be expected given the Christmas seasonality in Q1 and volumes were down 14% quarter-on-quarter again reflecting the lower activity this quarter versus the active holiday season quarter in Q1. Turning to mortgages, you see $108 million was in Q2 this year, that's up 13%, that's up considerably from the $78 million we delivered a year ago due to balances gaining up 13% on the year. The reason balances are up in particular, is the success of our variable rate mortgage program, that's a program where margins are higher for us, where marketing push on that product is higher. It's also helped by the President's Choice success in the mortgage product, which is included in these numbers here. Spreads were up a little year-on-year as well helping that 108 number versus the 78. Quarter-on-quarter, though balances were up 2% and spreads were up a bit, revenue was down 2 million because Q1 had some one-time hedge gains that I highlighted last quarter, which weren't there this quarter. Nonetheless, the 108 is a terrific performance certainly year-on-year versus what we saw last year. The other line $65 million includes, just to remind you, the Amicus revenues, the revenues of our transaction processing business at Intria, that's our operations plant that does some third party business. It includes the fees we get from noncustomer ABMs and it also includes our treasury allocations, and the treasury allocations were down somewhat as the market conditions weren't quite what they were in Q1 and that accounts for the $65 million down from 73 last quarter. Just go over the slide, below that on the same page, I'll bridge you from the revenue, drop of roughly $17 million to a net income drop, you can see in the shaded area Q1, Q2, from 59 to 33, and now just to explain what this means, as we've shown you in the past, the bottom half of those 2 bars represents a reported net income for electronic commerce excluding asset sales. So, that bears the full brunt of the Amicus' drag. The higher numbers, the 111 and the 101 includes the benefit of Amicus. In other words, that's what we would have earned in e-commerce had we not been building up Amicus. So, this would explain the drag down from $59 million to $33 million. Revenues were down $18 million in the quarter, expenses, and that's fully accounted for by that merchant acquiring transaction I mentioned a moment ago. Expenses were up $13 million, but for Amicus, those expenses would have been down. The Amicus expenses were up considerably as we had planned and the loan loss provision in respect of cards, this quarter was up $9 million versus last quarter. So, you add those 3 numbers up, you get an impact of net income before tax down to $40 million or after tax $26 million. We now go to the top slide on page 9. I'll do the same with the second of four business groups; Retail and Small Business. The topline we call retail banking, I'll remind you, that's our customer segment that represents roughly 85% of our customers and in that everyone except our imperial service customers who fall under the third business group, I'll get to in a moment. 244, is up 7% from last year because deposit balances and spreads are both up year-on-year. There is also a slight benefit from reclassifying some small business income into retail. Quarter-on-quarter, that 244 you can see is flat with interest rates declining the way we and most other banks that [_______________] internally, the deposit spreads narrow and the loan spreads typically widens. So, that 244 has born the brunt of lower deposit spreads and also the fact that there were 3 fewer days which hurts our revenues more than it does expenses. That decline in deposit spreads in the 3 fewer days was partially offset by slightly higher fee income from wealth products and a reclassification from discount brokerage, which benefited the number as well. Small Business Banking, 160, down $6 million from a year ago namely accounting reclassifications quarter-on-quarter, it's down 9%. Again, for the same reason in retail banking, deposit spreads were down 3 fewer days, balances were down slightly, offset partly by higher fees on wealth products. Finally, our loan business in retail, that softness you see in the 155 versus that 162 last quarter is entirely accounted for by the reduction balances in student loans. I am sure you recall we provisioned at the end of Q4 last year. The contract of federal government expired. We're doing some business on a risk free basis but the balances are down considerably, in fact, 7% quarter-on-quarter. The West Indies business flat year-on-year down a bit from last quarter because though deposit growth is strong at 4%, the opportunities to reinvest that money and the kind of spread loan business we've seen in the past hasn't been there. So, we had to invest that incremental money and typically in securities that yield lower spreads. So, on the whole, retail quarter-on-quarter, 650, down to 633. If you could go to the bottom slide on that page, revenue decline of $25 million translates as follows into net income. Expenses were up $23 million, and we have segmented disclosure in your package there and the reason expenses were up were the following. Number 1 was a reclassification of this discount brokerage revenue, the advisory side of discount brokerage we segmented in, and given the benefit of that, into the customer segments, but there is expenses that go with it. So, about $4 million of that $23 million is a reclassification because of the discount brokerage change. Base salary increases accounted for about $6 million and branch and infrastructure renewal programs accounted for about $8 million. As a result, NIAT is back down to just slightly higher than levels we saw last year. Go to page 11, at the top is a new slide we've come out with. As you know we have gone to some length with our training and technology improvement in the retail branches in Canada to provide better customer service. So we have seen increases in the customer service or customer loyalties to be more precise matrix, that we track and although we are steady over the last 5 months, it is now above our peer group and we are not taking great comfort from where we are today, but it is encouraging with [_______________] fact that some of the money we are spending is showing up and well. Mike Pedersen is here and he can certainly comment on this, but the loyalty measure we use as distinct from customer satisfaction measures you have seen elsewhere, we think it is more meaningful, it actually gets to will a customer do more business with us, will a customer recommend us to their friends, as well as a couple of other measures as opposed to just are you happy with our service. We will continue to provide the matrix going forward. We do that study. It's conducted by an outside agency and they surveyed all the banks with written survey forms and we are going to be doing it every 6 months. I can now direct your attention to page 12 at the top in to the third business group Wealth Management. The topline is our Wood Gundy and Oppenheimer full-service brokerage business in Canada and the US. The 267 down both from Q2 last year and also from Q1 this year because almost entirely because of lower volumes that we saw marketwide, down 9% in overall, Canada was actually flat in revenue the US which accounts for about two thirds of that revenue was down about 12% making up a 9% drop overall. Imperial service and wealth, in this quarter you need to really group those two numbers together because of the, as I mentioned the discount brokerage reclassification. Nonetheless, it is flat quarter-on-quarter, down a bit actually, largely because of deposit spreads going down, not offset quite to the same degree by higher fees. Wealth products as well was hurt by lower discount brokerage volumes, slightly lower MERs those are the fees on our mutual funds as people moved more into the index fund family of products that CIBC has, as well as, slightly narrow GIC spreads. So revenue down from 613 to 561, down $52 million, expenses were up somewhat in the quarter and that maybe somewhat [counterintuitive] given lower full service brokerage volumes. Certainly, the brokerage payments we made to our sales force in a quarter where volumes are down are lower; however, we had higher investments in technology and we had slightly higher credit losses in our clearing business in the US that just slightly exceeded the reduction in commissions that we paid out to our brokers internally. Now go to page 14, at the top. We have got two new measures here. The first measure you actually see in the disclosure, we thought we would highlight the success of our mutual fund business the AUM and market share and Gerry McCaughey is here to respond to any questions you have on that, but you can see the continuing trend in a pretty weak market and also increasing market share amongst all institutions offering mutual funds in Canada, for that includes the banks, as well as the other providers. The market share number among the banks itself, but we don't focus too much on that actually is the better story. Go to the bottom slide on that page you can see the discount brokerage active account increased, which is a good story particularly in a fairly weak market, as well as, in a product that only now, only recently have we improved the website. So despite that we are up 19% year-on-year, 293 active accounts. Go to page 15, at the bottom our last business group is World Markets. Capital markets revenue up 351 down from a 498 in Q1, so that 351 is about 60% equities and about 40% debt. Both were down in the quarter, as I think most of you anticipated, debt was down less so. There was good new issue activity in the debt, the lower flow business. On the equity side, the equity structure products revenue that we delivered in Q1 as we told you was pretty extraordinary. We didn't expect that to be repeated but the number we delivered this quarter [_______________] in 351 is probably lower than what we would think would be sustainable, just as in Q1 it was somewhat higher than sustainable, and the reason for that was volatilities on the [PSC] were lower than we have seen, and although this is as much a US business for us as a Canadian business, that had a big impact on our Canadian revenue. The agency business was down as well, lower new issue volume both in Canada and the US, and lower trading activities. Investment banking and credit products is about 45% [_______________] credit like businesses including securitization, and the other 55% is investment banking and advisory businesses. Down a bit from last quarter perhaps not as much as you would have thought, given this continued slow markets, and there was a variety of businesses, some performed really well and others lagged behind Q1. All of our investment banking businesses in Canada performed extremely well with some large M&A fees. Our securitization business particularly in Europe had a great quarter. Most of the investment banking, lending, and high yield businesses in the US had a weaker quarter than in Q1. A reflection for the most part of a slower new issue markets. And finally on the [_______________] merchant banking you see the 143 a significant event for the third quarter in a row we delivered substantial numbers with [_______________] gains. We expect as we told you before in Q4 to realize on part of the hedge. We don't expect Q3 to have the same kind of merchant banking revenues we delivered in the last 3 quarters. The Q4 should bring that number up to within the 600-800 million range that David Kassie has spoken about. Now go to page 16, at the top, which I guess is the next page and I'll just bridge you from a revenue decline of $177 million down to a NIAT decline of 76. Here expenses were down $88 million, almost about 85% of that decline was in respect of lower incentive comp accruals, which you would expect in a slower revenue quarter. The loan loss provision however was up $55 million. The bulk of that increase I talked about at the beginning in respect of our corporate [book], and as a result NIBT was down 144 and NIAT down 76. Go to page 18 at the top, you have seen these numbers before, but not in the slide, but I just wanted to highlight this and Wayne Fox can elaborate. We continue now for the last 10 quarters to be very active in our share repurchase program. We have 390 million shares outstanding fully diluted and you can see the impact the share repurchase program has had over the last two and half years in bringing that number down. Go to page 21 at the top, [_______________] conclude with the two slides summarizing some of the business highlights that John alluded to, just to give you a sense of how the strategic plan we put in place almost 2 years ago is working. Electronic commerce you have already heard from Brian Cassidy on the customer growth. Creditor life insurance penetration you may recall at the annual meeting I mentioned, this is one of our objectives to improve. We have not had the kind of penetration in providing insurance on mortgages and personal lines of credit in our branches and we have done a lot of work to improve that. A year ago our penetration was 54%, now it is 60% and we think we can get it higher than that. PC banking customer growth, we now have a million customers using PC banking, our registered customers actually would be a little less than that. That's up 62% on the year. Transaction usage is actually up 75% on the year, and that's been helped in part by a better interface, but that's an interface that's only recently come on, so we expect that number to go even higher. The Global Payment transactions John referred to, the unrealized gain that we disclosed was only $43 million, and that includes the liquidity discount, because it's a hold period on those shares. We have got no plans to sell the shares but that number today is over a $100 million, reflecting the fact that the stock we got back is gone from US $15 to US $26 per share. We view this as strategic, but it reflects the fact by vesting out assets that we are concerned about that on their own they would not be competitive in to North American entities. But market view is that it is some thing that where value is created. Retail and Small Business Banking, I talked about the customer [_______________] numbers, simplified bank accounts. Mike can talk about how we have simplified this, as we did a year or 2 ago on the GICs, the bank account, which are one bank one checking, one deposit account, free services if you have $1,000, in your account. Technology upgrades are going to continue to the next 2 years in our branches. Going to the bottom of that slide in wealth management, sales training continues in the branches. Most of you that took those Canadian securities course in your youth will recall that, now 96% of our sales force in the branches have taken the Canadian securities course as well as but 70% are taking a financial planning course as well, and we think that is going to make a big difference with the margin in getting some of that wealth business from the huge and solid base we have with customers. Discount brokerage, account growth, you saw that chart. World Markets continuing strong merchant banking I mentioned several major transactions, and David can talk about the Nomura deal we just announced last Friday. We're advising Nomura capital on a bid for Le Meridian. It's truly a global transaction that CIBC is advising on, and it's not just a bank facility, it's a bank bond and advisory facility. We're also a big player in the US in the CLO market and real estate securitization market. Finally, in CVM, I showed you the share buyback chart. We continue to sell loans where the economics makes sense, and we think we're front-ending some of the pain that all banks are going to be facing to the extent this credit environment continues. This quarter, as Wayne can elaborate on, we sold $400 million of loans, and we took the hit, pretax of $25 million, after tax probably $18 million. So, that's 4 or 5 cents a share that we have born in the numbers you have seen to front-end what we think, we, and every other bank is going to have to face down the road if we see conditions continue the way they are. That concludes my presentation. I'll turn it over to Bob.

Thank-you Tom. We're starting on page 23, slide 45. As Tom pointed out, our specific provision for the second quarter totaled $253 million, which compares to $190 million in the first quarter. This increase is largely attributable to the US corporate portfolio primarily the communications and manufacturing sectors, while the remainder can be attributed to significant growth in the Visa portfolio where our profit margins remain very strong. [_______________] card division, the credit losses for 2001 is estimated at 950. Our general allowance at $1.25 billion remains unchanged and at 93 basis points of risk-weighted assets. Overall, our allowance for credit losses now stands at a conservative level of $2.24 billion. Business in government loans, as shown on the upper right hand side of the slide, continues to represent the largest segment of our loan portfolio at $54.8 billion, down $1.8 billion since the last quarter. On a percentage basis, the business loan portfolio has reduced 1.5% on an annualized basis over the past 2 years. If we adjust for the effects of securitization, the portfolio reduced by 4.4%. This reduction has been more than offset by growth in the consumer portfolios primarily in Visa and residential mortgages. We continue to see strong growth in the Visa portfolio of 33% over the past 2 years. Residential mortgages also experienced solid growth of over 10% reflecting in part an expansion of our [_______________] mortgages. This is reflective of our strategy that shift our business mix in favor of retail as well as a strong focus on balance sheet and capital management. Diversification continues to be a very important objective for us, and we are placing greater emphasis on more active loan portfolio management to improve our risk-adjusted returns. Our business in government portfolio continues to be reasonably well diversified from the industry perspective as evidenced by the breakdown shown on the slide. The largest reduction over the past year was in our exposure to financial institutions that was reduced by $2.5 billion and now stands at $6.4 billion, as indicated on the right hand side of the chart. Once again, reflecting our strategy of grooming the portfolio to improve our returns. The largest increase over the past year was in the transportation, communications, and utility segment, which increased by $1.4 billion and now totals $9.5 billion as shown on the upper left hand side of the slide. [_______________] European Telecom companies form the majority of that increase. With respect to telecom, our exposures are spread amongst various industry subgroups as broken out on the next slide. Telecom and cable accounted for $5.3 billion, or 9.1% of total business in government loans and BA's including securitized assets, down from $5.6 billion in the first quarter. Of this amount, 25% relates to ILEC accounts of which 80% are investment grade and 12% of the overall book relates to CLEC accounts. In the consolidated telecom and cable portfolio, only 12 exposures are greater than $100 million, of these only 4 are greater than 150. Net impaired loans for this sector totaled a $171 million and consists of 12 accounts. Six of the accounts are in the US, 5 are in Canada, and 1 is in Asia. This is an increase of a $149 million from the first quarter reflecting impairment of Winstar and Teligent during the second quarter. The high yield bond portfolio is widely diversified, included in this portfolio of about 34 telecom names of which 23 have outstanding positions of $1 million or less with the largest single exposure being less than $70 million. Our gross impaired loans increased $472 million during the past quarter to just under $2.1 billion. The three largest new gross impaired credit recognized in the second quarter were Winstar at a $112 million, Finova Canada at 50, and Pacific Gas and Electric at 46. Net impaired loans were a negative $160 million as shown on the bottom right hand side of the chart, an increase of $447 million from the first quarter of 2001 level. Net impaired loans, as a percentage of total loans and acceptances were a negative 10 basis points, an increase of 29 basis points over the prior quarter. If we decompose the total loan portfolio, then this total quarter-over-quarter net impaired loan increase of $447 million before generals is comprised of an increase of $398 million related to the business loan segment and an increase in the consumer side of $49 million. In terms of the business loans portfolio, the net impaired business loans ratio increased during the quarter to 1.95% from 1.18%. Seventy percent of the new classifications occurred in the business and government portfolio with the US accounting for 59% of these new classifications. From an industry perspective, the largest levels of the new classifications are from communication sector at 39% followed by manufacturing. Trade and services, primarily healthcare, accounted for 13% of the new classifications. Now, lets briefly look at the consumer loan portfolio. Our major consumer loan portfolios including credit cards continue to perform well. The level of net impaired residential mortgages, as shown on the right hand side of the slide, increased by $7 million during the past quarter to $144 million and is relatively stable at 27 basis points of net mortgage outstandings. Net impaired personal loans increased by $42 million during the past quarter to a negative $123 million, and on a percentage basis, a negative 44 basis points. This increase was related primarily to an increase of $53 million in the student loan portfolio against which we had established a special $250 million allowance in the fourth quarter of fiscal 2000. Next, let's examine our market risk performance in our trading portfolios. The one way of looking at our performance is to look at the distribution of net trading related revenue in terms of a frequency distribution. In the second quarter, we had 41 positive trading days out of 62, in other words, 66 of our trading days provided us with positive revenue. In our trading books risk continues to be well below historic levels, observed in late 1999, our risk was running between $23 million and $26 million, whereas today, it is running around $15 million. Risk as on non-trading portfolios, dominated by interest rate risks and the Canadian dollar gap has remained stable over the past 5 months. As the easing cycle has progressed, the low levels of a medium term rates have provided us with an opportunity for effective term hedging. I'll now turn it back to Kathy. We can open up for questions.

I think that we'll take some questions from the room first and then we'll go to the phone.

Hi, Tom Jarmai, RBC. I wanted to ask on the loan sales in the quarter of $400 million. Can you characterize the nature of those loans and were they impaired given from the pretax loss of $25 million?

Sure. Wayne Fox speaking. They were primarily from our non-core loan books. As you may recall a number of years ago, we segmented our business into core and non-core. So they were primarily associated with those legacy credits. As it turns out, none of the transactions have hedges that reflect this P&L had any specific provisions taken against them. So there was no need from an accounting perspective to release reserves. And as it relates to the character of the transaction [_______________] as I said being non-core loans we are just trying to optimize these [_______________] where opportunities exist to liquidate we are taking advantage of the market.

The relatively high [_______________] formations and I just wonder if you could give us an outlook given the view of as you said a weakening economy going forward, how you think this looks?

Well the good news is that so far in May, we are not seeing impairments of [_______________] very low. Obviously we have got two more days to go, but so far for the quarter [_______________], we got off to a pretty good start and as you know there are a lot of filings in the last quarter, which clearly pushed up the impairments. So at least at this point going forward it looks good, relatively good.

Thanks, I am wondering, on Amicus if you could talk a bit, I think in the past you have said that you thought the drag would be in the 55 to 60 cent range for the year. Looking at the run rate you are on so far, it looks like you are a bit ahead of that. So I am just wondering if you can talk a bit about the roll out schedule and do you expect that drag to be more or less than you have indicated in the past?

No, we are way down the target as far as roll out and we don't anticipate any need to [_______________]. We just had a huge concentration of rollouts in the last quarter, which [_______________] the first quarter but you will see over the next two with that level.

[_______________], and I didn't allude to this in my presentation, the drag this quarter of 17 cents was hurt by 2 things. One the FX hurt us by almost a cent and the fact that we rolled our customer acquisition faster than we thought we would hurt as well. So I think if we were to continue to see FX where it is and we continue to [_______________] plan, 55 cents would be at the upper end of the range would be my best guess as to where we recommend. But it is a matter of how fast we roll out, what the currency is doing and other things.

This is [_______________] of UBS Warburg. Following on that I know until now we haven't had any specific forecast looking forward to 2002. But now that we have Ahold signed out, you have a better visibility with respect to what we might see from Amicus in terms of financial impact, looking at fiscal 2002.

Maybe Michael I will start, and then Brian or certainly John can comment. I think the thing with Ahold as well as with Safeway for that matter, is we have got flexibility, within a reasonably wide set of bounce to roll it out as fast as we want to. We have somewhat less control over how many customers walk in the door and that's why quarter to quarter the EPS might change by a penny or two. But the extent to which we roll it out in 2002 will quite frankly, in part be driven by what our tolerance is for EPS drag in the strategic initiative. Internally we are sticking at about the same pace that we predicted for this year, roughly 65 cents. But there is no question we could go faster if we chose to. I know that.

[_______________] Goldman Sachs. [_______________] actually an accounts question. If you look at page 18 of the supplemental, and you look at return to performing status repaid or sold, we have a number that is much different than the $400 million that you indicated, it was still down this quarter. I am curious if you can tell us if there was significant amount of recoveries in the quarter?

Page 18 of the supplement, in the column Q201, the left column and what number are you focusing at?

I am looking at the category that the returns of the performing status repaid or sold?

Okay. So 8 or 10 numbers down. So 152.

152, uh hum!! I am just curious does that include the loan sales and if so is the offset a return to performing status for a decent chunk of credit.

Look Barbara, correct me if I make a mistake, [_______________] but as Wayne said, none of these loans had any provisions attached to them. So the entire $25 million pretax would have been a drag on the investment banking revenue or [contra] revenue. Barbara do you want to, can you comment on this particular number here?

In terms of the loans that were sold, none of those were impaired.

Okay.

Yeah none of that can be in the front end...

Okay thank you.

We will go to the phones are there any questions from the telephones?

Ladies and gentlemen if there are any questions please press the '1' followed by the '4' on your pushbutton phone at this time. Your first question is from Jamie Keating of Merrill lynch. Please proceed with your question.

Thanks very much. I was wondering if I could drill into the retail bank contribution a little bit more this quarter to understand. I feel a bit [_______________] last quarter that I got a little too ebullient perhaps in the momentum there and the number, I guess has come back down a bit more to earth. Could you describe in a little more detail the impact of these other items we went through or perhaps lead us to where a sustainable range should be for contribution on that group, I don't know if I am missing anything but it appears there is a combination of recurring and nonrecurring items perhaps in the $100 million contribution. And I am hoping you will give a little more detail than that. Second, technical question related to the credit card merchant processing pending. Is the unrealized securities gain so to speak in your unrealized securities gain total or is it somewhere else in a strategic line, non-reported?

Maybe I will deal with the second question Jamie, that number is in our press release. I think it is 43 or 48 million, one of the two. It would be in the unrealized gain number, of the $2.2 billion. So as of April 30, 2001, that was a small part of that $2.2 billion. As I said that number is much larger now, over a $100 million. But nowhere does it show up in the P&L. On the first question, maybe I will start, Mike Pedersen, and then let you elaborate. I will just go back to the slide that I talked about. Jamie would it be helpful to give both the revenue and the net income after tax or just the bridge from the revenue decline into the NIAT that you wanted to proceed?

Well I guess, my perspective, I think it's the revenue that was a little concerning, but I kind of rely on your judgment for this because, just looking at year bank, a little different from the others because you don't have the cards and mortgages and nor the GIC's in there. So I am trying to figure out if I am missing anything or what, what I should be focused on. The decline in revenue was just about the same as far as I can tell, the decline in net income. And so I wouldn't mind just obtaining a bit better whether the $100 million range just kind of satisfactory, and what you are targeting for or whether there is anything in there I should consider as to whether that has upward levity from that range.

I will just take one minute and give you some of the high level numbers and then certainly turn it over to Mike. As I said, earlier, the main reason revenue is down quarter on quarter, is the deposit business which represents the bulk of revenues for our retail segments and small business segments. For those spreads narrowed together with the three fewer days, that drag was not enough to offset the benefit, if you will of some of the fees we got on the wealth products. Number two, the student loan business reduction of 7% hurt us on the lending products line, and number 3, the West Indies lack of loan opportunity, in part because of our credit constraints in terms of the risk, return opportunities there. Those 3 things were the main reason in the three fewer days that revenues were down $25 million alluded to. That $25 million translated into $28 million after tax because expenses quarter-on-quarter were high at $23 million, for three reasons. One, partly a reclassification of discount brokerage expenses into this business because we got the revenue as well $4 million. Base salary increases kicking in January, so we have a full quarter effect of that across our branch system this quarter whereas we only had a third of it last quarter, that was $6 million and the higher technology spend and infrastructure renewal represented about $8 million, so that's about 18 out of the 23.

And most of those expense items stick clearly, I guess particularly the branch and technology?

That one Mike can elaborate on that. That's one of the discretionary items we have, we have quite an extensive plan to renew our whole retail branch banking system, not just in the branches but the whole core infrastructure and we have a choices to make in terms of how fast to roll that out, we would like to roll that out at that kind of pace through the next year and a half but we have got some flexibility on that.

A couple of things I can add. First of all as you alluded to it, it is very important to understand that within this business unit the only product for which we get [_______________] income in this business unit is deposits. For everything else all we get are sales, commissions, and [_______________]. So it just happened that this quarter, this is the one product that was hurt by the economy and that interest rates went down, as you know dramatically, so spreads contracted. So that is a major issue and that speaks to why we can't compare this to how other banks count this. The other thing is that with respect to the first quarter as we alluded to in the first quarter, it was a quarter in which everything went right, and we try to convey the message that you shouldn't assume they will be the same going forward. We referred in fact in our release in Q1 to the fact that we would be making future infrastructure investments in technology and one that Tom didn't speak about that we are also investing in bizSmart which had an incremental expense impact in Q2. So on balance how you reconcile this as revenues were down mainly because of the reduced days and the dramatic contraction in deposit spreads and the increase in expenses was salaries because we do our adjustments on January once we get the full quarter effect of that in the second quarter and then investments and things like technology and in bizSmart, and with respect to the investment we are setting again in this quarter that we will continue to invest in that basic technology infrastructure which is the hardware and the front-end for our distribution service and sales force and that will continue to roll out over the next few months with respect to what you should expect is certainly closer to the Q2 result from the Q1 results.

Thanks a lot, sorry to drag [_______________] that was a big help. I'll be back to credit now.

Your next question is from Jim Bantis of Credit Suisse First Boston. Please proceed with your question.

Hi good morning, my question is trying to gauge your conservativeness in terms of your credit quality assumptions. You have increased your loan loss provisions for the year from 760 to 950 and Tom you spoke about front ending the system in terms of these provisions and my question is, are you forecasting worsening economic conditions than currently exhibited and that's why you are increasing your provisions at this point.

Maybe Bob if you don't mind, I will just start and you can elaborate. I think one of the other banks on a call earlier this month commented on, we like all the banks in Canada, look loan by loan, we do a bottom up estimate. That 950 represents a surplus over the loan-by-loan specific allocations that we have assigned and we call that the unallocated. So there is a, what we think is an appropriate buffer, if you will, over and above the loans that we specifically provisioned for. So to the extent, I mean to your point, I guess technically we have built in, as every bank does every quarter, some flexibility for deterioration in means and amounts for even means that we have already provided for that we haven't forecast. I think the bias overall on the economy is one of caution, I mean the employment numbers coming out Friday, I am told they are going to be pretty significant in terms of the market view of the economy and the extent to which people and companies spend. I would say there is a small bias to the down side, but on the whole it is where we see the credits that we have on the books [_______________] over the next two quarters.

Yeah, the only thing I would add is we do a bottoms up as Tom pointed out, identifying specific accounts and we will also do a top down and we see where they converge, and you know we have left room for what we think is significantly unallocated and we are looking forward as Tom suggested to a going forward economic environment which is conservative and that is consistent with our posture in terms of having 93 basis points [_______________] risk-weighted assets for the general allowance, you want to be on the conservative side.

Okay, if I could drill down just a bit further, you had new additions in gross impaired loans of $623 million this quarter from the commercial side, talking about conservatism, are any of these loans still paying interest and have not defaulted and you have conservatively classified them as nonperforming?

Yes there is a subset of those, which are still paying interest.

That could come back as a recovery latter on.

Absolutely.

Okay, thank-you.

Your next question is from Rob Wessel of National Bank Financial. Please proceed with your question.

Yes, thank you. I actually have just a couple of quick questions. I noticed on the first page of the press release that has unrealized gains on CIBCs investment portfolio stand at $2.2 billion and on page 24 of the supplemental in the chart in the middle under unrealized net gains and losses it is at $1.5 billion. I was just curious to see if there is a reason why those two numbers are different, and I just had a couple of followup questions.

The 2.2 billion is also including the impact of the hedge with respect to Global and I think footnote 2 on the bottom of page 24.

So, the $1.5 billion does not include the unrealized gains from Global Crossings.

With respect to the hedging. For the 2.2 would include the gains with respect to hedging.

You are saying so if it was hedged at $20 and it is trading at $13 now you are seeing $7 would be omitted.

Hi Rob, it is Tom speaking, the technical rules around the supplemental treatment of that section refer to securities. So for an arcane reason I guess the hedging that we have done 35 million shares of the 47 Global Crossing, with very credit worthy parties, [_______________] on that but they are very much unrealized gains and that's why they are in the 2.2.

I guess not to bug people down into details but just I guess what I am wondering is of the equity component of that of $1.1 billion how much of that Global Crossings as I thought that was actually higher Global Crossings gain was actually higher than $1.1 billion. I was curious to see of those unrealized losses that offset that.

No again that 1.1 you are referring to doesn't have the hedge gains in that. We have in the past I don't think that we have mentioned it here, but that's the $2.2 billion which is the more meaningful number, about $1.7 billion of that is the unrealized gain in the aggregate Global Crossing hedges and unhedged securities combined. So the 1.1, you have to gross that up to recognize the hedges and then roughly $500 million of that with the other than Global Crossing unrealized gains.

So $500 million would be unrealized gains pertaining to positions outside of the Global Crossings.

Right in round numbers that's right.

Okay, great thanks.

Your next question is from John Leonard of Salomon Smith Barney. Please proceed with your question.

Good morning, I am wondering if you could comment a bit on the tax rate that appears really quite light and even a bit lighter if I take out the tax statements of special gain. What's going on and how repeatable is it.

Yeah, John it is Tom, and I guess for the last 3 quarters I have been predicting a low tax rate, we will get back in to the 26-27 range and we continue to show this quarter on a tax equivalent basis where you adjust for dividends to normalize, about 22.2, I mean we continue to think particularly for Q3 that 26% would be the predicted rate. It's very hard to predict just because as you appreciate the mix of the profit and losses in various tax jurisdictions. Next quarter we are going to have about a $20 million tax hit because presumably all the banks will have to varying degrees because of the [_______________] reduction in taxes. In the same way in Q1 we had a special adjustment of I think in the mid 40s, because the federal tax rate came down. So the value of our differed tax assets expect to [_______________]. So John, I mean, I continue to predict that 26-27 would be more normal over the longer term, as the bunch of [_______________] will have an impact on that.

Thank-you.

Your next question is from Susan Cohen of Dundee Securities. Please proceed with your question.

Thank-you. Can you update us on your thoughts regarding the IPO of Amicus?

Well, we're going to, as we indicated previously, by the fourth quarter of this year, we believe that we will be in a position to disclose much more in the way of financial information with regard to Amicus, and at that time, we would be considering either looking at private equity or an initial public offering. I mean the IPO situation, obviously, would be that people will take a look at it and say, "don't sell any of it. It's such a good thing for CIBC." But that is our plan to, and really getting the sort of footprints in the US more so though as we have not been able to do with the Ahold partnership, we think puts us in a much more comfortable position in terms of moving forward in that front.

Thank-you.

Ladies and gentlemen, if there are any further questions, please press the '1' followed by the '4' at this time.

While the reading of Tom Woods there was an e-mail question that was sent in, just asking, did we realize any Global Crossing in the quarter, and the answer is, we did not. Thank-you for that question.

[_______________] Brian earlier that you are not focused on rollout and developing, which sounded like what you've got already. Should we assume from this that you are pretty much sold in with the major partnerships that you want or expect to have in Amicus for the near term and there aren't any others currently under consideration?

Our focus with regard to new partners, concentration is more likely to be in areas other than the grocery sector, [_______________] to investors group which we'll be launching, as you know, this fall, where we can leverage the exact same model, but rather the customer base of mutual fund and insurance type customers rather than just exclusive concentration on the grocery sector.

[_______________] just following on these and the loan sales of about $400 million, if you sold it for $400 million, you took a $25 million pretax charge, that means you're selling loans [_______________] 94 cents in a dollar. I am just trying to understand if they weren't impaired, how should we view that, should we view it as sort of taking $25 million in provisions before they even got into the impaired category or is it something, it looks like a pretty big hit to take on some thing that's performing?

Well, as I mentioned earlier, the bulk of those sales were in our non-core client holdings. This is really a question of redeploying those resources and capital assets in other business. So, it's an opportunity cost associated with doing that, and in as much as they're close to being [_______________] loans in a lot of cases, we felt that that was inappropriate redistribution or reallocation of our capital.

I think may be just to add to that, based on our experience so far, in addition to reallocating also, Wayne, I think, it's fair to say that we are, based on the analysis we are doing we are looking forward on some of these credits that we believe that they are going to weaken, not all of them and not in all instances but they clearly and are, if you will, opportunity gain from taking this action over the last one-year-and-a-half, Wayne, I guess, or close to that, close to two years that we've been doing, it is in the range of about $70 million. In other words, by taking action early, even though we had to take the hit, we hadn't taken action on some of these, if you look at them later on. They had gone to a more significant discount to par and/or would have become impaired. So, that's the idea with the overall thing, is to get the right portfolio mix, and hopefully, do it on a basis that while it might involve an immediate hit to earnings overall and over time we're going to gain on it.

I might add to that that it looks like with the new [_______________] draft that's coming out, we're going to be forecasting forward our general allowance based upon a much more statistically defined techniques which will look like they will be wedded in the same spirit as the new [_______________] guidelines will be, to the extend that you get those out of your book, you can lower your forecast or expectations of the general allowance.

[_______________] of this non-core loan portfolio?

We disclosed in general terms, and really what this is, in Canada it would be very low because we have been working at this for 4 years to reduce to a 1000. If I have to pick a number, it would probably be 10 % of the corporate loans in Canada. And the loan book in Canada, corporate loans of about $9 billion or so as a number, and at any time, you're having corporate relationships that are strengthening others, that are receding. In the US, that number would be, I would say roughly, 20% perhaps, again reflecting the fact that we've reduced it not just by loan sales but by exiting term facilities as they mature.

I might add that, I mean, I don't think really that number is going to do you a lot of good because the majority of the exit or the run off on these non-core relationships or just the maturity of the contract, the loan contract, so that you no longer have an obligation.

Hello, it's [_______________] with Goldman Sachs. Two follow up questions. One, on the loan sales. Should we assume from the fact that you haven't sold down any of your distress credits? Should we take from that perhaps you think the secondary market is assuming recovery levels that are lower than what you all are assuming?

I wouldn't assume that, though as you probably have noticed in recent months anyway, the secondary loan market has tightened up and improved significantly, and in fact, there is no question that there is a lot more activity going on now that the market has tightened up a little bit. Number 2 is that, not withstanding that we're all trying to look forward is to how the market and the economy is going to unfold? Some of the leading indicators that you look at it in a macro sense like [_______________] experience, the Moody's calculations, or the ratio of downgrades, upgrades and so on. Notwithstanding they haven't got into the levels they did in the last business cycle, seemed to be flattening out here. So, there is a little bit more optimism that is creeping into the secondary market and that's providing liquidity and opportunities to restructure some of our portfolios. And a lot of the benefits here [_______________] freeing up and redeploying capital are associated with diversifying the portfolio and reducing concentrations in either industry segments or outright facilities. So keep that in mind that the risk reduction is not just purely an exiting of the facility. So, I wouldn't read too much into the fact that we haven't, if you have been aggressive in dealing with our distress credits, until recently I don't think there has been a very liquid market for that segment, but we are always open for ideas.

And just one more followup on the expense side. Tom, you mentioned in Wealth Management that you obviously have brought incentive compensation down but you have continued to invest in technology and other initiatives. How much flexibility do you have there going forward if the environment doesn't improve?

[_______________], you want to take that?

[_______________] to forward here.

If the environment doesn't improve.

Look, there are a variety of expenditures over the course of the next 12 months that if we got into the difficult environment that we could postpone, but that would be deferring expenditures into another period. That wouldn't be very productive. The reality is that, at the current time, we actually believe that we have our expenses under good control within Wealth Management, and there have been a number of reductions in the overall expense area, as a [_______________] on our regular operating basis. The larger reason for the change in this particular quarter, as Tom mentioned, has to do with some credit losses within the [_______________] business, which was a one-time item. So, in fact, the overall expenses were down this quarter on an operating basis.

Yeah Mike.

I have a follow up question. First of all, the $25 million loss from the sale of the non-core loans, which line would that actually go to?

That's a negative revenue in the investment banking and credit line, when you look at the segmented business-by-business results. So, a number that I showed you, I think it was 398 on that chart, and that would be $25 million higher and very close to the Q1 number, where we had a very low loan sales. That goes through then...

I'm just thinking on the consolidated income statement, which...

Correct.

Which one...

That's under the, Barbara correct me, the other non-interest income line on the consolidated income statement.

No, but which of these subcomponents of the [cough] is that in, maybe I should speak to you after the meeting. And the second question is you were asked about the low tax rate in the quarter, and you talked about how you expect that it'll come back up to a more normal tax rate perhaps in the upcoming quarter. But actually, what does explain the low tax rate this quarter?

We had higher specifics for this. We had higher specific loan loss provisions and high tax rate jurisdictions. Okay, so that helps you there. The profitability and many of the gains were in low tax rates jurisdictions. This is the same as [_______________] in the same situation this year as well, and that's the main driver quarter-to-quarter. There are some other tax planning initiatives that any company uses that we use as well, through the low tax rate jurisdictions as well, which was very beneficial this quarter versus Q1.

Thanks.

We will add to that that we believe that our tax strategies are very conservative.

[_______________] with Morgan Stanley. I was just wondering on the telecom sector, if you could give us a sense, there obviously has been an increase in the non-investment grade. Does that relate primarily to the impaired loans that you had talked about, or have you, has there been much of a change in terms of the watchlist on your telecom exposure?

I'll turn it over to Dan, one I turn over to Dan and I will come back at the back end of the question.

The inference on the second aspect of your question relative to the watchlist, that would not as such have an impact on the actual outstanding balances as such, it will just be a risk migration issue. In the context of the outstanding on the non-investment grade side, two things are happening on a percentage basis that Bob referenced. The actual reduction in the aggregate size of the portfolio, that reduction was driven through the investment grade quality account. So they reduced there outstandings quarter to quarter. So, that's part of the dynamic. The other part of the dynamic is that, within the non-investment grade sector, we did see increased [_______________] of existing credit facilities. With them, basically, different parts of the sector, CLEC included, over the second quarter.

The [_______________] on an overall basis if you compare watchlist of first quarter with second quarter, overall our watchlist is down [_______________].

Yeah, just a very quick followup on [_______________] question earlier with respect to the $25 million loss from the sold loans. You mentioned earlier, the $950 million estimate for provisions for the year, does have some cushion, it is unallocated at this point to specific loans that you've already identified as having deteriorated. With the cushion that you've included in that number [_______________], just general softening on the fringes of the types of loan that you've sold already this quarter. In other words, if I take a look at the $25 million on $400 million, should I be extrapolating that's across other non-impaired loans or should I think that that's already accounted for your $950 million provision for the year?

I'd just say that I think the two exercises are, in fact, quite independent. We're looking at our loan book, and as Bob indicated, doing a bottoms up and a tops down, and we think, at this point in time, that the $950 million for the year we think is a good number for the year, and Wayne's activity in managing the overall portfolio, the bank, in particular with regard to loans, our first priority is in the case of the assets that we have in our books, that we don't see as being a continuing part of our business. We want to accept them if we can on the most effective basis possible. But also, in addition to that, Wayne looks at how can you manage that portfolio to, in fact, reduce the overall risk of it, and that at times involves both buying and selling of loans. But, I think you can look at the 950 as a number that isn't related to what Wayne might do.

I think that's the key. I think you almost have to look at them as independent because we identify by name, than we [_______________]. We arrived at the 950 number crosschecking in the [_______________].

Now clearly, if Wayne saw an opportunity to act on something that we have classified and are reserved on and whatever and thought he could do something that was more economic and appropriate, we do it.

Now, with that the loans that are being sold, with [_______________] relatively far down the internal credit ratings? Then not impaired but getting close to that already, [_______________] have you characterized in general?

No. The range of the [_______________] in the quarter was [risk grading three], I guess, is an investment grade category and there is a number of those that were disposed off, the 99.5 sort of range, but just in the sense they are non-core and they are [____________] capital, there are some that are 7, 8s, and 9s which are not quite in the impaired category but it's certainly going in that direction. Obviously, we have a bias to reduce the inferior credits, so long as we can do that economically. As per Heather's question earlier, we did offer spreads in some of these, shall we say, more distress credits are very, very wide, and you don't very often get opportunities to execute, but when you do, you like to take that opportunity.

Great.

Thank-you.

I just wanted to ask Bob if the telecom sector basically came down in terms of outstandings, and could you, maybe, characterize to what extent those new draw downs, actual repayments, and new extensions of credit other than credit commitment draw downs, I don't know if that's clear, but I just wanted to get a flavor whether there is involuntary lending versus voluntary lending?

Yeah, let me turn over to Dan and I'll come back in the back end of that? Okay.

Certainly in the context of the better quality part of the portfolio, there is natural repayment arising through a combination of both operating cash flow generated by those businesses as well as a return to investment grade debt issue [_______________] probably seeing over the course of the last 2 to 3 months, particularly a number of names, European, American, and more recently, Canadian have been able to successfully issue medium term public debt, and the proceeds of that debt certainly in part are being applied to repaying bank loans. In the context of, what I would describe, as brand new business in the telecom sector, there is not much. I am sure that's true of the market in general, not just ourselves, and in the case of what you described as involuntary lending effectively, we see involuntary lending, and what I would describe to be the impaired category, and it's involuntary in the sense that, to provide you with an example, on the Winstar situation, 5 banks, CIBC included, have provided $75 [_______________] facility, that's $15. I used the word involuntary, I guess, slightly incorrectly but I mean we believe that's an appropriate thing to do. But that would be the type of example. But in the context of perhaps more anecdotally talking about situations where those types of clients are coming in and saying, I need a bigger facility and I need the banks to support me by way of providing a bigger facility that actually we have not seen any significant anecdotal evidence of that particular phenomenon.

Yes, okay.

Good. Any other question, anything on the phone?

Your next question is from Hugh Brown of BMO Nesbitt Burns. Please proceed with your question.

Hugh?

Hugh, the Merchant Bank.

I am sorry, you better start over because we didn't hear you start.

Sorry, I had a question in regard to the Merchant Bank, which recorded net revenues of a $143 million. The question is, is that net of some write-downs for impairment that might have happened in your portfolio?

I am David Kassie and it certainly is.

Would you say you effectively dealt with any impaired write-downs that might have been taken in the Merchant Bank totally?

We did that this time. There won't be any in the future.

Would the amount of the impaired write-downs be quite significant? So, the 143 as net, it might have been gross 250 or something?

Yeah, there was a material number and there was a broad number, there were a lot of little ones.

Right, so, given where we are in the environment for evaluation of private equity investments sector, I know you sort of brought that just like on the last provisioning side, you've sort of market to market more or less.

Exactly, in accordance with accounting policies.

That's good. Thank-you. One last thing CIT, which is, I know you don't want to talk about individual names but was that perhaps a win in the quarter?

It was.

So, that's one of the offsets. Thank-you.

Your next question is from Anne Russell of Standard Life. Please proceed with your question.

Yes, could you give an indication of the size of credit facilities that could be tapped by non-investment grade telcos. Then a second question is again on these loan sales for $400 million, is that a good run rate, $400 million going forward, and given that, as you talked about the loan market, how it has improved, secondary loan market has improved with a mix shift stand away from selling pure non-core loans to more core loans. Thank-you.

Wayne Fox is going to answer the last question and perhaps Dan can or Bob can deal with the first question. We negotiated at the beginning of the year a budget, if you like, for loss on sale for the loan book. That amount is $80 million, it is $20 million a quarter, and it's entirely arbitrary, if you like it's just an amount that is allocated to [_______________] in managing the affairs of World Markets in their the loan book. Obviously, we would like to use that diligently, and as John Hunkin pointed out, if we run across the opportunity so we can dispose off assets instead of the reserves. I think we'll be welcomed and warmly received, if you will, by all concerned. So having said that, we try to operate inside of that context of that sort of a budget. The whole exercise is to try and create a very diversified portfolio and minimize the risk to the bank or, if you will, to optimize the [_______________] ratio, and so, I think that's the portfolio mindset. If periodically, there are opportunities to dispose off segments or large segment of the portfolio, we would consider it, but, basically, that's the operating mandate we have presently.

Can I ask, as this thing seems to have come up quite a bit. Our business model on the wholesale side in CIBC World Markets contemplate this as an ongoing activity, and while there seems to be some confusion relating to loan losses, it's no different than a bond portfolio or an equity portfolio. We're just looking at it as another securities portfolio, and when we look at our business on the credit capital market side loan underwriting fees and [holds], one of the factors in the equation is, we want to be able to turn over the capital, and as the loan market develops, secondary market develops, you would do more and more of this obviously at better and better prices but we are factoring that into our business model. So, this is no surprise or add-on or anything, it's right in our business model and it's executed by Wayne and his people in the best way possible as a portfolio management exercise. That is the contemplation there and it's an ongoing contemplation, it's a part of the business model.

Just to reinforce that if we had our [_______________], the only loan inventories we would have would in fact be trading inventories. I think that's were one would like to get to. Holding of loans is not something that provides a great return for any bank that I am aware of, and therefore, we just want to be at the forefront of the development of the loan market, and of course, there is one in the United States. It opens and closes on occasions, but it is there, and you can take advantage of it, if you have the people and the resources dedicated to it. Once you strip the loan underwriting fees, which is the juice in the deal, and you are getting the collateral benefits from related revenues of other products, the loan product on its own is not a great returning product, and once you've got in the other higher margin. So, anything you can do to turn over that capital at good prices in the context of the market, as long as your business model contemplates that as a contrarevenue item, it's a good thing, in our opinion. So, that's the way the business model has been put together.

Yeah. This is Dan Fergusson speaking for the first part of the question. I am actually going to answer in a bit more specific fashion. I know the question was with respect to the aggregate noninvestment grade side of things. But if you will allow, I will actually focus on the CLEC areas specifically. But what that actually means [_______________] which would be of interest would be the wireless, and I regret I don't have that number exactly at hand, but on the CLEC side of things, it would be in the range of approximately [200 Canadian], that would be on the basis that companies were in compliance with governments etc, relative to the type of headroom availability versus utilization of existing credits.

Your next question is from Kevin Lampo of Edward Jones. Please proceed with your question.

Hi. I've got a question, I'm going to delve a little bit deeper than maybe you would like, but let's see. Looking at the $623 million in new addition from commercial loans and 39% of those were communication loans, that comes up to about $242 million in new formation due to the communication sector, under the telecommunication sector slide, you had a $171 million net impaired loans. Does that communications, 39%, does that include more than just telecommunications sector or was there a $70 million write-off in that sector in the quarter?

Yes. It's Dan Ferguson speaking. I won't get into specific write-offs on particular accounts, but you are comparing a gross impaired loan number to a net impaired loan number. So, there is a reconciliation there that's come out.

Okay. Fair enough. Thank-you.

Your next question is a follow up question from Jamie Keating of Merrill Lynch. Please proceed with your question.

Thank-you very much. Just wondering if you could remind us specifically on the timing of release on the Global Crossing's hedges or how you might want to employ those from a timing perspective when your [_______________]? Secondly, more importantly, if you could address potential for usage on those wins and whether a certain portion of them would be employed for the general provision or otherwise other investments? Could you update us on that? You're thinking on that John?

No, I didn't say first of all on the general, just to go to the last part first in the general provision at this point in time. We have the highest ratio of any of the Canadian banks, and therefore, I guess, we'd had to see the way the world looks at the end of the year with regard to general provisions but, and also as Mark indicated, there is a dialogue going on, and we think a good dialogue going on regarding general provisions with our regulator. In terms of the timing of the Global Crossing, I think we indicated previously it would be most likely in the fourth quarter.

So, the first part or second part whichever, determined in the end, John, in terms of generals or specifics, if I could ask the question in a fully different way. Would you be interested in trying to notionally protect a coverage ratio towards the end of the year or is that important to you, would you be looking at it in a different way so that would be more comprehensive, specific, and in general?

You mean do you want to be number one in generals, you mean?

No, I mean specifically your coverage ratio overall. So, for example I think it dipped from a very high range relative to the group back into the range.

[_______________] impaired.

And you have the, I guess, the flexibility to go back towards the top end of the range if you wanted. Is that coverage ratio important to you tactically or otherwise?

I don't think that we targeted any upward ratio as such. No, I guess, what we would say one should do is that in the good times, and we have been through a lot of good times, we think you should build up and have, in particular, if you believe the cycle has actually turned, and we believe for some time, and I'd say, throughout last year, we had concerns about the cycle turning, and we did build up our reserves and particularly up our generals which gave us the big negative net impaired number. And now, then all reality is coming to bear in terms of the turn in the economy and the impact on impaired loans. So, in that sense, what is happening to that number, I don't think is unusual, as we go into the down cycle. The question is how long it's going to last, and as we indicated earlier, I think in terms of our specifics and at this point in time, I'd say our generals, I think given more weak provision for the balance for the year, I'd say we are in pretty good shape.

Thanks a lot John.

I would just say it on the generals again if we go and we look at the forecast and we come forward in using this statistical based technique, we would generally tend to be on a conservative side of that on the outside range to keep our coverage ratios as conservative as they can be.

Are there any more questions?

There are no further questions at the phone lines.

Okay. I would just like to finish by saying that obviously this wasn't the blowup quarter, and I agree with that, but I think when you look at it, the return on equity was very solid, the costs were under control. The risks were under control. We have made some very significant progress in a number of our strategies. And I would again characterize it as a very solid quarter in what is not the most buoyant times in terms of the markets that we have been operating in. So, if you have any follow up questions or whatever, you can always get hold of Kathy and from her team, and thank-you very much for taking the time to come here today.

Ladies and gentlemen, that does conclude your conference call for today. We thank-you for participating and [_______________] you please disconnect your lines.