Canadian Imperial Bank of Commerce (CM) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the CIBC second quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded, Wednesday, May 21, 2003. I would now like to turn the conference over to Miss Kathryn Humber, Senior Vice President of Investor Relations for CIBC. Please go ahead.

Thank you. Good afternoon and welcome. Before we begin, a couple of housekeeping items. First, I would ask you to take note of the forward-looking statement in our slide presentation, which I will summarize as follows: 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 reports. Secondly, some of our comments may refer to measures that have not been calculated in accordance with Canadian generally accepted accounting principles such as net interest income on a taxable equivalent basis, economic profit and operating earnings.

Under new SEC rules, these measures have been reconciled to the most directly comparable GAAP measure in our quarterly report to shareholders and in our supplemental information, both of which have been posted on our website at cibc.com. Turning now to the presentations, here to speak to you today about our second quarter results are John Hunkin, Chairman and CEO, Tom Woods, CFO and Wayne Fox, Vice Chairman, Treasury Balance Sheet and Risk Management. Also on hand to answer your questions,Gerry McCaughey, Head of Weather Management, David Kassidy Head of World Market and Dan Ferguson, Head of Credit Risk Management. Thank you for your attention. I'll now turn it over to John Hunkin.

Thanks very much, Kathy. Good afternoon and welcome. Today's CIBC reported second quarter after tax earnings of $320 million compared to $227 million in the year-ago quarter. A result that I would characterize as reasonable, in an environment that continues to be uncertain. Key variables included lower market volumes and values, the strengthening Canadian dollar, strong housing starts and retail sales, higher interest rates and weak U.S. Capital Markets, particularly the investment banking pipeline. In spite of some of these features, our core businesses are generating strong and sustainable levels of profitability. Year to date, CIBC delivered operating earnings from all of our retail operations of more than $700 million, an increase of 9% from a year ago.

World Markets results were in line with the first quarter and year to date are up substantially from a year ago. As I did in the first quarter, let me report on several initiatives we have under way. First, we have undertaken to reduce our exposure to large corporate loans. Last quarter, total business and government loans fell $2.4 billion. This quarter, they are down a further $1.7 billion for a total reduction of 13% year-over-year. Second, our merchant banking portfolio stands at $2.2 billion, down from a peak of $3.5 billion at Q2 '01. The market for dispositions has not yet shown any signs of life and right now at this quarter were disappointing. We remain committed to reducing our exposure.

Cost reductions, We are getting costs out of the organization day by day and week by week. Expenses were lower in the second quarter than they were in the first. Initiatives under way now are being designed to reduce our overhead over the medium term through concerted efforts to re-engineer processes. It is not our intent do a massive reorganization with a correspondingly large restructuring charge. Fourth risk: Gross impaired loans are down. Loan loss provisions are down. RMUs are down. We continue to actively manage hold levels and to purchase credit protection where feasible. We continue to actively manage hold levels and purchase credit protection and risk-weighted assets are down by $2 billion.

Our tier 1 capital ratio is up to 9.3% and we consider this a prudent level given generally uncertain market conditions. Fifth, our business mix continues to evolve. 58% of our economic capital supports our retail businesses and 42% supports wholesale. This is up from 54% in Q1 and 51% a year ago. Finally, on airogold. Most of you are well aware of the process and outcome.

The court has approved an agreement between Air Canada and CIBC on terms that meet the needs of all concerned. We look forward to continued growth in this first class product and franchise. Gerald McCaughey is here to respond to your questions following our presentations. I will now turn the meeting over to Tom Woods for the financial review. Thank you. Tom?

Thank you, John. On slide 4, you can see that reported earnings per share this quarter were 76 cents or 98 cents excluding the write down for the payment we had made under the previous aero gold contract. This 98 cents compares to $1.02 normalized in Q1 and 62 cents in Q2 last year. The second quarter had less active Capital Markets and the three fewer days always affects the retail businesses. However, the good news was that our loan loss provision was well down, as Wayne Fox will comment on. Our costs are trending lower and as John referred to the announcement last week of a new aero gold contract removed the uncertainty in that regard.

Our tier 1 ratio hasn't been higher in at least 10 years. Our mortgage market share continues to increase, closing in on the No. 1 position we already hold in cards and Canadian investment banking. And loan balances are moving in the right direction. Personal loans are going up 12% versus Q2 last year and corporate loans down 13% versus last year. Turning now to a review of our business line performance, on slide 12, in retail markets, revenue in Q2 of 1.2 billion was in line with Q1 and up 10% versus Q2 last year, normalized for the West Indies merger. Slide 14, in personal banking, revenue was unchanged versus Q1at $455 million. We had slightly higher deposit spreads and 3% higher loan balances. This offset lower deposit balances in the affect of three fewer days in the quarter.

Market share and deposits fell from 17.7% in Q1 to 17.3. On lines of credit from 13.5 to 13.3. And increased on term loans from 17.4 to 17.9. The more heated competitive environment for deposits continued. The environment in person loans remained more relationship-driven and we benefited here from the introduction of a more simplified credit adjudication process. Revenue in personal banking should increase in Q3 and Q4 because due to seasonality and a positive outlook for our loan business. In slide 15, in small business banking, revenue was down marginally from Q1 at $132 million. Loan balances were up 4%, but this was more than offset by deposit balances that were down 3%, somewhat lower spreads and the three-day effect.

The second quarter is typically the seasonal low in small business as deposit balances decline and lines of credit are drawn in the agriculture, retailing and most other sectors. Deposit balances should finish the year higher than in 2002 and the pace of growth for loan balances should continue. Slide 16, in cards, revenue was back to Q4's record level of $324 million. Q2 always has a seasonally high revolve rate, that's the percentage of card balances paying interest. This more than offset lower fees at point of sale. A decline that was even more pronounced in the seasonal low we typically see in Q2. Market share of card outstandings fell from 21.4% Q1 to 20.9%. But increased on purchase volumes from 32% to 32.3%. Both the clear number one in Canada. We saw a small degree of migration out of aero gold to our other cards, but the number of aero gold cardholders rose 5% on the quarter.

The degree of competition in the market was about the same as in Q1 with less but more targeted direct mail than we saw last year. Low interest rates for balance transfers are still being offered, but they have not had a significant impact on the market. The turns of our new aero gold contract will result in a about 10 to $15 million less revenue per quarter than what we had before. Meaning it will be difficult to maintain the Q2 revenue run rate for the rest of the year. How we do in cards over the next several quarters will be driven by the following: The continuing appeal of the aero gold value proposition, the appeal of new CIBC card introductions and the overall health of the economy and travel spending in particular. Slide 17,in mortgages revenue of $156 million was $2 million lower than in Q1. Slightly higher balances in prepayments didn't quite offset somewhat lower spreads in the three-day effect.

Market share and mortgages was up from 14.5% in Q1 to 14.6%, which is a full point higher than a year ago. Revenue will probably not keep pace in the second half as competitive pressures continue to escalate and a shift out of variable back to lower margin fixed rate mortgages appears likely. Slide 18, retail markets net income was $159 million in Q2. If you exclude the write down relating to aero Canada net income was 240 million versus 253 million in Q1. This decline was due primarily to higher advertising costs, typical in Q2 and new technology spending, mainly in our cards business. Turning now to wealth management on slide 22, revenue here was $574 million, which compares to $738 million in Q1. The $738 million figure after adjusting for the Oppenheimer sale in Q1, would be $609 million.

And slide 24, imperial service is the retail banking group serving the top 15% of our customers. Revenue here was $173 million, versus $182 million in Q1. Loan balances were up 4% and deposit balances fell 1% on the quarter. A similar pattern to that in personal banking. Over 1,000 or 84% of our in-branch advisors are now IDA registered reps and more than 56% hold their certified financial planning designation, allowing them to advise on and sell equity, bonds, third party mutual funds as well as CIBC deposit, loan and investment products. Revenue in the second half in imperial service should increase two or be above the run rate we saw in Q1, driven mainly by continued growth and loan demand. In slide 25, retail brokerage revenue of $245 million was in line with a normalized $248 million in Q1, which takes out the gain on the Oppenheimer sale and two months of revenue we had before it was sold in Q1.

We continue to clear for Oppenheimer and this was up somewhat in Q2, offset in part by lower discount brokerage revenues. Notably, CIBC would get the revenue, that's a full service business here in Canada was the same as in Q1, as higher new issuance solicitation fee revenue more than offset lower secondary market commissions in a market where TSX volume was down 18% on the quarter. It's important to note that assets under management for investment advisor were up 2% versus Q1 and up 6% versus Q4 last year. Slide 26, wealth products revenue was down because of the sale of the asset management component of the Oppenheimer business and lower fees on market valued assets, offset in part by income from higher GIC balances. Mutual funds share among all providers increased from 8.6 to 8.7% on the quarter, but GIC share fell from 15.1 to 15.0%.

Our share growth in mutual funds continues to be driven by the breadth of our managed products, targeted imperial service customers. The GIC business continues to be very price competitive, but we've had good success with our escalator rate products, supported by extensive print and other media advertising. While the outlook for both retail brokerage and wealth products will obviously be market-driven, I'd remind you that a significant proportion of our revenue in these areas is fixed-income related. In slide 27, wealth management NIAT was $69 million in Q2. If you exclude the gain on the Oppenheimer sale in Q1 and the two months of revenue and expenses in Q1 prior to sale, the 121 Q1 number would be $100 million. The lower NIAT in Q2 was due to lower revenue as I've just reviewed and $13 million in higher expenses, primary technology spending.

The final business group, world markets, on slide 35, you see revenue of $849 million in Q2 versus $1.05 billion in Q1. And slide 37, in Capital Markets, revenue of $391 million was just below Q1, which when you deduct the 20 million insurance recovery in Q1 was $400 million. The equities component of Capital Markets revenue, which represents about 2/3 of a $391 million number was down about 15% from Q1 and the debt component, which is the other 1/3, was up about 10%. Within equities, Canadian new issues were up, secondary market sales, particularly in the U.S., was down. And structuring and arbitrage opportunities were hurt by lower volatilities through the quarter and somewhat lighter credit spreads. On the debt side, debt revenue was helped in Q2 by more structured transactions and greater international flows, the Canadian dollar strengthened.

Market share year to date in equity trading fell in Canada from 12.9 to 11.8% and in the U.S. from 1.1 to 1.0%. Predicting the future in Capital Markets is always difficult, but the outlook for Q3 is probably for the same or slightly better fixed income results because of greater interest in the Canadian dollar and slightly worse than equities unless the new issue calendar improves or volatilities increase. On slide 38, investment banking and credit products revenue of $390 million was down as expected from the high level in Q1. The U.S. represents about 60% of this number with Canada 25 and Europe 15. In the U.S., most businesses were down from Q1 as industrywide deal flow was down 25 to 30% in both new issue equity and MNA).

Revenue in Canada was the same as Q1 and continues to run ahead of last year and just behind 2001's pace, when markets were considerably better. After six months, CIBC world markets ranks number one in new issue equity in Canada, having lead managed 50 deals, double that of the second place firm, for $4.6 billion, 85% higher than the No. 2 firm. Although the U.S. market is beginning to show signs of a pickup, particularly in high yield, the absence of much of a calendar on the either side of the border points to somewhat lower revenue here in Q3. Slide 39, fortune banking had negative revenue of $67 million, write downs of $128 million, exceeded gains and other income of $61 million. The higher level of write downs this quarter came from relatively few investments and doesn't reflect a change in the outlook for our portfolio from what it was entering the quarter.

As I indicated in our webcast last October, we review each investment individually each quarter and write downs reflect what we believe to be other than temporary impairments. Negative revenue this water was 3% of our portfolio. This compares to a range of negative revenue of 1.9% to 3.5% for six comparable U.S. financial institutions in their first quarter this year. The challenge we continue to face in merchant banking is as much the relative lack of liquidity at reasonable prices to monetize unrealized gaines as it is the single name event risk that will always be present in this type of portfolio. And slide 40, commercial banking, revenue of $108 million was below a very strong Q1 because of three fewer days and lower structuring fees this quarter. Slide 41 shows world markets net income of $115 million. This was driven by revenue of $849 million as I've just gone through, down $200 million from Q1. Loan losses that were down $86 million and expenses that were down $90 million from Q1, mainly due to lower compensation costs. I'll now turn it over to Wayne Fox.

Thanks very much, Tom. Good afternoon. As Tom just pointed out, our specific provisions for Q2 totaled $248 million, a $91 million improvement from the first quarter and $142 million less than Q2 of last year. Year to date specific provisions were $587 million, down from $930 million. From the first six months of fiscal '02. The general allowance remains unchanged at $1.25 billion and was 101 basis points of risk weighted assets at quarter end. As compared to 100 basis points at the end of Q1 and 96 basis points a year ago. Overall, our allowance for credit losses of $2.4 billion provides us with a coverage ratio of 116% of our gross impaired loans as compared to 104% as of January 31 and 115% a year ago.

Business and government credit specific provisions totaled $113 million, an improvement of $91 million from the first quarter and $180 million less than year-over-year. Business services retail and transportation sectors accounted for 79% with the business and government specific provisions in Q2. Consumer credit provisions remained unchanged from the first quarter at $135 million, an increase of $38 million over the second quarter of 2002. For the six months year to date, consumer credit provisions totaled $270 million, which is an increase of $51 million, as compared to the first two quarters of fiscal '02, resulting in large part from strong consumer portfolio growth, particularly credit cards, which grew 21.6% year-over-year and moderately higher default rates. Given our year to date provisioning experience, we currently anticipate that our full year credit provisions will be approximately 15% lower than last year. Last quarter we indicated that the range would be between 10 and 15% lower.

In light of the possible near-term negative impact on the Canadian economy due to SARS, particularly with respect to the domestic tourism and hospitality sectors, which will also be impacted by the relatively stronger Canadian dollar, we consider it somewhat premature to project the more significant year-over-year reduction in credit provisions with two quarters still ahead of us. Total net loans and acceptances after the general allowance totaled $142.5 billion at the end of Q2. Relatively unchanged from Jan 31. Residential mortgages increased by $824 million during Q2 and now comprise 48% of total net loans and acceptances. Personal loans increased in the second quarter by 490 million dollars and now comprise 14% of total net loans and acceptances.

Student loans reduced by $95 million to below $2.8 billion at the end of Q2, reflecting a $424 million reduction year-over-year and keeping with our previously-announced business strategy. Credit card outstandings increased by $373 million to $8.2 billion in Q2. Business and government loans and acceptances reduced by almost $1.7 billion to $43.1 billion in Q2 in line with our strategy of reducing exposure and capital to this sector. The current slide displays that our consumer credit assets represented 70% of the total net loans and acceptances as of April 30, as compared to 69% at the end of the first quarter. Year-over-year, we have shifted the percentage split of our loans and acceptances by five full percentage points from 65/35 to 70/30 consumer versus business. Thereby positioning our credit capital much more toward our retail business activities going forward.

This continued shift in our portfolio is reflective of our strategy to shift our business mix, measured by economic capital in favor of retail in conjunction with our ongoing focus on balance sheet and Capital Management. While we have included our standard corporate credit industry portfolio diversification slide in our presentation, I think I will limit my comments today to the stressed corporate sectors. Our Q2 gross telecom and cable exposure totaled approximately $3.4 billion. A decrease of $458 million, as compared to January 31. Net impaired telecom and cable loans reduce to 311 million at the end of the second of the quarter, a $202 million improvement over Q1. After adjusting for $410 million of purchased credit protection, our net telecom and cable exposure reduced to $3 billion at the end of the quarter and a $412 million improvement over Q1. The next three slides provide details with respect to our outstanding credit exposure to companies whose primary business is power generation and/or which have the material energy trading business generally as a by product of an operating pipeline business.

Outstanding loans and acceptances to this group of companies reduced to below $1.6 billion as of April 30, a $331 million improvement quarter-over-quarter. The credit quality of the outstanding exposure of $1.6 billion is split 43%/57% investment grade/non-investment grade, a shift of 7 percentage points in favor of investment grade quarter-over-quarter. All of the quarter-over-quarter reduction occurred in the non-investment grade segment, predominantly in the United States. Sectorially, each of the diversified utilities and power generation project categories have evidenced meaningful quarter-over-quarter reductions due to a combination of loan repayments and secondary sales. After adjusting for $120 million of purchased credit protection, our net power and energy trading exposure reduced to approximately $1.45 billion at quarter end, a $285 million improvement over Q1.

This slide details our geographically segmented outstanding credit exposures to those industry subsectors which are most impacted by the current SARS [INAUDIBLE] downturn in hospitality and tourism. As you can see, it's a busy slide so I'll walk you through it. Please note that we have further segmented our Q1airlines industry exposure in this Q2 disclosure, which distinguishing between commercial airlines and holiday tour charter operators, in addition to detailing or watching and gaining exposures and a final miscellaneous category, which captures borrowers such as restaurants, golf courses and amusement theme parks, reflecting the importance of tourism to their financial performance. Starting with the miscellaneous category of borrowers, the table indicates that we have $185 million of outstanding investment grade quality exposure and $285 million of non-investment grade exposure. All but approximately $60 million of which is Canadian-based.

With the exception of the long standing impaired credit, which is working it's way through the legal process, this portfolio is very diversified with the largest individual credit outstanding being less than $20 million. Working our way up the table, the next category details our $299 million exposure to U.S. gaming hotels, which we continue to view as stable credits. The non-gaming category is dominated by Canadian and European borrowers with the Canadian non-investment grade exposure of $186 million, diversified amongst many small business operators nationwide. The European exposure of a $283 million is predominantly reflective of two credits, one of which is in syndication and the second of which is a privately owned global hotel company, who's credit we impaired during Q2. In so far as the tour operators and commercial airlines are concerned, we confirm that while the majority of our exposure is secured by aircraft, some of the transactions have been structured on a defeased basis, supported by third party investment grade quality collateral as for the second footnote to the table.

Our air Canada syndicated credits and aircraft secured credits were impaired in Q2. By way of future guidance, we anticipate that upon the final documentation and funding of the $350 million self-liquidating aero plan points purchase loan that we agreed to extend to air Canada as part of the new aero gold contract, the amortizing amount will be recorded in our non-investment grade commercial airlines sectoral reporting. In summary, we believe that our airlines, hospitality and tourism, global exposure, is reasonably well diversified by borrower, subsector and region. While we're being proactive in managing our exposure to commercial flights carriers in Europe and the rest of the world as well as the European charter tour operators, we don't anticipate that negative developments this industrial sector would impact our fiscal '03 credit loss guidance. The next slide recaps the amount of credit protection that we've purchased on our business and government portfolio as of April 30.

Of the $2.1 billion in credit protection against outstanding loans and VAs, the largest hedged outstanding concentrations was telecom and cable at $410 million, followed by oil and gas and manufacturing, capital goods at $257 million each. All of the credit protection which we have purchased has been from counter-parties who's current public long-term debt ratings are A-minus or better. Credit portfolio management continues to actively manage down the non-core corporate loan book. This quarter's activities included loan sales of $201 million at a cost of 2 cents per share. As of April 30, we had 4.7% of our outstanding business and government loans credit protected. Our growth impaired loans decreased during Q2 by $231 million to $2.1 billion. The three largest new growth impaired credits recorded in the second quarter were the previously noted European headquartered hotel credit at $109 million, a U.S.-based wholesale retailer at $51 million and air Canada at $30 million.

As of April 30, net impaired loans were negative $329 million, as is shown on the bottom right-hand side of the chart, representing an improvement of $244 million over the prior quarter. As a percentage of total loans and acceptances, net impaired loans were negative 21 basis points at the end of Q2 as compared to a negative 6 basis points at the end of Q1. Business and government net impaired loans improved by $249 million during the quarter and while consumer net impaired loans increased marginally by $6 million. Business and government net impaired loans before general allowances at April 30 represented 2.16% of total business and government loans. A 47 basis point improvement over Q1. At $282 million, business and government net new formations were approximately flat quarter-over-quarter and accounted for 51% of the new classifications.

From an industry perspective, the largest levels in the new corporate classifications were from the business services sector at 55%. Now let's have a quick look at the consumer books. Our major consumer loan portfolios including credit cards continue to perform very well. Our domestic credit card delinquency rates increased quarter-over-quarter to 2.79%. This increase is largely the result of a change in billing dates related to the bank's conversion to it's new credit card platform. As I noted last quarter, following seasonal trends, delinquency rates are expected to decline during the balance of the year. The level of net impaired residential mortgages as shown on the right-hand side of the slide, increased to $8 million during the past quarter to $168 million and is 25-basis points of net mortgage outstandings reflecting the continued strong employment market and healthy housing market.

Net impaired personal loans, including student loans, improved slightly to negative 201 million as of quarter end. Now, briefly to market risk. This graph displays the daily value at risk in our trading portfolios against daily trading revenue. Please note that on no occasion did losses exceed the value at risk. Another way of looking at our trading performance is to look at the distribution of trading revenues. In Q2, 87% of trading days provided us with positive revenue. This represents continued strong performance and a significant improvement over 2002 as levels of customer activity generated more consistently positive revenues without any increase in risk. This leads to my next slide, which shows the risk in our trading books over the last three and a half years. Risk levels set new lows during Q2. Consistent with our goal of constraining revenue availability.

Value at risk in our trading books averaged under $10 million this quarter, significantly below historical levels. This next slide shows continued stability in the bank's structural interest rate risk. This is the risk that primarily results from differences in maturities or repricing dates of assets and liabilities, both on and off balance sheet. Since early 2000, we've reduced this risk by almost half, consistent with our strategy to reduce directional positions in the asset liability gap. And my final slide, displays that risk-weighted assets have declined by $22.3 billion since the end of 1998. Since 1998, wholesale risk-weighted assets have declined by $38 billion of which $25 billion or 66% is related to the reduction in wholesale credit portfolios. Retail risk weighted assets have increased by approximately 15 billion primarily due to strong growth in mortgages, credit cards and personal loans. In Q2 risk weighted assets decreased by 1.7 billion effectively all due to reductions in wholesale credit related activities. With those brief comments I'll turn turn it back to you, Kathy

Okay, we're ready for questions. Why don't we start here in the room. Heather?

Two quick questions. First on credit. If I did the math correctly it looks as if the -- based a 15% reduction from provisioning last year it looks as if your back half accruals will be higher than your front half accruals. I'm curious what the rationale behind that is? And second question, Tom, I'm wondering if you happen to have the effective tax rate "X" the air Canada charge?

Dan Ferguson responding to the first question. As Wayne remarked in his comments, we have this quarter formally revised our 10 to 15% guidance to 15%. So, a slight improvement. We are cautiously optimistic with respect to the rest of the year but given that we're still in the early days of appreciating just what impact on the domestic Canadian economy, both the GTA SARS issue has had as well as the increasing value of the Canadian dollar, we do think it's premature to formally revise guidance with two quarters to go. We will certainly re-review this matter going into our fourth quarter.

Heather, I don't have a precise number at hand. I can guess and get it back to you. Our tax rate, if I recall correctly, reported was around 27% TEB was around 32%. So, both of those would have been pulled up by the air Canada transaction which would have been done at full Canadian rates. So, you're probably looking at something like 25 reported -- 30, 31 TEB, but I can confirm that with you.

Ian?

A couple of questions on the card business. If I got it right, Tom, your share of receivables is down but your share of purchase volumes is up slightly. And it looked as if the cards are down about $400 million, I guess, I don't know if Gerry can give us some flavor on what's going on? I would have thought if -- given the turmoil at Air Canada, people would have used the charging less, but not used the receivables. The receivable borrowing capability of the card elapsed. So, can you talk to...

Hit your button, Gerry, please?

First thing I would say is that while there was a bit of noise in terms of urgency that I don't believe there was a discernible trend that emerged to -- negotiations -- [ loss of audio ] -- as a matter of fact, we actually - to 800 new cards in April, which brings us to -- [ loss of audio ] -- 24,800 cards new this year. I'm talking about aero gold now strictly. That's off slightly from last year, off about 3,000 from last year. If you look at it, the bookings in April were quite good, so, the interest in that particular franchise is still strong. If I was to want to look at the most indicative number, that would be it. Because there are all sorts of other toing and froing in terms of outstandings and seasonal trends and that sort of thing. That would be the definitive number for the moment on aero gold.

Is there any -- the decline in the card balances administered, it seemed to be one of the first times in the -- going back over a few years that, you've had this kind of decline on forms administered. Is there anything -- you think people are using cards less as funding vehicles? Why do you think --

As I said earlier, I think it's too early to forecast a trend. And that the -- we're still looking at this as being a business where the trend line growth.

Quentin?

If I can just continue on,Gerry, in terms of the card program. I guess in terms of the aero gold and the scare of having that ripped away and what that might mean for the bank, is there any I guess takeaways in terms of what the bank is trying to do going forward to try to mitigate the risk of one relationship playing a key role to the bank in what is a very large component of the revenue and income strength. I mean -- what's the strategy beyond simply reaffirming the aero gold relationship, locking in 10 years and now competing against another card provider?

Well, first of all, we believe that we are going to have to continue to introduce new products to keep our franchise vibrant in the card products business and to that end, we will have several new card product introductions over the course of the balance of the calendar year. And some of them will be innovative and have interesting features that we think will allow to us broaden our total card franchise. Beyond that, I can't give you details on them until we launch them because that's competitive information.

So, would that be a card that you would plan to migrate some of your aero gold holders onto as well as try and steal shares? I mean a diversification away from the concentration risk of aero gold. Would that be the plan? And hope you get pick up by other providers. And secondly, given this new card count that you experienced in April as you introduce or as the market has introduced to it a new aero plan affinity card, what are your expectations or what should the market be expecting in terms of the growth of the new cards booked going forward? That should be under pressure? And if it's real pressure and not material pressure? How do you see the new competitive threat?

I think that the new situation that oriented is going to be one that's balanced. The exclusivity was relaxed in a balanced fashion and I believe that future growth is something that obviously we will have to share from a viewpoint of airline affinity programs, particularly for customers who are interested in obtaining air Canada points, because there are be another party in the marketplace. That is something that had been anticipated already to a certain extent in the original renegotiation because we had relaxed our exclusivity in the original renegotiation to allow a number of new entrance into the market but we had not allowed a network card and this is going to be something that will obviously curtail future growth to a certain degree in the area of narrowly focusing on aero plan points. Therefore, we do intend, also, to participate in other areas of the marketplace in the broader loyalty program portion of the marketplace. And to that extent, we will be, as I mentioned, launching some products within the next six months.

Thanks.

We go to the phones.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three toned prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration, please press the 1 followed by the 3. If you're using a speaker phone, please lift your handset before entering your request. One moment, please, for the first question. Our first question comes from Robert Wessel from National Bank Financial. Please proceed with your question.

Hi, good afternoon, I just have two quick questions. First, on slide 45 of the investor presentation, they note -- you note that the carrying value of the direct equity investments is $981 million, can you give an updated number as to the fund of funds? That would be my first question.

Yep, just bear with me one moment. When you say the fund of funds, the -- the --

Just the non-direct private equity investments part of the portfolio.

Would be $1.35 billion. So, it's 56% of the total, which I have is $1.35 billion.

Is the industry diversification roughly similar?

Yeah, I think, David it wouldn't be markedly different, would you say? From what we disclosed on the direct side?

It would be pretty well diversified and comfortable.

Ultimately, there are many, many more end investments, but the industry split the last time we looked at it it was more or less the same. Certainly when we looked at it, we were curious if there was more tech and telecom in there. The answer was no. So, pretty well diversified.

Great. And my second question, I'm not sure if you're prepared to say in the this point, but do you - can you give us any color on the details of the new partner that will be coming in on the aero gold side, specifically, what restrictions you might be imposing? Can you give us more flavor? There wasn't a whole lot in the press release.

We're actually not at liberty at this time to give you a whole lot more information and we believe that air Canada in due course, when they've concluded some of their arrangements, we will be making further announcements.

Is there an estimated time for that disclosure?

Best thing to do is discuss that with air Canada. We're not certain of their timetable.

Okay, great, thank you.

Our next question comes from James Keating, RBC Capital markets. Pleas proceed with your question. Mr. Keating, please go ahead, your line is open.

Oh, my apologies, one of the quick couple questions, one is on the merchant bank portfolio, if you could just address what the difference between the carrying value and the committed value -- committed and outstandings is? That's question No. 1.

Hey, Jamie, just bear with me a second. On the funds side, we have, as I said, drawn 1.35. We have undrawn of 1.25 in addition to that. That is a segment, however, that we are working to sell down. And we've had some success in that. So, we don't expect anywhere near that 1.25 will ultimately be called in our hands. On the direct side, we have commitments of about $400 million on top of the direct funded investments of 850 million.

Terrific. Actually, Tom, that answered my second question. Thank you, appreciate it. I'm finished.

Our next question comes from Michael Goldberg with Desjardins Securities. Please proceed with your question.

Thanks very much. You had a relatively high level of cured sales and the repayments in your impaired loans during the quarter. How much of that would have been sales? And can you give us some idea of the prognosis going forward for a new formation and the market for sales if -- continued sales as you see it now.

Dan Ferguson responding. To the first question. It was approximately 50/50 over the quarter. Between repayments and sales. Provide a bit of color regarding the sales activity, more active in the energy -- U.S. energy trading subsector where transactions have been fairly successfully restructured in the early part of 2003 and upon restructuring have become more liquid and more salable. But we've also seen some more conventional repayments assisted in part by the seasoning of the impaired portfolio where things have had a chance to work their way through and assisted as well by the strength in the U.S. high yield markets. As to the second question, with the exception of not yet having a really good outlook as to exactly how SARS and the Canadian dollar will impact both tourism and hospitality in general and particularly within Canada, I think with that exception our basic view would be that we're on a fairly stable run rate at the present time and in the very short-term, we'd expect that if things stabilize on the SARS and tourism front we would expect a similar type of performance going forward.

Okay. And just one other question along these lines. Did the net -- did the declassifications during the quarter contribute any meaningful amount of interest recapture?

It's Ferguson. I'll ask Tom to correct me if he has more reliable data, but broadly speaking, there would have been one credit in the order of approximately $60 million Canadian which would have been impaired for a couple of quarters which became re-performing in Q2. That, in terms of the sizeable credits, would have been the only one that I could think of making some type of contribution to NiM. The remainder of the situations we would have really been working with that NIM recapture as part of our sales activities in disposing of the credit.

Thank you.

Our next question comes from Alena Mecherpolsky from Deaja Bank Securities. Please proceed with your question.

Yes, hi. My question is about district financial. What was its contribution to revenues and to the bottom line in Q4? -- not in Q4,Q2, I'm sorry.

Thank you, Alena. Bear with pea a second. It was about a 1.5 cent drag in Q2 and we remain confident that we will be profitable in Q4.

And just to clarify, I think you mentioned that sales of impaired loans in Q2 was $201 million sold at a cost of 2 cents per share. Is this correct?

Yes, that's -- Ferguson speaking, Mr. Fox made that specific disclosure in his remarks.

Okay, we will take another question in the room here. Ian?

Two issues. One, the accruals in the world markets seem to be down meaningfully. I guess it looked high in Q1 and lower in Q2. I'm just trying to get a sense going forward, if world markets operates at this level of revenues, what would be the right NIE, is it 560 million or is it 660 million on a quarterly basis?

Ian, you're referring to the incentive compensation accrual?

Well, we get it through incentive, you show it that way. I'm looking at it from a divisional point of view. I don't mind

But compensation as opposed to expenses.

That's right, yeah. Looking at about $100 million?

Yeah, we typically accrue on a bit more conservative basis early in the year, within very narrow range, because this is all formula driven on a revenue accrual basis business by business, but there is some judgment that we can add or subtract a bit at the margin. The reason we do that as most banks do, you just have more quarters ahead of you in terms of uncertainty about the market generally and the market for compensation. So, I would say that if your question is let's say World Markets or the bank in general generated the same level of revenue in Q3 and Q4, would we see the accrued comp be higher or lower? Probably a little lower, but not much lower. We benchmark incentive comp on a comp to revenue basis and, in Q2 we were, on the method we used, in fact, we're about 39.2 comp to revenue on th adjusted approach, which takes out unusual items and adjusts for full service brokerage. Our target is to get that probably down to about 38.5. So there is a little bit of room, we're not talking large amounts of dollars, but a little bit of room to bring that incentive comp number down.

And as well, we benchmark, the most and the easiest way to benchmark incentive comp is on the revenues, when you look at paying it out, you look at the bottom line.

Right.

You look at performance and so therefore it is just -- it is such a big piece of our compensation is discretionary and it's discretionary for that very reason. You have to, at the end of the day, look at the performance for the year and you might remember last year, we cut back very dramatically because of the performance from the bottom line.

I guess when I look back in quarters where you've earned over $100 million of bottom line, coming back to your point, coming back to your point you should relate ultimately to the bottom line profitability, in quarters where you earned over $100 million, your NIE just in World Markets has been $100 million higher. How can it be the same or lower? Is it that overall compensation in the industry is just so much lower that that would result --

Yeah, I think the comp levels at the moment are lower than they were certainly 18 months ago. So, as John said, in Q3 last year, we felt with only three months of time ahead of us, we were pretty confident that we could reduce compensation so that if you were just to look at it on a one-quarter basis that looked like a low comp number, but in effect, what we were doing was applying back some comp that we accrued in Q1 and Q2. It's hard to do quarter by quarter, but on a running comp to revenue, subject to the adjustment John talked about, we believe we're conservative, which I think you have to be sitting here in Q2.

Second question: Related to page 6 of the narrative on taxes. Your future income tax asset continues to grow. It's -- and I was surprised with the company with world bank being pretty taxable here and the tax rates starting to rise, that the future income tax asset is still growing. And I was wondering what -- why is it still growing? And what issues should we be concerned about with respect to the recoverability of that asset.

You know, Ian, it has grown a little because loan losses in Q1 in the U.K. were higher than normal. For those of you that are not familiar with how deferred tax assets work, when a company has losses as we did last year, particularly in the U.S., due to the amacus write-offs and the merchant banking write-offs and the restructuring charge, you book the tax as an asset because you are not paying cash taxes at the moment. What we have to do with our auditors is convince ourselves as the end you're referring to, we will be able to make sufficient revenues over a reasonable period of time, to actually save those cash taxes. What we have done is because we will not be cash taxable in the U.S. for several years, probably six or seven years, we have moved some of our liquidity pools into the U.S. because even though the accounting tax is higher in the U.S. than it is in the West Indies for example, or Ireland, from a cash tax point of view, it makes sense to do that. That helps us comfort ourselves and the auditors that we will have a set of projections within the U.S. market, quite apart from how our business does, that we will be able ultimately to save cash taxes and not have to take a valuation adjustment to that deferred tax asset. We're very confident where we are today that both with the business we have plus the liquidity pool net interest income, which is very predictable, that we will be able to generate that taxable income in the U.S. and the U.K. to a much smaller degree in the U.K.

Any other questions from the phone?

We have a question from Steve Cawley, TD Newcrest. Please proceed with your question.

I mentioned the Canadian dollar as a potentially negative impact in the quarter. Did you quantify that, Tom?

I missed the first part. You said, Steve, that I'm -- we mentioned it as a negative impact on the quarter?

I heard it as an impact on the quarter.. I wondered if you had quantified it?

It had a very small impact on the quarter. Mildly negative because we were profitable in the U.S. Not by a great amount. But -- so, obviously if you're generating U.S. dollar net income and the U.S. dollar is worth less when you consolidate, although we hedge it every month, it is worth a little less. When you look at expenses, your expense performance looks better because of that expenses, probably helped us by about 15 million in revenue and probably hurt us by a little more than $15 million. So, under $5 million, all in.

Okay if you go to page 24 of the supplemental, wondering how you calculate the unrealized net gains in corporate equity? As it relates to the merchant portfolio?

Steve's referring to page 24, if you want to go there, it's the middle slate across the page, where it says CIBC estimated fair value of securities held for investment. Steve is referring to the third line down, the third column over from the left, which numbers a bit scratched out. It looks like about $303 million. What we do is for publicly traded securities, we take the difference between the market price and our current carrying value less a liquidity discount in cases where we're under escrow, which is the case for -- for some of the larger investments we've got. And that gets treated as an unrealized gain. For other publicly traded investments that are trading below our cost, we do the same thing. We take the loss. For non-publicly traded investments, even though we may feel that we can liquidate those at a higher price than we're currently carrying at, we don't take any realized gain and as you know we continually every quarter markdown any permanent impairment to non-publicly traded assets. So, generally it's only for a publicly traded investments that gos into the number both on the upside and downside, Steve.

Is there only a short list of companies that make up that 303? Is there one name that would represent close to 2/3 of that?

No. No. There are the two largest names for us, Steve, would be Shopper's Drug Mart, for which we've already divested a relatively small portion. And Global Payments Inc. Global Payments was the company you recall 2 years ago we vended in our merchant acquiring business in Canada. There are several others, but those would be the two largest ones.

Can you tell me how much those two represent of that 303 or not?

I don't -- it would represent -- recognizing that we have gains more than the 303 because there is some losses, I believe the Shoppers would be a little over 100 and the GPI would be probably 125. So, as a percent of the 303, a big number, as a percent of the aggregate unrealized gains, not as big a number.

And just continuing on that page, if you stay in the same column and go to the derivatives, I see that the total held for ALM purposes became much more negative in the quarter. Now, that is matched off such that there is really no implications for shareholders, is that correct? The negative 1443 is what I'm referring to.

This is a bit of a dangerous table. We have to put it in, but what it doesn't show is the flip side of cash securities. So, -- or the mark-to-market for other derivatives that fit into other buckets and that's, I'm afraid, the best I can do right now, Steve, on it. There's no -- unless Wayne wants to comment, there is no direct implication quarter-to-quarter because these are all part of our broader hedging program.

And I'm worried if I should worry about this at all, seeing how big the negative number is in this quarter?

Well, it's a -- it's Wayne Fox speaking, Steve, it's a longer and complicated discussion but I think Tom gave you the correct answer. The way we like to look at it, though, if you wanted to know the earnings risk was, there is a way to calculate the earnings risk, which is 100 basis points parallel shift in the yield curve and I think that's a typical way which you can compare apples to apples. I believe the last number we calculated was in the middle 20s positive, not negative. If we have a parallel shift in the yield curve, we would actually have a profit and that is consistent with what we've been trying to do in terms of risk management in the GAAP over the last two years.

I'll follow-up with you after this call. One final one, you mentioned that you don't want to change your guidance on the PCOes towards the end of the year and you also mentioned that your tier 1 ratio was at the high end of the range. I'm combining those two to a degree here. I was just wondering are we not going to see a dividend increase until the end of the year?

No.

No, we're not going to see one until the end of the year.

We're not going to see one.

Okay.

And the reason being that I still feel that I've said consistently now for the last two quarters, I think maybe two quarters ago, I said we have to look out 18 to 24 months. I'm still saying we have to look out 12 to 18 months. There are just too many things. I look around the world and don't see one good economy. China was the only thing holding the world up and it's got serious problems with the SARS outbreak. So, I think that while we've come through the last two quarters very well and while I don't know anything specifically that is out ahead of us, I think there is enough uncertainty that we will not go forward with any dividend increase, certainly until we get through the end of this year.

So, then we can expect your tier 1 to breach your high end?

Yes, you could.

Thanks.

Our next question comes from a Jim Bantis, Credit Suisse First Boston. Please proceed with your question.

Hi, good afternoon. A couple of questions for David Kassidy, one in terms of the revenues coming from world markets. In this state of the economy. I put in the reference of Q1 where the revenue line was a fairly frothy, there was some lumpy transactions that weren't indicative of the run rate of the revenue lines coming from that segment? And do you think this second quarter is more indicative of the weak economy, the back and forth in terms of the positive and negative news going forward for the rest of the year if we continue to have this economic outlook?

Certainly, Jim, more indicative than Q1, as you identified. The revenue on the origination part of the business can be fairly chunky and a relatively small number of transactions can make a quarter look particularly good. So, yeah, I would agree that Q2 looks more indicative than Q1.

Thanks, David. The second question is regarding the merchant banking portfolio. And this is one I'm having a bit of trouble with. I recognize that the portfolio is down significantly from Q2 a year ago 3.5 billion to 2.2 billion with equity corrections as well as write downs. David, where should we be seeing the size of the portfolio at the end this year, at Q4, give or take? And what type of merchant banking gains would you be budgeting or getting back to your target for 2004?

Well, in the first part of the question for the rest of the year and correct me if I missed any part of it, frankly we would be happy with net zero for the rest of the year and the main reason, which I think identifies the first part of your question is it's tough to see where they are going to be material realizations during fiscal 2003 just because of the Capital Markets which back up to the MNA market as well. There is no evidence of any opportunity for material realizations. Deals, plans that we are familiar with have gotten deferred because of Capital Markets conditions whether they be IPOs or possible M&A sales. With regard to 2004, apropos of John's comments, I can't sit here and predict 2004 is going to be any better than 2003 subject to the Capital Markets being better.

Yeah, I recognize that. I'm just following up on comments from perhaps a previous quarter. In the respect of, once the merchant banking portfolio is kind of realigned and equity markets seem to be a little bit more buoyant, we can get back to a 200 to $300 million merchant banking revenue line coming from this portfolio. I just wanted to see if -- is that type of thinking still realistic going forward?

I wouldn't be making that type of statement about 2004 given the outlook right now. I think in reasonable market conditions given even the reduced size of the portfolio, you know that would be a legitimate objective.

Okay, great, thanks, David.

Our next question comes from Susan Cohen from Dundee Securities. Please proceed with your question.

You've spoken about some re-engineering processes you're putting into place. How quickly do you think we could start to see the benefit in terms of better efficiency ratios coming in the forefront?

Susan, it's Tom speaking, we hope get some of that benefit next year. It's not clear we're going to get any this year, but certainly by 2005, our objective is to realize pretty significant benefits and get our NIX ratio down into the low 60s or even 260s, but some benefit we hope to get next year.

And any kind of target for next year?

Yeah, as I said, I think last call in Q1, probably somewhere halfway between where we are now, which is high 60s and ultimately 60s. So, somewhere in the 64 to 67 range, 66 range, would be something we'd aspire to. Now that, obviously depends on the revenue line as much as the expense line, but that's what we hope to get.

Thank you.

Our next question comes from Trevor Bateman from CIBC World Markets. Please proceed with your question.

Hi, good afternoon, just a question from the bond market perspective. Your disclosure this quarter, you have quantified the impact potentially of FIN 46 and the change in CIC rules on multi-seller conduits, though, S&P stated it doesn't expect any credit impact if these conduits are consolidated. Could you speak to what you see the impact is on the users of these multi-seller conduits? Do you see pricing increasing? Do you see alternative products being offered to the users of these conduits?

Trevor, it's Wayne Fox speaking. I think for the benefit of the rest of the audience, what this does contemplates that some of our off balance sheets vehicles will have to be consolidated back onto the balance sheet. They include some of the securitization conduits that we use to facilitate our client's access to the Capital Markets. And with -- all of us, it's an industrywide phenomenon, it's not something that's unique to ourselves and I think that the accounting fraternity has determined that they're going to at least on the single seller side force the industry to take back onto the balance sheet those assets and there is a possibility that they will do so with a multi-seller conduits as well. The impact it would have on us, I guess, is at the very least, as you add assets to the balance sheet it has an impact on your leverage ratios and your capital ratio and that's not insignificant. I think that as a practical matter, given that the dominance the banks have in the business, Trevor, that there would have to be a restructuring of some sort and some accommodation that would allow us get relief, if you like, because -- moreover that appears to be the regulators interest as well, that they would like to find a resolution for the accounting change. So that's work in progress. That will probably take some months to unfold. It's not something we're unduly concerned about, but we're spending a lot of energy on it.

Great. Thank you.

With every a follow-up question from Robert Wessel from National Bank Financial. Please proceed with your question.

Hi, I just have a quick question with respect to general reserves, given that you're trying to reallocate capital to the lower risk businesses as many of your counterparts, are you contemplating or at least having discussions with the regulator that you might bring some of your general reserves back into capital?

Well, as you know, it's Wayne Fox again, as you know, Robert, the regulator does allows to us use 87.5 basis points for the general in our tier 2 capital, so it's already inclusive. In our case we're over 100 basis points. So we have access. The second point I'd make is, as you know, we have worked with [INAUDIBLE] to come up with a formulaic basis in which we calculate the general reserves which has received their non-disapproval. I don't think they approve of it, but they've certainly accepted it. That is the basis upon which we do the calculation. And there's a judgment factor, obviously, that's applied on the basis of how one thinks about the environment going forward. If you take the cautious optimism that has been expressed by myself and my colleagues this afternoon, our view is that we are just going to stay the course for the moment, but you're right, there is a source of opportunity there as the environment improves.

Great. And I just wanted to follow-up on a quick question by Michael Goldberg. I didn't hear the answer. He was asking about the impact of interest recapture from some declassifications and Dan Ferguson said 1 credit of approximately -- I couldn't hear whether he said 16 or 60.

Ferguson speaking, I said 60. 6-0.

Great, thank you.

We have a follow-up question from Michael Goldberg, Desjardins Securities. Please proceed with your question.

Thank you, could you tell me what the accrual for the stock appreciation rates was in the quarter?

Michael, it would have have been about I think the number was about $25 million, but as I think I indicated last time, but if not, I can indicate now, that we've hedged that up fully so there was no net impact for the share price increase for CIBC this quarter.

Would it have been included, though, in your non-interest expenses?

Yes.

It would?

I believe that's the case. Yeah, it would.

Okay, so just moving more generally since that part of your, the components of incentive comps that you have, one of the things I monitor is your commissions and the bonuses as a percent of brokerage underwriting and training revenue and it seems to be down quite considerably in the second quarter this year from where it was last quarter and a year ago. Now, I know last year there was some retention bonuses for -- related to the acquisition that you had. But what I'd like to know is what are you targeting in this area for incentive comp?

What are we targeting?

Just on the first part, Michael, that statistic isn't going to be comparable pre-Oppenheimer, post-Oppenheimer, obviously when you sell Oppenheimer, the op co commission in the numerator disappears and your denominator is still not much different than it was before. Your question, what do we target on incentive comp? Just repeat that for me?

What do you target on inventive comp as a percent of brokerage underwriting and trading revenue ?

we don't look at it that way, Michael. As we were talking before, every individual business line has a revenue based accrual so that denominator would be made up of several businesses that might range from 5% to 30%, but more importantly at the end of the day, there is a judgment call that gets applied, which factors in nonrevenue items like loan losses in particular, so, we don't think of it that way. What we do have is a benchmark of comp to overall revenue right across the firm, adjusted for unusual items and that would be just under 40%.

So, is what you're saying that the reason for this ratio that I use going down is mainly because of the illumination of the disposition of Oppenheimer, which may have had a higher payout related to its revenue?

Michael, we should sit down and go through that. I'm inclined to say yes, but we should sit down and just go through exactly what numbers you're using. My guess is that's the main reason.

Thank you very much.

Okay.

There are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Great. Quentin, yes?

Thanks,. Just a question for David. In terms of where the wholesale business is, David, if revenues don't move an awful lot from here and it sounds like you're not overly excited about what you see out in front of you, if the business isn't making its return -- isn't generating a return on capital in terms of cost to capital allocated and it hasn't for six quarters or so, what do you think is going to have to happen? Is it still an alignment of the expenses allocated to the platform? Is it just going to require bearing down and bringing in more revenues? What's the game plan or the course in the next few quarters to make it return its capital?

You know, the primary driver would be the elimination of economic capital associated with the noncore business, primarily the loans that we've been running off, which we have made some progress on, as well as the some of the merchant banking portfolio. In fact, if you were to pro forma that, the returns are actually pretty good up in the -- they would be up in the range that we would be aspiring to. If you were to eliminate the noncore capital. It takes time for that to happen. So, over the next 12 to 24 months that will continue to occur and with no improvement, we would be earning an acceptable return on equity.

So, if we look over the course of the last eight quarters, the cost of capital has been flat like point to point from Q3 '01 where it cost you $113 million on capital allocated. Does that reflect changing on the cost allocation of that capital versus -- because you've been taking phones off the balance sheet aggressively as we've heard. And yet your cost to capital allocated hasn't changed point to point since Q3 '01 when you were charged $113 million to $115 million for this quarter if I read this right.

I'd have to go through the numbers with you. I mean certainly in terms of the loan capital that gets charged, the allocation of capital would have gone down. The methodology that we just put in on operational risk and something we call strategic risk capital has actually increased. I would be surprised that it's as much as offset the reduction in credit risk because market risk has gone down, as well. I can go through that with you. The only other thing I would say is the drivers we have in world markets, if you look back the last six quarters, where we are in the cycle, one would have to believe that we are below the mid point through the cycle in this business. And the big drivers, obviously, are loan loss provisions and in our case, leverage to cost. We think in a way that perhaps other banks may not have. So, those are the two big operating levers we have in this business as well as further reducing the loan buck and the denominator.

I would also point out that there's probably more to this than just this comment, but we have refined and changed the parameters associated with the measurement of capital for credit. Loss given to fault, use given to fault, probabilities to fault and so on. So, that's point one. And brought them more into line where we think historical experience and market practice is. So that has given a modest increase to capital. And secondarily, notwithstanding that we have been selling off loans, there has been some negative migration in some of the books as you would anticipate. So, we've been successful in one regard, but the market is still not 100% our way. Those would be two other contributing factors.

Okay. Thank you all for coming. Thank you all on the phones and on the Internet. And look forward to seeing you next quarter.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Thank you and have a great day.