Canadian Imperial Bank of Commerce (CM) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to CIBC's third-quarter analyst conference call. Please be advised this call is being recorded. I would now like to turn the meeting over to Ms. Kathy Humber, Senior Vice President, Investor Relations. Ladies and gentlemen, Ms. Humber.

Thanks very much. Good afternoon and welcome, everybody. As you know, 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.

Here to speak you today are Gerry McCaughey, President and CEO; Tom Woods, CFO; and Wayne Fox, Vice Chair, Treasury, Balance Sheet and Risk Management. Also on hand to respond to your questions are three heads of our businesses -- Sonia Baxendale, Head of Retail Markets; Brian Shaw, Head of World Markets; and Victor Dodig, Head of Wealth Management.

Thank you for your attention. I will now turn it over to Gerry.

Thanks, Kathy. Good afternoon, everyone, and thank you for joining us today. This morning, CIBC reported a net loss for the third quarter of $1.9 billion, or $5.77 per share. Our results this quarter were significantly reduced by a provision of $2.5 billion after tax, or $7.45 per share. This was in respect to the Enron-related settlements we announced earlier this month.

Earnings per share, apart from the Enron charge, were $1.68, which included merchant banking gains and solid business performance across all of our lines. But the Enron settlements obviously had the greatest impact this quarter.

Since our conference call on August 3, we have met with and spoken to investors, clients and employees. The key issues that have been raised are the settlement size and how we got there. The settlement amount was much higher than we anticipated. In the final analysis, the decision came down to choosing between two roads. One road had certainty, at a painfully high price. The other road had great uncertainty, with an unknown price and a very wide range of outcomes that we believe were unacceptable to our shareholders and employees. Therefore, we chose certainty.

My job now, and the job of our management team, is to move CIBC forward. In this regard, let me now turn to CIBC's operating results for the quarter. I'll then provide an update on our key priorities to move CIBC forward.

Retail markets revenue was strong, especially in personal banking and cards. Continued low and stable interest rates drove higher product volumes across our core business lines. Retail loan losses are still too high, and we're working on fixing this.

Wealth management delivered another good quarter, especially in Imperial Service, which delivered a new record quarter. Retail brokerage revenue was down slightly from Q2 on lower trading activity. Expenses were down from Q2, primarily due to lower brokerage payouts in line with the lower revenue.

World Markets had a net loss for the quarter as a result of the Enron-related litigation provision. Outside of the provision, the results of the core business were solid. Debt capital markets revenue continued to be strong during the quarter, while merchant banking revenue was particularly high.

Consistent with our strategy to improve our capital ratios, we're announcing today the realization of certain hedged transactions on our remaining shares in Global Payments and Shoppers Drug Mart. The embedded gains from these two transactions will result in fourth-quarter revenue of slightly less than $300 million. And Tom Woods will provide you further details on this.

Let me now turn to the steps we're taking to enhance our performance, particularly in the areas of balance sheet strength and productivity. The area of balance sheet strength -- our immediate priority is to restore our Tier 1 capital ratio to 8.5% from the current level of 7.5%. Given the merchant banking gains in the fourth quarter, our operating earnings that we would normally expect from our continuing business, as well as some incremental activity in the areas of reducing our risk-weighted assets, we would expect that our Tier 1 capital ratio could return to our objective of 8.5% or better as early as the first quarter of next year.

Another key priority is in the area of productivity. As I've stated before, our goal is to get to an industry median position in terms of our NIX ratio. This means a target of $250 million of expense reductions by the end of 2006. We now fully expect to realize about 50% of our targeted reductions from reductions in project spending.

In 2005, we have had an unprecedented level of incremental project spending in a number of major areas. These projects will either be complete this year or will have significantly reduced spend next year. We would expect to return to our historic levels of project spend by the end of next year.

We also expect to generate other expense reductions. One example of this is the new organization structure we announced within our retail markets business. The reorganization provided the opportunity to eliminate duplication and overlapping accountabilities at the executive level. This brings management decision-making one step closer to our clients.

With the actions that we're taking to wind down project spending and other reductions in actual expenses, we're confident that we will achieve our $250 million in savings by the end of 2006.

In closing, let me reiterate that we recognize that the Enron settlements were a significant setback for CIBC. In the years since the issues around Enron took place, we have significantly lowered our risk, strengthened our controls and increased our governance activities significantly. Our job now, as we look ahead, is to ensure that we stay focused on the task at hand. That task is to move CIBC forward and position our organization for consistent results over the long term.

Together with our management team and all of the employees of CIBC, we will deliver the strong, consistent long-term performance that I know CIBC can deliver and that our shareholders expect and deserve. I would like to once again thank our shareholders for their investment in CIBC. I would also like to thank the employees of CIBC for their hard work to ensure that this investment is a sound one.

I'll now turn things over Tom.

Thank you, Gerry. I'd like to go to slide four, which is the one-page summary slide we do every quarter. And not to repeat what Gerry has said, but you can see on the right-hand side the areas where the quarter was a good one. Higher loan losses in consumer and a slightly lower new issue equity market and weaker retail brokerage because of lower volumes were the negatives in the quarter.

At the very top, as Jerry said, taking $5.77 loss per share reported. If you were to take out the Enron -- and I don't mean to minimize that, but just to help you get to a number that helps you assess what a more normalized number would be -- would produce $1.68. And I can certainly get into in the Q&A the other items that you may want to think about in assessing that $1.68. Certainly merchant banking was well above normal, and I think $0.20 to $0.25 a share is what some analysts today are observing, and I would say that's probably reasonable.

We've also this quarter on the bottom left-hand side introduced a number of tables, because some of the new accounting rules this quarter were particularly material. Not that they were introduced this quarter, but certainly as it relates to VIEs and even some of the AcG-13, they were reasonably significant, although I would say at the end of the day, they are not material on a net basis. I can get into that.

But I direct your attention to those slides towards the back, particularly trading revenue, which will look to you to be very high, but it's because the large amounts of VIE consolidation, which has to be classified as trading revenue. You need to take that out to assess what the real sales and trading activity is.

Go to slide seven. This is a summary of our revenue. As I will go through business by business in a moment, it can be summarized by saying new issue equity was down. The consolidation of VIEs on the revenue line bumps that up by about 140 million. Almost all that comes out in minority interest, but for about 27 million. But that doesn't show up on the revenue slide. And then the higher merchant banking gains appear for the most part on the investment securities line, but some of it also appears under other income.

On the expense side, obviously, the Enron charge dominates. Apart from that, expenses were down a bit, notwithstanding the fact that the three additional days raised the salary and benefits line. But advertising, occupancy, communications, incentive compensation and legals were all down, give or take $10 million.

Now I will give you a brief review of the business lines. Slide 10, retail markets revenue was 1.37 billion, up nearly 5% from Q2. Slide 12. In personal banking, revenue was a record 561 million. Versus a year ago, deposit balances are up 8% and loan balances up 3%. Revenue here was helped by three more days in the quarter and record mortgage sales through the branch network. We see continued growth in balances in Q4, which should drive higher revenue.

Slide 13. Small-business banking revenue was up versus Q2, with higher balances being offset in part by lower spreads. Versus a year ago, deposits are up 10% and loans down 3%. The outlook for Q4 in small-business banking is positive.

Slide 14. Cards revenue was well up from Q2, due to higher seasonal purchase volumes and balances, the longer quarter and higher securitization revenue. Versus a year ago, balances are up over 4% and purchase volumes over 5%. The competitive environment in cards continues to escalate, particularly in the travel rewards sector, where advertising and promotion has increased. However, our Aerogold and Aventura offerings continue to perform well and maintain a large market share advantage. Q4 revenue will likely be down a little from Q3.

Slide 15. In mortgages, revenue was up from Q2, as higher balances, fee income and the effect of the longer quarter offset higher payouts to the distribution channels. Our residential balances are up 11% versus a year ago, and our market share increased to a high of 14.8%. We expect revenue to be slightly higher in Q4.

Slide 17. Retail markets net income -- up 23 million versus Q2. Revenue was up 63 million, mostly due to personal banking and cards, as I've just mentioned. Loan losses were up 18 million, mainly because cards losses in the second quarter were unusually low, but also because performance in this area is still weaker than we would like. Expenses were up 14 million, almost entirely due to higher severance costs because of the reorganization we did in Q3.

The second business group, wealth management -- revenue was 650 million, down 2% from Q2. Slide 20. Imperial Service is the group serving the top 15% of our branch banking customers. Revenue was a record 207 million, driven by higher funds under management, strong mortgage and wealth management product sales and the longer quarter. We expect Imperial Service revenue in Q4 to be about the same as in Q3.

Slide 21. Retail brokerage revenue of 270 million was down 18 million or 6% from Q2, as lower trading volumes and a slower new issue market more than offset higher annuitized revenue. Assets under administration in CIBC Wood Gundy, our full-service broker, are up 14% versus a year ago, largely due to equity market appreciation, but also due to strong asset accumulation. August trading volumes to date are better than July, and the new issue calendar looks stronger. So revenues in Q4 could exceed those in Q3.

Slide 22. Wealth products revenue was 132 million, up 6% from Q2, due to higher GIC revenue that benefited from slightly higher spreads in the longer quarter. Slide 24, - wealth management net income was up in Q3, but both Q2 and Q3 were affected by our settlement with U.S. regulators regarding services provided to hedge funds engaged in market timing. Excluding these provisions, Q2 net income was 115 million -- that's 115 million, and Q3 was lower at 108 million. Revenue was 13 million lower versus Q2, due to lower brokerage activity, and expenses ex the hedge fund settlement were down 4 million, as lower brokerage payouts more than offset slightly higher litigation provisions.

The final group, World Markets, slide 25. Revenue, 929 million, well up from Q2, due to higher-than-normal merchant banking revenue. The equities component of capital markets revenue, which represents about 60% of the $346 million figure, was up marginally from Q2. The stronger structured products in arbitrage more than offset weaker agency and new issue revenue.

The debt business was much stronger than in Q2, helped by higher levels of volatility, as credit spreads narrowed. The outlook for Q4 is probably for somewhat lower revenue and and capital markets, although it is difficult to predict this early in the quarter.

Slide 28. Investment banking and credit products revenue was down this quarter versus Q2. The U.S. represents about 50% of this number, with Canada about 25%. U.S. revenue was down from the second quarter, due to fewer new equity issues and a strong Q2 in real estate finance. In Canada, revenue was down as well, as spread narrowing drove a negative mark-to-market on our credit protection. This and lower new issue activity more than offset a good quarter in M&A in Canada. Europe had higher revenue as the leveraged finance market there continued to be very active.

The outlook for investment banking in Q4 is mixed. New issue pipelines are all reasonably strong in new issue equity in Canada and the U.S., and in leveraged finance in Europe. The M&A pipeline is reasonable, but how much will close in Q4 is unclear. Real estate finance, which is a very important business for us in the U.S., will likely be well down in Q4, as the next large securitization deal is not expected to occur until Q1 of next year.

In slide 29, merchant banking, revenue of 239 million, but 45 million of this was the consolidation of the increase in carrying value of a private equity fund that we are deemed to be the principal beneficiary under the VIE accounting rules. Now, we have consolidated this all year, but this quarter in particular, the carrying value increased quite a bit. 27 of that comes out in minority interest. But when you look at the 239, you have to bear in mind that 45 of that is the effect of consolidation.

Of the balance of merchant banking revenue of 194 million, distribution from fund investments totaled 32 million, and there were seven transactions with gains of 10 million or more. In five of these, companies which were minority shareholders were sold privately -- sorry, companies in which we were minority shareholders were sold privately. One other went public in the quarter. In the remaining case, we sold shares into the market after the expiry of our lockup.

And the point I want to make here is for the most part, the large merchant banking revenues were not situations that we proactively entered into. We were shareholders in companies that were -- for the most part were sold privately throughout the quarter. The one case where we were proactive, we sold those shares early in the quarter, once the lockup expired.

As Gerry said, we've announced the acceleration of the execution of forward contracts for the share sales of Global Payments and Shoppers Drug Mart. The reason that press release was delayed, and I assume it is on the wire right now, is we only about an hour ago concluded those transactions. Otherwise, the press release would have gone out first thing in the morning. It was approved by our Board this morning and we concluded the transactions I would say about an hour ago.

As Gerry said, that will produce revenue in Q4 of about 300 million. Apart from this, merchant banking revenue in Q4 should be somewhat above the level reported in Q2. That's the 61 million -- i.e., well below the level we reported this quarter, but, again, subject to case-by-case in terms of when divestitures close.

Slide 30 shows World Markets' net loss, reflecting the Enron charge. Excluding this charge in the hedge fund settlement over the last two quarters, net income was 152 million in Q2 and 236 million in Q3, with the increase in Q3 due mainly to the higher merchant banking revenue. Expenses, excluding the two settlements -- that's the hedge funds and the Enron -- were up 23 million, due mainly to higher accruals for other litigation. Loan losses were higher due to provisions in our commercial banking business.

I will now hand it over to Wayne Fox for the risk review.

Good afternoon, everyone, and thanks, Tom. As Tom has highlighted, the third quarter of 2005 saw continued improvement in our portfolios, as total gross impaired loans continued to improve and net impaired loans improved over the second quarter. Specific provisions increased 40 million over Q2, reflecting increased provisioning in the consumer portfolio and a shift towards more normalized losses in the business and government portfolio.

During the quarter, our general allowance remained unchanged and is 84 basis points of risk-weighted assets. Capital ratios have reduced, with Tier 1 at 7.5% and total capital at 10.5%. This is primarily the result of the litigation provision taken in the quarter.

Our fiscal 2005 guidance is for specific credit provisions to be in the low end of our 50 to 65 basis points medium-term target range. Our current view is that approximately 80% of our fiscal '05 credit provisions will be in the consumer sector, with the balance applicable to business and government loans. As well, we continue to expect our level of general allowance will range between 85 to 90 basis points of risk-weighted assets, subject to any reduction being reviewed with OSFI and our external auditors.

A recap of our specific provisions as a percentage of our net loans and acceptances is presented on this slide. In aggregate, third-quarter provisions were 54 basis points of net loans and acceptances, at the lower end of our medium-term target range of 50 to 65 basis points. The consumer portfolio loss rate was 57 basis points, an increase of 4 basis points from Q2, the result primarily of higher write-offs in unsecured portfolios.

The business and government portfolio loss rate increased to 42 basis points, up 20 basis points from Q2, primarily due to lower recoveries in the quarter that more reflect -- more reflective of expected levels. In dollar terms, specific provisions for the second quarter were 199 million, up 40 million from last quarter and up 58 million over the third quarter of fiscal '04.

Our business and government credit provisions totaled 38 million, an increase of 19 million over last quarter and up 66 million from the same period a year ago, when we had a reversal of 28 million in the provision.

The Q3 consumer-specific provision of 161 million was 21 million higher than Q2, due to higher losses in unsecured lending, but $8 million lower than in Q3 of '04, primarily due to the improvement in securitizations in credit cards, but partially offset by higher losses in unsecured lending. We would expect Q4 to be slightly above Q3 levels.

Our gross impaired loans, shown on this slide, reduced 60 million during the third quarter and were down 73 million over the same period last year. As at July 31, net impaired loans were 307 million, excluding general allowance, down 41 million from April 30 and down 68 million year over year. As a percentage of total loans and acceptances, net impaired loans were 21 basis points at the end of Q3, as compared to 24 basis points as at Q2 '05 and 17 basis points as at July 31, '04.

From an industry perspective, the largest levels of new corporate credit classifications were from the manufacturing sector at 44%, followed by the agricultural sector at 21% and the service and retail sector at 19%. And on a geographic basis, credit classifications were substantially all in Canada.

Now let's look at the total portfolio. Net loans and acceptances after the general allowance totaled over 147 billion at quarter end, up over 2.6 billion from April 30. Residential mortgages are up just over 2.3 billion quarter over quarter and up just under 5.7 billion year over year. Adding back the securitized mortgages on a managed basis, year over year, growth was 12.7%. Personal loans increased by 776 million over the quarter and 2.5 billion year over year for an 11% increase.

Credit card outstanding reduced quarter over quarter by 183 million and were down just under 20% year over year, in large part due to the $2.3 billion securitizations that have occurred in the last four quarters.

On a managed basis and excluding the impacts of Juniper, outstanding are up 5% year over year. Business and government loans decreased by 245 million in the quarter, while year over year, loans have been reduced by 2.7%. The business and government portfolio continue to be reasonably diversified from an industry perspective, and is supplemented by our credit protection activities. We continue to view corporate credit diversification as an important objective and are continuing to place emphasis on active loan portfolio management, groom the portfolio and improved returns. Further details on our diversification and credit hedging activity can be found in the appendix.

Turning to market risk, this slide displays Q3 daily trading revenue against the value at risk in our trading portfolios. Risk levels were stable during Q3 and averaged 8.4 million, slightly above the levels of Q2, but significantly below historical levels and consistent with our goal of constraining revenue volatility. On no occasions did losses exceed the value at risk and 84% of trading days provided us with positive revenue.

Our final slide demonstrates that we have significantly restructured the balance sheet since 1998, as we delivered on plans to significantly reduce risk on the wholesale side while continuing to grow the retail businesses. As Gerry noted in his opening remarks, based on the strength of our operating earnings, combined with the large merchant banking gains in the fourth quarter and continued discipline in the area of risk-weighted assets, we would expect that our Tier 1 ratio could return to our objective of 8.5% or higher as early as Q1 of next year.

I would like now to return the proceedings back to Gerry.

Okay, we'll now take questions.

(Operator Instructions). Steve Cawley, TD Newcrest.

Hey, Tom, question for you. I guess I'm used to seeing variations in net income from AcG-13. AcG-15, I think because of the level of VIEs that you guys had, we don't normally see them from the other banks. And so in this quarter, it looks to me like you had -- let me see here -- you must have had about 27, $30 million worth of profit from these VIEs. Can you talk a little bit more about what created those gains, whether or not these VIEs will continue to be consolidated on a going-forward basis, or will you restructure them such that this will not be a recurring source of income?

Steve, most of the VIEs that we consolidate are represented by two large funds of private equity investments. One is on behalf of the employees, although CIBC beneficially owns a bit of that as employees departed, and secondly is a fund that has been marketed in the U.S. about three years ago that three of our former employees oversee. But because they are still on the premises and have a connection to us in the context of us investing in the fund, we're deemed to be the primary beneficiary under the AcG-15 accounting rules in both cases.

This is the first quarter -- and these rules kicked in, as you know, November 1, '04 -- so we've consolidated for the first six months. This is the first quarter that there has been significant revenue in these two VIEs, and that's a function of the tremendous uptick in the private equity market, largely in the U.S., where both these entities have divested, as we have in our main merchant banking portfolio, and generated pretty significant revenue.

We have not yet looked into whether we will attempt to restructure. I know it's an accounting nuisance, to be blunt. The net effect of this is we had VIE revenue of about 127 million in these two entities and another 13 in some of the others. All but 26 million have been taken out in minority interest, representing the beneficiaries apart from CIBC.

So the way we think of it, and I'd suggest you may want to think of it, is that included in our net income is the after-tax effect of 27 million, or 18 or 19 million. Now I would say that that is reasonable to treat that as, quote, legitimate CIBC income because it represents increases in value in those VIEs, which someday would be distributed as dividends. As dividends are distributed, there would be no incremental recognition of revenue to CIBC because the dividends would be revenue, but the reduction in any fee would offset that. Does that help?

Yes. I guess there is no way, though, to really predict the stability of that source of income.

No. it is entirely analogous to merchant banking in these two cases, because our VIEs are so dominated by the two private equity funds that we consolidate.

Just one suggestion. I would guess somebody's got their RIM close to a mike, and so we're hearing some feedback here that I think is RIM -- is a RIM issue. One other question for you, this one for Sonia. Retail had a pretty good quarter, despite 14 million in severance, I think was the number that Tom stated. Is that it for severance costs? I know this is an ongoing issue, but already looking forward to Q4, do you know whether severance expenses are going to be any more or less than that 14 million?

Yes, there will be incremental severance costs in Q4, and it will be greater than that number, but we expect it to be primarily offset by other savings in the quarter.

And do you expect the severance costs to go beyond Q4?

We would expect the majority of them to be in Q4 -- a very small amount beyond that.

(Operator Instructions). Due to some sound interference, we ask that everyone, if possible, turn off the BlackBerrys. We are getting some BlackBerry interference with the phone lines.

Rob Wessel, National Bank Financial.

I just have a few quick questions. The first one, actually, a few clients suggested I asked, but I think it's a good question. In terms of incentive bonuses, which this quarter were 230 million, I guess my question is -- I don't want to say why isn't it zero, but I guess my question is given that the profitability of the investment bank is going to be negative 2 billion or minus 1.7 billion, I guess -- is incentive bonuses is not an important criteria for determining the overall profitability of the firm, and if that were true, would we not have expected or hoped to see that number fall dramatically? That's for Gerry.

Certainly, Rob. First of all, any of the incentive compensation that's going to be paid will be subject to review at year-end, and our usual management and Board processes. CIBC is committed to fair and competitive compensation, and our philosophy for many years, which is consistent with the marketplace and continues to be our philosophy, is to pay based upon performance. That performance is based on individual performance, the functional unit or business unit that the individual is part of, as well as the overall performance of the bank. The degree to which the overall performance of the bank will affect any individual's compensation will be most felt at the most senior levels and declines through the balance of the organization.

Based upon that philosophy, it was appropriate to keep in place the financial resources to administer a fair and competitive philosophy for our overall employee population. But it will be reviewed at year end. When compensation is reviewed at year end, there is a Board committee that is involved, as well as outside consultants that review our practices. And these processes are ongoing. And we'll take into consideration all the current performance circumstances.

Interesting. Not to be argumentative, Gerry, but I guess two out of the past four years, the investment bank has lost a meaningful amount of money without any sort of demonstrable changes in incentive bonuses, and I'm not sure I would say that that's consistent with the market.

I wanted to ask you about consumer provisions. If I'm not mistaken, maybe it was Wayne had mentioned that -- or perhaps it was in your opening remarks, Gerry, I apologize if I've got the two confused -- that you felt that consumer provisions, which I guess were in at around 160 million this quarter, you felt that they were too high. I'm paraphrasing. Can you give some color as to if that's an accurate restatement as to what would be sort of a more reasonable number and how you might get there and why?

Rob, it's Wayne Fox speaking. I'll start with my response, and I will -- Ron Cathcart is with us as well, and he may want to expand on these comments.

I think you have to start with our target loan loss rate across the institution, and as was noted, we had set a target of 50 to 65 basis points of risk-weighted assets. We have been inside of that range now for some quarters, and in fact, as you saw this quarter, we're at the low end of the range. That is a little off-market relative to our peer group in the sense that the rest of the market is in that 35 to 50 range, but it's materially influenced by the scale and scope of our credit cards business, as you know, which is -- dominates, if you will, the provisions in our consumer business.

I think there is -- you should realize that the card business is performing at expected levels and will continue to do so, and in fact is on trend for better performance. The mortgage portfolio is in a similar state. It is not a feature as it relates to loan loss provisions. And in fact, a good chunk of our consumer business in general is doing well. The areas that are underperforming and are below potential are unsecured loans and lines and our Small Business Credit Edge product. And there's been a lot of time and energy spent on those over the last several quarters.

We haven't quite got it fixed at this juncture, and as you well know, there is a lag effect between any management action as it relates to flowing through the loan loss provisions. But we do think that with continued focus and discipline at the point of origination that we will have those in line over the next couple of quarters.

Maybe I could pass it to you, Ron, if you would like to make any additional comments beyond those, but you are right. They are not acceptable levels of losses at this point (technical difficulty).

Sorry, I'm losing you, Wayne.

You are right to assume that management is not happy with the performance of those individual product segments -- namely the unsecured loans and lines and the Small Business Credit Edge. The rest I think are on track. We can have Ron expand on that if you think that would be productive.

No, that's okay. I think I got that. I wanted to ask you about the targeted expense reductions. I know there has been two ways that this has been expressed by the bank. The first is to try to get the efficiency ratio equal I think to the average of the other four of the big five, which equates to about 250 million of expense synergies. They really are two very different things.

Should we think of the targeted expense reductions of 250 million, i.e., we would hope that if you are successful, you will get 250 million pre-tax to the bottom line, or are you saying that the efficiency ratio changes to get to the average of the big four equates to either a combination of 250 million of expense reductions and/or revenue enhancements, which doesn't necessarily go to the bottom line?

Rob, it's Gerry. We've set ourselves a strategic benchmark from a competitive viewpoint to be at the median of the industry, and what we've done so that on a tactical basis you can quantify what that means for us in our planning is we've calculated that we think that at this time -- and we're going to use this between now and our target of Q4 of '06 -- we believe that $250 million of actual expense improvement is required in order to get that median.

Obviously, if revenues got a lot better or a lot worse, it could affect our NIX. However, your presumption that we're targeting $250 million of expense reductions that would go to the bottom line is the correct presumption in terms of the Q4 2006 target.

Okay, great. And one more just very quick question. In terms of the announcement of the sale of the interest in Global Payments and Shoppers Drug Mart, the 297 million pre-tax, can we -- and this is a question for Tom -- can we go to the unrealized securities gains of 841 and simply deduct 297 from that and that gives us sort of a pro forma number that we can work with?

Yes.

Andre Hardy, Merrill Lynch.

I just want to follow up on your $0.20, $0.25 incremental contribution from merchant banking gain. If we look at the announcement for Q4, it looks like you get to keep 82% of the pretax gain using the same math and deducting 30 million for what goes to the variable interest entities. It looks like it would be a $0.50 contribution from merchant banking gains in Q3. So I just want to see how you got to that math.

Well, actually, to be precise, I was playing back what some of the early research had showed. But acknowledging that that seems reasonable from the standpoint of -- as we look ahead, and it's very hard to know because as I said earlier, our realizations are so dependent on when investments we own get divested, decisions being made by financial sponsors other than us.

But let's say going forward, you know, we're around 200 million per annum. We're running a little higher than that right now. It's just a matter of the math. I was actually thinking 75 million per quarter as a normal run rate. But it might be 50 million. I think in the short term it's probably going to be higher. Taking that 194, 196 and simply deducting a number that each of you will have to come up with yourself in terms of what you think our ongoing rate would be, and tax affecting it, you know, at probably 32, 33%.

The tax varies depending on where these things are held. Some quarters, you know, the tax -- in fact, on the global payments, the tax rate you can deduce is actually pretty low because of some capital gains treatments we will be able to get because that was in our strategic portfolio. But it was as rough as that. I think you could probably get to $0.25 a share in terms of that 196 versus perhaps an ongoing run rate of 50 to 75 million. It was very much a rough calculation.

Okay, so the tax rate for merchant banking gains in Q3 was much higher than what's going to be in Q4?

Yes, because of the presence of Global Payments at a capital gains tax rate.

Thank you. That explains it. Thanks.

Susan Cohen, Dundee Securities.

Can you perhaps talk a little bit about spreads going forward? There was a little bit of compression this quarter. What kind of an outlook do you have?

Susan, it's Tom, and it's always tough to predict because you are really making a call on a couple of things. One is the yield curve, which is probably very challenging, although most people expect two more bank and Fed rate increases in the short end. The mystery is what happens in the mid- to long end?

The other dynamic is the competitive environment in deposits and the extent to which customer preference to some of the newer lower-spread products continues at the expense of the legacy higher-spread products, and I think that's an easier one and we think that's going to continue and be negative to spreads.

So bottom line, if we have continued increases in short rates with prime lagging, which is what we saw this quarter, spreads may continue to be under some pressure. But if the curve basically stays as flat as it is but elevates up in parallel, that pressure on them at some point is going to reverse -- not reverse, but be mitigated as prime catches up and our loans reprice at the same pace or faster than our funding. So bottom line, Susan is probably a little bit more negative in the short term if you assume the curve flattens.

Okay, thank you. And then just as another question. When you had your conference call discussing the Enron charge, you talked about having some discussions with tax authorities, and perhaps you might end up with a more favorable tax treatment depending on which jurisdiction you had to take the charge in. Do you have any clarification of that point yet?

No clarification. We are no less bullish or bearish than we were at the time. The disclosure in the material released today indicates that that is the most likely case, but at the same time, of the cases we have looked at, that is probably the lowest case. Now, I know that perhaps sounds a bit contradictory, but we looked at several cases. This one has the highest probability, but it is at the low end of the range. So I think you can infer from that that we are mildly optimistic that we may do better than the 30% deductibility, but it's still too early to know. This will play out probably, as Global Crossing did, over several years.

Michael Goldberg, Desjardins Securities.

At the end of the third quarter, your tangible common equity to risk-weighted assets is down to 5.46%. Where would you like this ratio to be and how long do you think it's going to take you to get it back there?

It's Wayne Fox speaking. I think the minimal expectation over time would be to get it back to 7%. I think you know that's an important metric, if you will, for some of the rating agencies, specifically Moody's, I believe, who've spent a lot of time focusing on that. So it will take a while to replenish our common share or retained earnings and common share capital, but I don't think we have a specific forecast as to when that will transpire. We certainly want to focus on the total Tier 1 capital ratio of 8.5% and get that milestone behind us first, but I think that will take some quarters to achieve on the common equity ratio that you referred.

Isn't it reasonable, though, to conclude that your business growth is going to be constrained and you're not going to increase your dividend or do any more stock buybacks until you get back at least to that level?

Well, I guess we will see when we get there. I think we should be back in -- we are well-capitalized up to now, as you well know, by certainly regulatory standards, but I think in terms of our own internal metrics, 8.5% on our Tier 1 ratio is our first hurdle. And as Gerry noted in his opening remarks, we would anticipate that that may happen as early as Q1.

It takes a little while longer, however, to replenish the common share equity and to meet the standard of the ratio you talked about. As I said, that's not a regulatory hurdle; that's more of a rating agency issue. And we'll look at dividends and share buybacks in due course, but I think it's a little premature to talk about that today.

Sachin Kewalramani, Morgan Stanley.

My question is on capital. The capital in your wholesale bank has been coming down steadily, and I understand over the longer run, this is because of lower credit risk. Could you also talk a little bit about operational risk, and that seems to be related more to revenues and not just balance sheet assets. What I'm trying to understand is why you think you would not need to increase the capital in the wholesale bank in light of the significant operational charge? And then I think, you know, Basel II might also have more stringent requirements on operational risk.

It's Wayne Fox speaking again. No, your observation is well-taken. We are adopting, obviously, as everybody else is, the new Basel accord, and the convergence of the historic regulatory capital with economic capital hopefully will take place. The introduction of operational risk capital, as you know, is the new component. However, we have been managing the bank on that basis now for some years. We are proposing to adopt the advanced methodology as it relates to operational risk, and that contemplates capitalizing some of the losses that you just referred to.

So, yes indeed, World Markets will be given incremental capital as it relates to the operational risk of their business. And that will be factored in, if you will, to their performance metrics internally and ultimately externally. So we have not overlooked the impact of this settlement on World Markets.

So when you think you would reach capital liquidity from an economic perspective, you've taken into account the incremental capital needed to run World Markets?

Well, if you look at our operational risk capital today on an economic capital model, approximately 20% of our capital is in the form of operational risk, and I think you would acknowledge that that's a fairly significant amount and justifiable in the context of our current circumstances.

I mean, at the business segment level, when I compare CIBC on a revenue to equity basis to other -- some of the other peers, it looks like there's a little more leverage in there. And I guess that's what you would cover when you add operational risk capital to World Markets. And it's -- I guess you're saying it's being held at the bank level and it would be allocated to World Markets?

Well, we don't fully allocate all of our capital across the various business units, but that is the ultimate objective is to do so. But be assured that there is a significant amount of operational risk capital dedicated, if you will, to our wholesale businesses as we speak.

Okay. Thanks. My other question is on your investment securities portfolio. You pulled that down, I think, by a couple of billion this quarter. When we think about the composition of your balance sheet, do you have a preference or has your preference for the type of assets you want to add changed given that loans have a higher risk rating associated with them? And then I have a quick follow-up to that.

It's Wayne Fox again. Do you want to just repeat that? I'm not 100% sure what you are driving at.

Would you prefer to actually increase your securities portfolio versus adding loan assets, given that securities have a lower risk rating, and so they would give you a little more capital relief versus adding loans where you might need more capital to grow loans?

Not necessarily. I mean, we look at this thing somewhat holistically. Obviously, we want to keep in mind the quality of the assets we have on the balance sheet, but part of it is related to our funding and liquidity profile as well. So we have to bear in mind as to how we manage our asset to capital multiple or leverage ratio.

But I think you have to look at this from a top-down basis. We've spent the last three or four years restructuring the bank's business portfolio. We've tried to redeploy our capital in favor of our consumer businesses and to take a little of the earnings volatility out of our wholesale activities by reducing the holdings that we have in the large corporate and commercial space, as well as merchant banking. And I think the benefits of that have flowed through in recent quarters, if you can just hold aside the recent litigation issues. So I don't think we look at it like that.

And you are comfortable with the leverage on the -- I mean, you're going -- would you use the investment securities portfolio to reduce the leverage on the balance sheet? And I'm talking about reducing the bond -- size of the bond portfolio.

Well, right now, our leverage ratio -- our asset to capital multiple is around 22 times at the end of the quarter. Our internal threshold or objective is 19 times. And the way in which we can bring that into line is either to reduce our balance sheet or our footings and/or to raise subordinated capital.

I think that you heard in a number of the remarks that we have active securitization activities throughout the year and we will be active again in the fourth quarter. There are certain things that we can do to reduce our risk-weighted assets in some of our consumer books. But we would expect to be in the marketplace with a subordinated debt offering sometime in Q4, and I believe that we made that statement at the August 3 meeting.

Rafael Bello, Citigroup.

Gerry, maybe if you could comment a little bit on your strategic vision. I mean, where is CIBC going? And let's look at beyond your short-term setbacks and assuming you get back to the capital levels that you are targeting, where are we going with CIBC?

Well, we are going to stay on the track that we outlined in our Annual Report at the end of last year. And the in the scorecard at the beginning of the report, we talked about a medium-term goal of 10% earnings per share growth, and we've reinforced that many times by saying that we would like to achieve that earnings per share growth over the medium term with consistent performance and lower levels of risk.

Clearly, recent events have shown that we have not yet achieved that target. We still believe that it is the direction that we want to continue to strive to go, and our objective right now is to have the bank be a consistent performer over the longer term and a strong grower of its earnings per share. And we've outlined that there are three major areas that we believe that we can achieve, that we can work at to support the achievement of those goals. And those three areas are in the area of our productivity initiative, our topline growth, as well as the reinvestment of the excess capital that we earn.

The productivity initiative is clearly front and center, and has been for more than a year. We've been talking about this with increasing frequency and definition since basically the end of the first quarter. And that initiative is a priority because we are, from a cost viewpoint, not in line with what we consider to be competitive benchmarks and the right place to be from a competitive viewpoint. That will take us until the end of '06 to achieve our productivity benchmarks from a viewpoint of getting to the median.

On a productivity viewpoint, we believe that CIBC can do better than that. However, we are proceeding on a step-by-step basis and we've mapped out how we're going to get to our goal over the course of the next five quarters. We believe that subsequent to that, there will be further productivity gains that we can achieve, and that one of the ways that we can grow in a consistent lower-risk fashion is to continue to work at our productivity. And in some cases, that translates very directly just into improving the cost structure.

From the viewpoint of our topline, many of our business areas are experiencing mid-single-digit growth. That's been somewhat consistent over the last few years, and although the future is difficult to predict, a lot of our business lines are fairly established and therefore should consistently be able to grow at those rates, which are mostly reflective of industry growth rates.

There are some areas where we have growth that is faster than that, but our portfolio is one where if you look at our goals of being lower-risk and consistent grower of earnings over time, our desire is to stay with our established portfolio and to work internally to improve the results and to improve, as they say, the consistency. And so that is the path for CIBC over the foreseeable future, is to work at the ways that we can improve our earnings per share in the most consistent fashion with the lowest risk, and that is our plan for the future.

Ian de Verteuil, BMO Nesbitt Burns.

The first question is for Tom, and it's a follow-up on Rob's question with respect to the impact of the liquidation of some of the holdings in the fourth quarter. If I'm right, Tom, the 841 million in unrealized securities gains, I should net that against the 132, which is the collars that you had on that, so that once the securities are actually sold for a pretax gain of 300 million, the actual surplus on the securities held for investment would be more like 400 million, not 500 million. Is that right?

Well, the way to think of it, Ian, is to start with the disclosure on slide 26 in the supplementary of 735, take off the 132, which is in footnote four, I think -- the hedge. In other words, the extent to which the collared and forwarded deals have penetrated through the caps. Then you take out the 300 that we've just divested and you get down to 302. You have to add back, however, the unrealized gains on limited partnership investments, which appear farther up that page under Other Assets, and that number is 240 million. Okay? So that's how you get to 542, which was the 842 prior to the divestiture of the Global Payments and Shoppers Drug Mart.

I'm sorry, where is the LPs?

The LPs -- let me just go to page 36 (multiple speakers)

26.

26, rather -- just bear with me. Other Assets -- sorry. Other Assets, you say, three columns over, 294. Of that 294, 240 million are unrealized gains in limited partnerships. Many of our merchant banking investments are constituted as LPs, so the way the accounting rules work, we can't treat those as equity in that middle table on page 26.

And what's your ability to crystallize those gains?

I don't know -- Ken Kilgour, do you want to comment on that? I mean, apart from collars, are very low now that we've divested the two larger ones, it's -- Ian questioned Ken as to what extent are those both LPs and other private equity and funded investment (technical difficulty).

Ian, it's Ken Ken Kilgour. I mean, it varies. It's really an investment-by-investment situation. Some are being taken public; some are being sold. But by and large, what you see in that number is -- it's an unrealized number that over the course of time we would take into (technical difficulty). But it's not something that we could act on in the short term.

The follow-up, I guess, on the capital issue. When I look at this and just look at the risk-weighted -- the other regulatory capital, page 22 -- you know, and 240 million of gains in Q4 and then a couple of quarters of earnings less dividends paid out, so two quarters of retained earnings. I don't -- just working that through, I don't get the 8.5% at the end of Q1. The only other -- one other variable, obviously, is risk-weighted assets, and to that I guess my question is for Wayne. It looked as if things like letters of credit took up more capital this quarter than it has in the past. Is there any sense internally that you can take down the risk-weighted by a few billion without really squeezing the earnings power of CIBC?

Yes, Ian, I think we believe that that is the case, that without jettisoning assets and/or squeezing the earnings power of the bank, I think that's possible. You know, we have some room in our mortgage portfolio to add insurance, as I think you would know. That would bring the waiting down to nil if we act on that, or in fact we are in the process of acting on that. Our normal securitization activities will help not only our funding, but some of our risk-weighted assets, and I think that's another area of opportunity. So we're confident that we can achieve the plan that we've set in front of ourselves and in front of you, that somewhere between Q1 and Q2 that we will get to that level.

Ian, it's Tom. The one thing that I would add to what Wayne has said, which I mentioned on our August 3 web-cast, but sometimes the -- may be overlooked is when we had the charge in Q3 of 700 million of the preferred share capital that we have on our books became ineligible for the Tier 1 calculation because there's a maximum of 25% of common equity that you are entitled to include in Tier 1 from the preferred share line. So, for every dollar of NIAT, we can, in fact, bring back $0.33 of preferred. So, there's a leverage (multiple speakers)

A levered, okay. Okay. I guess the third question, all following along this whole issue of rebuilding the balance sheet -- Gerry, is there a sense, given what CIBC has been through here on the Enron settlement, that when you get back to 8.5%, you're going to be more aggressive on just buying back shares and returning money to shareholders and actually running with less capital because the business model is less and, you know, being more aggressive on the return of capital in the short term?

Ian, the way we're going to work on this is very much step-by-step. Our focus is to return to the 8.5% and to ensure that we have a very strong balance sheet. We're at this time well above our regulatory requirements, so we are well-capitalized. But as I say, we have had an objective in the bank of 8.5 for many years, and job one is to get back above that 8.5%.

Subsequent to that, we will evaluate our situation going forward. But right now I think it would be premature to give an indication as to those items that you talked about. I'd really like to focus on getting there and having ourselves in a position where we can then look forward, having achieved our objective. And as we announced today, we believe that we can get there by the first quarter, and so I think that you will be hearing more about this shortly.

Mario Mendonca, Genuity Capital Markets.

A question for Tom on slide 61. You make reference to an additional accrual, and it's not so much the additional accrual that I'm interested in. It's more the second part of slide 61, where you describe that you tax effect the prior accruals. Is there anything we can take from having tax effect of the prior accruals? Can we interpret anything about the Enron charge and the extent to which tax recoveries could be forthcoming just from having -- just from looking at this slide? Is there any connection here or are these entirely separate?

Mario, they are entirely separate. In Q1 and Q2, we had not settled the hedge fund financing services investigation. It was unclear what the ultimate settlement amount might be, what the split might be between fine and profit disgorgement. Any fine is not deductible. That is clear. There was also some talk about a bill in, I believe, the Senate or the House that might shed some doubt on deductibility of fines and disgorgement.

So, we took the route that we didn't have the sufficient level of confidence under the accounting rules in those two quarters to deduct anything. When we did settle, we had certainty -- the uncertainty around the other topic of a bill in the U.S. government diminished, and we quite confidently felt we could book tax deductions on the non-fine component.

The Enron situation, there's much greater uncertainty. Right now we've, with outside advisors, made a judgment as to what the accounting treatment would be, but there's no more light that we have today versus August 3, nor do we expect even in Q4 on that one.

And then perhaps sort of in a similar vein, insurance -- the insurance coverage. Anything you can offer on CIBC, at least the potential that CIBC could recover on the insurance, more so than what you've already described?

You know, Mario, there really isn't. We continue to be in discussion with the, I don't know if Mike Capatides wants to add -- the level of certainty or uncertainty, take your pick, really isn't any greater than that. We have made an estimate for purposes of establishing that incremental reserve, and that estimate in terms of ultimate recoverability. We haven't disclosed that publicly because we're still in negotiation, but there's no more information or insights we have either positive or negative versus where we were on August 3.

And when you say negotiation, you are referring to negotiations with the provider?

Correct.

Okay, and then just one final question. This probably just highlights a lack of understanding on my part, but I will ask it anyway. The NIMs in the investment banking business, down sharply from last quarter, but I suspect this really relates to a classification between trading net investment income and regular net investment income. Could you help me through the (multiple speakers)

A lot of it is that. And that's another challenge with the accounting, is that when you do trades, the actual booking of interest income versus non-interest income, particularly on swap transactions, you know, it's very transaction-specific, but flows through into the numbers. I would say, however, that as short rates have gone up and our funding costs have gone up, with prime-based corporate loans not moving up as well, that that was another depressant effect on it. But it's very much transaction-driven in terms of what the split is, as you say.

So to understand this a little more going forward, what is an appropriate way to do the math so that -- or is it not even appropriate to try to calculate NIMs in investment banking?

Mario, for us it really isn't. I mean, we look at ROAs as much as NIMs, and that's why one of the slides we provide every quarter tries to -- well, it does -- take out the trading assets, nonearning assets and add-back securitizations so that you can try and get a feel for the spreads in the retail banking business. But wholesale banking and trading is so driven by what we just talked about that we don't put a lot of time into it.

Quentin Broad, CIBC World Markets.

I guess for Gerry, just in terms of the medium-term goal, Gerry, in the 10% earnings growth highlighted in the 2004 Annual, how should we think of the notion, number one, medium term, number two, the benchmark from which that earnings is driven. Is it I think 550-ish of cash EPS or respective accrual number at the end of '04, and given obviously the senior management team when they put that in place didn't foresee the loss of $2.5 billion of capital, and yet you are still sticking with it. So, just -- could you just give us a benchmark as to in three years' time, which is I think medium term, that number by calculation should be north of $7.00. Is that what that means?

Well, you know, I'm going to decline to give a precise number for our earnings three years from now, and I will let Tom Woods talk about that because I think that that would be a little bit bold to give you an exact number. However, I think that the first thing is is that the departure point for the 10% earnings per share is that earnings level that we were at at the end of 2004. And the document that I've referred to was the 2004 Annual Report, and so that's the information that was at hand when we set that goal. So that would that would be the first item.

The second item is is that while obviously the setback from the Enron loss is something that was not anticipated, we have, since we set that goal of the 10% in our 2004 Annual Report, we have ramped up the productivity initiative, and with the productivity initiative at the level that is it is here now, we should be able to stick to the goal that was set at the end of 2004.

So, does that answer your question, Quentin? And I will let Tom touch on the cumulative impact of the 10% and discuss that in terms of what -- how it should look in three years.

Well, yes, I mean, I think the three years that I use -- if you believe that three years constitutes medium term, then it's just math of 10% compounding. It's not looking for an earnings estimate; it's just math.

Well, I will let Tom lay that out for you from a disclosure viewpoint. But I want to make clear that we believe that with our productivity initiative, we can stick to the targets that were set forth in the Annual Report. And I also want to make clear that the departure point was the earnings at that time. Tom?

Yes, I think the best way to look at this, Quentin, and certainly the way we look at it -- and I'm going to have to be a little bit cautious in terms of providing guidance -- but we look at what are the five or six main drivers here. And obviously, you've got revenues, costs, loan losses, and those three combine to generate cash and enable you to repurchase your shares upon achieving capital levels that we're happy with.

On the revenue line, as I've provided guidance in each business every quarter now for about four or five years, mid-single digits for personal banking I think you could say is what's accepted in the industry. Cards business for us, a very strong franchise that's been increasingly competitive. Mortgage business, probably lower outlook there. At some point, the housing cycle is going to crash. Wealth management, we feel very bullish about our platform, and the research that I've read shows higher than mid-single digit. Canadian investment banking platform, you can look at the continued strong results there and view it for yourself through the cycle. U.S. investment banking is not earning its cost of capital, so the extent to which we can improve there will be an important driver.

On the loan loss side, although we have had a quarter this quarter where we've had charges as opposed to recoveries, those were in commercial banking, where we've had about $18 million of charges there. We feel there that our book is in much better shape and much better able to withstand a -- you know, the lower part of the credit cycle, which will return someday. A big driver for us is how quickly we can address some of the consumer banking issues that Wayne Fox referred to.

So those are the six or seven main drivers. Depending on how we do on those, in addition to the cost productivity initiatives that Jerry has laid out, as you say, Quentin, it's just the math. But you can certainly get to 10%, and that's why we have stuck with that objective based on how we think we're going to do in each of those seven or eight drivers.

A quick litigation issue. I guess I asked, I can't remember whether it was Mike on the Enron call specifically, but it appears that the litigation language in the quarterly hasn't changed ex of the accounting discussion, which bothers me a bit, I guess. The last piece of the discussion says there are still a host of other issues out there that could have an impact, but wouldn't have a material adverse effect on our consolidated financial position, which is the same disclosure, Mike, that you had prior to $2.5 billion Enron charge. So I guess my question is just what else exists out there that is of size that would lead you -- or not of size that would lead you to maintain or not change this disclosure in light of the charge you took given that disclosure previously?

Quentin, it's Tom, and certainly Gerry or Mike can add to it. Yes, you are right. The disclosure we put in on the accounting is really in response to some questions we have received on how to account for contingencies. It's for the most part a synthesized lift from CICA 3290, in order to try and be helpful to people. The two that we have still referred to, or the two buckets, are both within the hedge fund and the Enron areas, where the hedge fund class-action suit is still outstanding. And there are a couple of small Enron -- smaller Enron litigation matters for which we took the incremental reserve, which combined with the insurance, addresses that, plus the Megaclaims, which we've now settled at 274.

So those are the two that were material enough for us to have disclosure. We have dozens and probably into the low hundreds of other cases the way other banks and large corporations do; none of those we felt were material enough. We have reserves against a number of them. But we have highlighted the hedge fund and the Enron cases in particular and referred generically to the others in the introductory section.

Okay, and then just last one in terms of growth opportunities. Just on the retail side, if Sonia -- what your thoughts are in terms of opportunities and bringing Imperial Service back into the retail fold -- what do you see in terms of revenue synergies, perhaps, or further cost containment there? That's it.

Over the past month or so, we have been working to integrate the two distribution groups -- the Imperial Service retail and small-business distribution and leadership group. There are some clear efficiencies and synergies that are available there. So there are most definitely some cost efficiencies available. More important than that, we see growth opportunities as a result of it. Our intent is to continue to expand Imperial Service, both in existing markets to more customers and in some new markets on a gradual basis. So we would see continued growth in our Imperial Service platform and heightened as a result of the alignment and synergy of the two groups.

Darko Mihelic, First Associates.

A question I think for Tom. Maybe you can help me here with an interpretation of the Bank Act and the restriction on dividend payments, and it falls down to the calculation of whether or not you could or could not pay your dividends without asking for approval. Am I right to assume that you had to ask approval to pay your dividends this quarter?

Darko, it's Tom speaking. Section 79(5) is quite a detailed, some would say overly complex, calculation of accumulated earnings versus amounts to dividend, and with this provision and with the buyback that we have had, we will be probably over the next six to seven quarters be required to discuss and receive approval from OSFI. As I said -- I believe I said on August 3, we had those discussions. The dividend that was just declared received OSFI approval, and we would continue to have those discussions going forward.

And can you help us out in maybe understanding under what circumstances they would say no?

I really can't, Darko. I mean, I think it's fair to say bank regulators -- and you should probably ask them -- understand that investor confidence among equity investors is very important. Regulators, as you know, their main mandate is to oversee the rights and concerns of depositors. But certainly, in our discussions with our regulators, not just OSFI, but around the world, there is a very clear understanding of the objectives that we have to address for all of our stakeholders. So that is not a concern, but it is one that we will have to maintain and maintain this dialogue with them (technical difficulty).

Steve Cawley, TD Newcrest.

Quick one -- slides 37, 38 retail market share, for Sonia. In an effort to lower your PCL rate, will there be a distinct move away from unsecured lending, and if that's the case, will we see continued market share losses on consumer loans?

What you should expect to see is a change in the mix in our portfolio, through an increased emphasis on secured lending. So it will be primarily a change of mix, possibly a minor decline, but I wouldn't expect it to be substantial in terms of our overall market share.

Okay. So you don't see it more difficult to try to put on secured lending on the books than putting on unsecured?

Yes, I think we're going to have to work a little harder.

And one last one for Tom. Page 17 of the sup-pack. Securitizations picked up a little bit in the quarter, and you've got the income statement impact. Is there -- there must also be a balance sheet impact. Can you tell me what the growth was in loans in the retail bank, excluding securitizations? Is there a slide on that somewhere?

You can probably get that -- let me get back to you on that. I don't have it unless Brian O'Donnell can get it quickly right at my fingertips. So I will give you a call on that, Steve.

We've got time for one more question, operator.

The last question is from James Keating, RBC Capital Markets.

And it's a very short one. Can you just let us know what the mortgage prepay fee gains were in the quarter?

Jamie, it's Tom. Let me just see if I can get that quickly. I may have to call you back. It was reasonably significant this quarter, and that was one of the things that helped mitigate some other retail spread pressures. So I will tell you what, Jamie, rather than me fumbling around here, let me call you back on that. It was higher than normal, but not so high as to be material enough for you to discount, in my view. I will call you back on that.

Thank you. I'd like to turn the meeting back over to Mr. McCaughey.

I'd like to thank everyone for participating in this call. I'd like to also thank everyone on this call -- your efforts to analyze and communicate our developments on the Enron issue to our many constituencies, our shareholders and the public, is very, very much appreciated. And we look forward to continuing in the years to come to communicate with you, and we look to hopefully have a much more consistent performance with less surprises. Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation and have a great day.