Canadian Imperial Bank of Commerce (CM) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to CIBC's fourth quarter and year-end results conference call. Please be advised that this call is being recorded. To reduce the audio interference within the board room and over the conference call lines, please turn your Blackberry off for the duration of the meeting. I would now like to turn the meeting over to Mr. John Ferren, Vice President of Investor Relations. Please go ahead, Mr. Ferren

Thank you. Good afternoon, everyone, and thank you for joining us today. On our call this afternoon, CIBC's senior management team will review our Q4 results released earlier today. The call is being audio webcast and will be archived later this evening on CIBC.com.

In addition to the usual quarterly materials, CIBC's 2008 full year consolidated financial statements and MD&A are also available on our website and our full annual accountability report will be available this coming Monday, December the 8th. Following the prepared remarks this afternoon, we will have time to take some of your questions. Before we begin, let me remind you that any individual speaking on behalf of CIBC on today's call may make forward-looking statements that are subject to a variety of risks and uncertainties.

Certain material factors or assumptions may be implied which could cause CIBC's actual results in future periods to differ materially from the conclusions, forecasts or projections in these forward-looking statements. For more information, please refer to the note about forward-looking statements in today's press release. With that, let me now turn the meeting over to CIBC's President and Chief Executive Officer, Gerry McCaughey.

Thank you for joining us. Let me remind you that my remarks may contain forward-looking statements and actual results could differ materially. Following my remarks, our senior officers will provide an update on their respective areas. CIBC has reported net income for the fourth quarter of $436 million and cash earnings per share of $1.09. Earnings apart from the items of note that our Chief Financial Officer, David Williamson, will discuss shortly, were $1.57.

CIBC's capital position is strong with all key measures higher than 12 months ago. Our tier one ratio is 10.50%, up from 9.7% at the end of last year. This is among the strongest tier one ratio of the major commercial banks in North America. Our total capital ratio is 15.4%, up from 13.9% at the end of last year. Our capital position is a key strength for CIBC, providing a prudent cushion for industry conditions.

Turning to our business results, CIBC retail markets reported net income of $523 million, revenue of $2.3 billion was down from a year ago primarily due to the large visa gain in the fourth quarter of 2007. Overall, our retail business continues to make progress. We are competing well in market share and have seen volume growth across key business areas. Our retail markets business has been strengthened by our corporate imperative of lower risk, primarily in the area of unsecured lending.

As you will recall from previous webcasts, we shifted our mix beginning in 2005 from unsecured to secured. While we have seen volume growth in the secured lending area, margins are lower, thereby affecting our revenue. This change improved our risk posture and should hold us in good stead given the slowing economic conditions across the industry.

Our latitude to continue investing in our core retail business has increased due to exits this past year of noncore business areas including U.S. investment banking as well as U.S. and U.K. leveraged finance. Our core world market position will also be strengthened by this. In 2009, we will continue to invest across our retail markets business, particularly in our distribution network as well as our advisory and product capabilities in support of our clients. Sonia Baxendale will review retail markets business performance in more detail in her remarks.

CIBC world markets had reported earnings of $133 million before items of note. David Williamson will take you through the items of note and review the underlying earnings of world markets in his remarks. World markets continues to make progress and is better positioned heading into 2009 as a result of the actions taken in '07 and '08 to reduce risks and refocus the business on its core strengths. We are focused on core banking areas, taking advantage of voids in the market, building our banking franchise, client relationships and aligning our focus more closely with our risk appetite. While the market backdrop will continue to be a factor, we expect further progress next year. Richard Nesbitt will comment further on world markets in his remarks.

Now, let me comment on progress within our structured credit run off business. In early October, we announced a $1.050 billion investment by Cerberus that reduced our exposure to potential declines in the value of our US residential mortgage market position. Through repayment of principal and regular amortization of the Cerberus investment, the value of our liability was reduced to $609 million US as of October 31. The underlying assets had a fair value of $773 million US at the end of October.

During the quarter, we also recognized a gain of $841 million US on the reduction of an unfunded commitment to a variable funding note. We had accrued a large liability on this US residential real estate structured position. That liability was reversed due to the pay default by another counter party that resulted in our commitment being eliminated. This asset had been included in the collateral pool, supporting the Cerberus financing transaction. However, this large gain accrued entirely to CIBC since we had structured the financing transaction to retain future value recoveries in the underlying portfolio for CIBC shareholders.

In October we also commuted our US real estate market exposure with one of our financial guarantor counter parties; the counter party we have previously identified as Roman Numeral IV in our ongoing disclosure. We received cash consideration of $100 million US which reflected a gain of $7 million US on a current fair value of the position and a recovery of approximately 20% of the gross value of our mark-to-market claim against this financial guarantor. This transaction was accretive to our tier one ratio by ten basis points, due to the impact of releasing risk weighted assets on the financial guarantor receivable.

Giving effect to these settlements and valuation adjustments recorded in Q4,we had $826 million US of net receivables from guarantors related to US real estate markets as of October 31. These receivables have been reduced by $925 million US this quarter through a normal amortization of $27 million as well as write downs and the exits of positions. As we have described on previous conference calls, CIBC has allocated significant risk weighted assets against our financial guarantor receivables.

This will mitigate any tier one capital impact of ultimate losses taken on these positions. If we had recoveries of 15% from financial guarantors, there would be no further impact on our tier one capital ratio even in the scenario where the value of our US real estate market positions fell to zero. As I noted, we did settle one position with a counter party for this quarter at a recovery rate of 20% for reference purposes.

In our nonUS real estate portfolio hedged by financial guarantors, net receivables at October 31 were $1.1 billion U.S. It is worth noting that similar to our US real estate mortgage portfolio, these receivables have been assigned risk weighting that would reduce any capital charge as a result of future valuation adjustments. The risk weighted assets assigned as of October 31 to this position of financial guarantor receivables against our nonUS real estate portfolio were approximately $4 billion US.

If you applied the same assumptions that we outlined in the example we have provided in Q3 Frequently Asked Questions on our website, the impacts on our tier one ratio of writing off the entire $1.1 billion US of exposure would be approximately 50 basis points to our tier one ratio. During the quarter, notional amounts in the nonUS real estate mortgage portfolio were reduced through regular amortization of $84 million US. We also adopted a new industry accounting guidance that permitted us to reclassify some of our CLOs and trust preferred securities from trading to hold to maturity portfolios, and also changed our valuation methodology to CLO positions that remain in our trading book. As a result, future volatility for these positions will be reduced. David Williamson will discuss these accounting changes in further details in his presentation.

In the area of productivity, we exceeded our 2008 expense target which was to hold expenses flat to the fourth quarter of 2006 on an annualized basis, excluding FirstCaribbean and our restructuring activities. We are maintaining the same expense target for 2009. Since last year, CIBC has under taken a number of initiatives in terms of business activities and organizational structures such as selling our US investment banking operation, closing our US European leveraged finance operation, managing the run off of structured credit and focusing world markets on four core business areas. We are now bringing our support functions at CIBC into alignment with this new business structure which has resulted in the severance accrual this quarter.

In summary, 2008 was a period of challenge and change for the financial services industry. At CIBC, we continued to work towards all of our priorities. The gradual improvement in our results over the last three quarters has reinforced our commitment to these priorities and the actions we have taken.

Although the economic outlook is changing, at this stage the Canadian economy appears to be somewhat less affected by the recent market uncertainty than many other countries. In light of this, CIBC's strong capital position and high concentration of business activities in Canada, should allow us to make further progress in 2009. Now let me turn the meeting over to David Williamson for his financial review. David?

Thank you, Gerry. Good afternoon, everyone. My comments also contain forward-looking statements and I would remind you that actual results could differ materially. I'm going to refer to the slides that are posted on our website, starting with slide number five which is a summary of our results for the quarter.

We reported earnings per share for the fourth quarter of $1.06, or $1.09 per share on a cash basis. We had several items of note this quarter which are listed on the top right-hand side of the slide, totaling $0.48 per share. And therefore, our cash earnings per share, excluding these items, is $1.57 per share. Our tier one capital ratio is strong and as Gerry mentioned finished the quarter at 10.5%. The growth in our tier one ratio during Q4 is primarily due to positive earnings in the quarter of 37 basis points, the preferred share issuance generating 25 basis points, and slightly lower risk weighted assets giving five basis points.

Moving to the item of note, we had tax related items totaling $1.21 per share. This amount consists of the tax benefit of $486 million or $1.27 per share, related to the previous Enron related litigation settlements. Events during the quarter which included discussions with third-parties, the CRA and our external legal counsel led to us change our best estimate of recovery.

Also affecting the income tax line was a charge of $23 million or $0.06 per share from the recognition of unutilized tax losses at future year tax rates that are lower than current year statutory rates. The second item on the page is the $0.84 per share loss on structure credit run off activities. I'll provide more detail on this topic in just a few moments.

The next category of other mark-to-market gains and losses, evaluation adjustments and write downs of negative $0.31 per share includes the following five items. $242 million or $0.43 per share of positive Q4 impact of a significant widening of credit spreads on our corporate loan hedging program. Next, we had $177 million or $0.28 per share of higher than normal losses and write downs on our merchant banking and other investment portfolios driven by the current market conditions. We also had market valuation adjustments of $124 million or $0.22 per share. This included $68 million of charges related to trading positions that we have put in run off and have started to exit in the fourth quarter and $56 million due to changes in valuation techniques within our continuing trading business.

In addition to the credit valuation adjustments that we have in the structured credit, we had valuation charges against credit exposures to derivative counter parties other than financial guarantors of $25 million or $0.04 per share. The method for calculating this non-financial guarantor CVA is now based on credit default swap spreads similar to our financial guarantor CVA. We believe that this will increase the volatility of future reported earnings and may therefore, continue to separately identify this item, just as we do for the impact of spreads on our corporate loans hedge programs and financial guarantor CVA. Also included are other charges of $109 million or $0.20 per share including higher than normal operational losses, a charge of $39 million that we previously announced relating to the bankruptcy of Lehman Brothers, and project asset write offs due to the decision by the Canadian Payments Association to cancel the mandatory truncation and cheque imaging project.

The next item on the slide results from the repatriation of capital from foreign subsidiaries. The impact is a pretax net gain of $112 million, but an after-tax loss of $92 million or $0.24 per share. This repatriation only relates to items that were previously included in accumulated other comprehensive income, and therefore did not impact the banks equity or our tier one capital ratio. We have higher than normal severance accruals of $122 million or $0.21 cents per share as we continue to right size our business for changing markets condition. And finally, we had losses related to leveraged leases of $51 million or $0.09 per share. For your reference, we have a detailed list of our items of note this quarter on slide 46.

Excluding these items of note, results were helped by higher volumes in retail markets as well as higher M&A fees. But were hurt by the challenging environment, higher loan losses in cards and lower spreads. The next slide provides a summarized statement of operations on a reported basis and shows how results were affected throughout the year by structured credit losses and other items of note.

Turning now to the summary of our structured credit run off for the quarter, losses in Q4 totaled $479 million or $0.84 per share versus $885 million or $1.56 per share in Q3. We took credit valuation adjustments in the quarter due to further deterioration in the mark-to-market value of the underlying assets and the credit quality of financial guarantors, driving the $1,269 billion on the first line. The impact of the credit valuation adjustments was mitigated by a gain on the reduction of an unfunded commitment to a variable funding note or VFN.

The gain was driven by the bankruptcy in September of the guarantor of a related credit default swap which was held by the CDO. This triggered an event of default that led to a series of actions by the trustee under indenture for the CDO, resulting in the reduction of our unfunded commitment on the VFN to zero. Results were helped by $895 million or $1.58 per share relating to this gain. The other items of note, including unhedged US residential mortgage market write downs, asset-backed commercial paper write downs, expenses and other items totaled to a loss of $105 million or $0.18 per share.

Slide eight is a summary of our financial guarantor protection purchased against our US residential mortgage market exposure. In US dollars, the slide shows that we have $3.8 billion of credit protection which now has a fair value of $3.1 billion. It's important to recognize that this net remaining exposure of approximately $700 million is largely protected by the Cerberus transaction which has an outstanding note with a fair value of $609 million at October 31.

Turning to the protection that we have from financial guarantors against this fair value of $3.1 billion, we have taken credit valuation adjustments of $2.3 billion to date and therefore, have a remaining net fair value of $826 million. However, we have already recognized a substantial level of risk weighted assets against the financial guarantor receivables and therefore, in a hypothetical and unlikely scenario where the value of the US residential mortgage markets underlying shown on this slide went to zero and there are no recoveries at all from financial guarantors, the impact on our tier one ratio would be approximately 40 basis points, assuming a tax rate of 33%. As Gerry mentioned, in a scenario where we recover say 15% from financial guarantors, there wouldn't be any further impact on our tier one ratio.

During the quarter, we deemed counter parties Roman Numeral III and V to be no longer viable. Simultaneously, we recorded additional valuation adjustments of $290 million in the quarter to write the net fair value down to best estimate of net recoveries. This amount is included in total CVA for the quarter that I outlined in the previous slide. As Gerry mentioned, we also commuted our USRMM exposure with the counter party we have identified as Roman Numeral IV. We received cash consideration of $100 million US dollars which resulted in a small gain on the current fair value of the position and an overall recovery of approximately 20% as the USRMM related total receivables with this counter party.

Slide nine outlines the counter party protection provided by financial guarantors where the underlying assets are primarily CLOs or corporate debts that are not related to the US residential mortgage markets. The far right column shows the fair value protection with each counter party which totals $2.6 billion at the end of Q4. Against this balance, we have taken credit valuation adjustments to $1.5 billion in aggregate for a net fair value of $1.1 billion.

In October, Canadian accounting standards were amended to permit reclassification of trading assets to held to maturity or available for sale under rare circumstances. We and other banks have concluded that recent market and liquidity conditions qualify as rare and have made certain reclassifications effective August 1. Consistent with the new rule, we transferred CLOs with notional of US $5,833 million and CDOs of trust preferred securities with a notional of US $444 million and into held to maturity which reflects our intention to hold these positions until they do mature. All transfers were done at fair value on August 1.

Securities held to maturity, amortized towards their par value over their term of their estimated life will be subject to regular review for impairment. If there is impairment in the future, the losses will be taken through income. On September 30, the SEC Office of the Chief Accountant and FASB staff provided clarifications on fair value accounting in the current market environment. The guidelines highlighted the need to consider all available data points, including internal models in arriving at fair value.

Consistent with this guidance, and due to the inactive markets for CLO securities, when determining fair value we considered both the values provided by our internal models and indicative broker quotes rather than relying exclusively on indicative broker quotes as in previous quarters. The net impact of this change in approach to valuation was to increase revenue by $310 million as of August 1. Going forward, the introduction of models into the valuation of our CLO holdings and the transfer of our on balance sheet cash CLO securities into held to maturity should reduce the earnings impact of shorter term market pressures which can mask underlying intrinsic value.

Now I'd like to turn to our business results, starting with retail markets. Our revenue was $2.29 billion for the quarter, and excluding the visa gain reported in Q4 of last year, revenue was down $50 million or 2% from the prior year. Strong volume growth was offset by weaker equity markets, lower spreads and lower treasury revenue allocations.

In the following slides, I have aggregated the retail product lines so I could speak to the key drivers of retail banking, wealth management, FirstCaribbean revenue rather that the individual business units. Retail banking includes personal and small business banking, Imperial Service, mortgages and personal lending, and our cards business lines. This represents our core lending and deposit business lines. Retail banking revenue was $1.5 billion for the quarter. Excluding the Q4 Visa gain last year, revenue is relatively unchanged from the prior prior year. We experienced strong volume growth across all of our key retail product groups. Retail banking spreads were down year-over-year due to our risk posture which continued our focus on secured versus unsecured lending, competitive price for deposits and GICs and lower mortgage refinancing fees, partially offset by a wider prime BA spreads and better mortgage pricing.

Turning to slide 12, we've experienced strong year-over-year volume growth in our lending and deposit businesses. In cards, our market share decreased slightly in Q4 as we have taken measures to slow growth given current economic conditions. We continue to hold the number one card market position in both outstandings and purchase volumes. We continued to see improvement in unsecured lending though we remain cautious in this particular market.

Our market share is stable and in personal loans, residential mortgages and consumer deposits from last quarter. We do not anticipate that market growth rates will remain at these levels in the current economic environment. Q1 levels are likely to be down, particularly in credit products.

Slide 13 highlights results in our wealth management businesses. Wealth management revenue of $363 million was down $42 million or 10% from Q4 of last year as a result of the much weaker equity markets. The average of the TSX index for the quarter was down 15% versus Q4 of last year. The weaker equity markets have resulted in a decline in new issue activity, lower trading commissions, and lower market driven asset values. While revenue is lower, we have gained market share in mutual funds over the past year with an increase of 16 basis points this quarter versus the same quarter last year.

Q1 performance will be affected by how the market performs. If current equity market conditions prevail through Q1, we expect revenues to be down. FirstCaribbean revenue of $161 million was down$13 million or 7% from Q4 of last year. Excluding the $52 million Visa gain from Q4 of last year, revenue is up due to the impact of a weaker Canadian dollar, volume growth and higher spreads.

Retail markets net income was $523 million. Excluding the Visa gain in Q4 of last year, net income was down $56 million from the prior year. The provision for credit losses was $232 million, up $82 million from last year primarily due to an increase in our cards portfolio. Tom Woods will discuss this topic in his remarks. Non interest expenses were $1,363 billion, down $39 million or 3% from last year as we continue to be focused and disciplined in managing our costs.

Now turning to CIBC world markets. Negative revenue of $318 million in Q4 was affected by further losses in structured credit run offs, but to a lesser extent than in prior quarters. Excluding the impact of structured credit run off Q4, revenue of $132 million is down $143 million from Q3, mainly driven by higher than normal merchant banking write downs and evaluation adjustments in our trading portfolios resulting from the continued challenging market environment. This was partially offset by mark-to-market gains on corporate loan hedges.

Looking at the individual lines of business, starting with capital markets, our revenue was negative $495 million due to the structured credit run off losses. Excluding the impact of structured credit run off activities, revenue was negative $45 million, compared with a positive $184 million last quarter. These results were adversely affected by the valuation adjustments taken during the quarter. If we include all items of note highlighted in the press release and look at the underlying capital markets business, both fixed income and currencies and global equities revenues were down from Q3, offset by strong foreign exchange revenue.

Investment banking and credit products revenue of $318 million was up $184 million from Q3. Investment banking revenue was higher in Q4, primarily due to the mark-to-market gains on corporate loan hedges, M&A and advisory revenue which was partially offset by the losses related to leverage leases and lower equity new issue revenue. Merchant banking results were down significantly from Q3. As discussed previously, we had higher than normal write downs this quarter and lower gains in distributions.

Turning to world markets expenses, Q4 expenses of $288 million are up $22 million from Q3 due to higher expenses related to structured credit run off and other exited activities. World markets net income was $133 million in Q4. Excluding the impact of structured credit run off, Q4 income was $456 million. Q4 results were significantly affected by the challenging market conditions and a number of significant items mentioned earlier, including the Enron tax run rate $486 million. Excluding the impact of all items of note highlighted in our press release, net income was $73 million.

Turning now to our total expenses and our performance versus our 2008 target, our target was to hold expenses flat relative to annualized fourth quarter 2006 expenses. We have made adjustments to -- as noted on the slide to ensure a reasonable comparison. As you can see, we continue to run ahead of our objective through continued expense discipline. Thank you for your attention. At this point, I will hand it over to Tom Woods.

Good afternoon. My comments may also contain forward-looking statements and actual results could differ materially. With respect to credit risk on slide 51, specific loan loss provisions in Q4 were $219 million or 48 basis points of net loans and acceptances. The quarter on quarter increase of $17 million was due to an increase of $35 million in retail markets, partially offset by an $18 million decrease in world markets.

Retail markets specific loan loss expense was $226 million in the quarter. The increase in the quart was driven by higher cards provisions which were up due at a combination of higher write offs and increased reserve requirements, resulting from both volume growth and higher delinquencies. A number of actions are currently underway to manage the increase in delinquencies. These actions address the full credit management cycle from acquisitions through account management and collections. We continue to closely monitor the portfolio with ongoing analysis and reviews to identify future areas of opportunity.

World markets reported a net recovery of $7 million in the quarter. New provisions were down from the third quarter. The fourth quarter also included the reversal of a provision that we took in Q3 related to a borrower in the US. Net impaired loans increased to $352 million at the end of Q4 with a majority of the increase in FirstCaribbean, primarily as a result of the strengthening US dollar in the quarter.

Turning to market risks, slide 52, this shows the Q4 distribution of revenue in our trading portfolios. In Q4, 50% of the trading days were positive, down from 67% last quarter. The trading revenue here does not include the reductions in mark-to-market value of our structured credit assets, as this analysis is carried out only at each month's end.

Slide 53, tier one ratio was 10.5%. This is the highest among the Canadian banks. Our capital position remains among the strongest of all North American banks and provides substantial cushion in the event we have further structured credit charges. Tier one ratio increased during the quarter, primarily due to positive earnings and preferred share issuance slightly lower risk weighted assets.

While risk weighted assets declined by about $500 million in the quarter, there were large offsetting movements. Risk weighted assets attributed to the financial guarantor counter parties were down significantly, as David outlined earlier. I'll now turn it over to Sonia Baxendale, head of retail markets.

Thank you, Tom. My remarks may also include forward-looking information and actual results could differ materially. Overall, retail markets performed well this year in the midst of challenging market conditions.

We had strong volume growth in our core products including cards, deposits, lending and mortgages. Our revenue growth has been impacted by lower revenues in lending, a mix shift in mutual fund to short term where MERs are lower, our risk posture related to unsecured lending and more recently, our decision to slow growth in credit cards. We have continued to focus on risk mitigation and prudent expense management.

In terms of products, we maintained solid performance in our industry leading credit card portfolio throughout the year. The credit card market grew by approximately 13% in fiscal 2008 and is forecast to slow to 7% to 8% in 2009. Throughout much of this year, we grew at market rates.

However in the latter part of Q3 and in Q4, we slowed our growth in response to the market environment. Our industry leading high quality cards franchise remains well-positioned. We anticipate that overall cards growth will be in the mid single digits, given consumer spending sentiment and our risk appetite.

While industry growth and mortgage assets has slowed from the prior quarter as a result of consumer demand, we have maintained our market share. We expect industry mortgage growth in 2009 to decline to low to mid single digits and our growth is expected to remain in line with industry. In lending, we delivered quality growth and continue to show stable market share. Given market conditions, we believe we are well positioned.

As per our plan, the secured mix in our portfolio has increased from last year and this positions us well for the difficult economic condition. Personal balances are up 12% year-over-year. This is comprised of 18% secured and 3% unsecured.

Both our mortgages and personal lending portfolios are holding steady from a credit quality point of view. Personal deposits and GIC balances were up 1.6% on the quarter and 7.7% year-over-year. The new tax-free savings account is an important new savings opportunity for Canadians and we believe our advice strategy uniquely positions to us provide clients with expert advice on how to best leverage the TFSA. Our advisors are actively meeting with clients and are in our preregistrations have exceeded expectations.

Commercial banking continues to deliver good credit and deposit volume growth with loans up 4% on the quarter and deposits up 5% on the quarter. In this portfolio, we have been able to maintain new originations volume versus prior year while ensuring disciplined pricing. The overall risk profiles of the commercial banking credit portfolio has improved steadily from 2004 and has remained consistent in 2008.

In mutual funds, the industry experienced outflows in both short and long-term funds as did CIBC. However due to our diversified asset mix and strong relative performance, our market share increased to its highest in two years. We currently have 24 four or five-star Morning Star rated funds and 60% of our funds are above median on a one-year basis. We are pleased with our progress to date in elevating the quality of our fund offer and believe we are well positioned for strong growth ahead.

In retail brokerage, revenues are down as a result of continued volatility in the capital markets. We hold a strong position in the full service brokerage segment as the second largest in assets and revenue. In distribution, we made strong progress in our strategy to include clients accessibility and clients experience in all of our channels. This past quarter, we continued to focus on branch builds, new branch hours, and increased access and flexibility through Sunday openings. We also expanded our Imperial service client experience to an additional 200,000 rural high value clients and launched a new advisory focused marketing campaign, It's Worth the Talk.

Overall, in light of the market challenges, 2008 was a solid year for retail markets. We have stayed focused on our strategic priorities, providing clients with strong advisory solutions and excellent client experience and highly competitive products. In 2009, we will continue to invest in our retail franchise; opening 14 new branches, expanding our Sunday branch openings and investing in our brand leveraging our new marketing campaign.

Now more than ever, clients are looking for sounds financial advice. We believe that our strategic focus on building one of the most highly accredited advisory teams in the country has strongly positioned us to support our clients in achieving their financial goals. And in doing so, to deliver consistent, sustainable revenue growth. Thank you. I will now turn it over to Richard Nesbitt.

Thank you, Sonia. My comments may also contain certain forward-looking statements and actual results could differ materially. I'll review CIBC world markets quarterly performance and provide an update on our business strategy. Our key priority for 2009 is to shift our business from the restructuring that occurred in 2008 to a client focused strategy that will establish a foundation for risk controlled growth as market conditions normalize. And let me begin with some comments on our performance in Q4.

While world markets recorded a profit of $133 million in the quarter, this performance was impacted by a number of significant one time items that David detailed earlier. As was the case throughout the industry, market and business conditions remained difficult and they worsened significantly throughout the quarter. Against this backdrop, we were able to maintain consistency in our primary activities. We achieved positive revenue growth in investment banking and foreign exchange while revenues in our capital markets businesses declined.

In investment banking, despite a slower case of opportunities, we received strong advisory mandates. For example we acted as financial advisors to Kinross Gold Corp in its $1.2 billion acquisition of Aurelian Resources Inc. We acted as financial advisor to Schlumberger Limited in its $1.2 billion acquisition of Saxon Energy Services Inc. We also secured mandates as the sole underwriter on two separate equity writings of central underwritings for Central Fund of Canada. We completed three underwritings for CFB all together in 2008.

Our fixed income and currency condition, revenues were down from Q3, primarily due to the widening of credit spreads. This was offset partially by strong revenue growth in foreign exchange. A key win for this team was our lead manager role in an $8 billion Canada mortgage fund offering. This deal was notable as it was completed on September 17, during the week of the Lehman default. It was the only significant government bond deal announced around the world that day.

The unprecedented market environment had a direct impact on our global equities business. As expected, the market for equity new issues remained slow across the industry and this had a negative impact on revenues. Our strategy focus is on the mission we established earlier this year. And our mission is to bring Canadian capital markets products to Canada and the rest of the world, and also to bring the world to Canada.

Implementation of this mission is provided into two components. First, the ongoing repositioning of our business which started the beginning of fiscal 2008. And second, the continuing to intensify our focus on our clients so we can deliver on our mandate to be the premier Canadian based investment bank. And we are now in the final stages of the first component, the repositioning of world markets franchise to focus on our strengths.

During Q4, we continued to wind down unprofitable trading strategies. In addition, we divided our merchant banking activities into two areas; active investments that are aligned to our business strategies and legacy investments that we are in the process of selling when the market permits a sale. A year ago, we needed a plan to help us respond to a market and industry environment that had the potential to be the most challenging we have seen in decades.

We've complete a great deal of work to execute on this plan. By quickly exiting or reducing high risk or nonperforming businesses, we are now in a strong competitive position as we move forward to adapt to the wholesale transformation of investment banking that is occurring right now. The positive side of this for CIBC World Markets is that we excel in the traditional businesses and activities that will be valued more and more by our clients in the future. We also have a legacy of strong client relationships that we are working hard to make even stronger.

During Q4, we again positioned our primary businesses to help deliver on a client focused plan that will be a key to a transition -- to our transition into this new environment. We began a reorganization of these businesses so that we are in a better position to integrate our products and services offerings. This reorganization has two key changes.

First, it brings all of our derivatives activities together under one senior manager as head of derivatives and strategic risks. And second, it adds both a new distribution head and a chief investment officer to our fixed income and currencies business. Our new distribution head will provide sales and marketing capabilities that will allow to us combine our efforts across world markets to deliver integrated solutions to our clients. Chief investment officer will be responsible for execution of CIBC's funding, balance sheet management and capital markets execution activities. This role will work closely with our new treasurer.

To conclude, this has been a difficult year for our business and for our industry, but the rebuilding efforts of the past year have placed us in a strong competitive position moving forward. I will now turn the call back to John.

Thank you, Richard. We are now ready to take questions on the phone.

(OPERATOR INSTRUCTIONS.) The first question is from Brad Smith of Blackmont Capital.

Thank you very much. I had two very quick questions. With respect to the structured credit market, I was just curious, the outstanding notional on the purchased options in that business increased about $1.8 billion in the quarter. I was just curious, was that just something that had been preprogrammed and do you expect it to start to decline again? And then the second question related to the accrual of $122 million in severance which was booked through the corporate and other segment. I was just wondering if you could give us some color as to which operating segments that relates to and whether those severance actions have already been completed at this point in time.

This is Mike Capatides. I run administration. As we've discussed before in the past year, CIBC has undertaken a number of initiatives to -- in terms of our business activities and organizational structure, such as selling our US investment bank. We closed US European leverage finance. We are managing the run off of structured credit and focusing world markets. And as a result of all those changes, we are now bringing into line our support functions at CIBC with this new structure. That's resulted in the severance accrual that you're speaking of. They are primarily in the infrastructure areas.

Thank you very much. And just on the credit derivative side?

Brad, if you can help me out just to make sure we are looking at the right thing. What line item are you looking at?

You can pick it off in your sub pack on page 27, two-thirds of the way down, purchase options,. Sorry. The written option amount was the one I was interested in, the 32 -- let's look at just the trading component, 32.7. That's actually up about $1.8 billion from the prior quarter if you go back to the same schedule last quarter. It's about $1.8 billion increase. Just that -- being in run off I was thinking it would be getting smaller consistently, but apparently it hasn't.

To the extent that this would -- yes, to the extent that it's running off the run off book, there are no incremental positions coming on obviously. I think the driver of that would be the impact of foreign exchange and the movement in the Canadian dollar over the course of the quarter.

I see. Very good. Thank you.

You're welcome.

Thank you. The next question is from Robert Sedran from National Bank.

Good evening. Tom, when I'm looking at retail markets provisions, we keep hearing how the Canadian economy is holding on okay, but that can't continue. We see an 18% increase quarter over quarter of PCLs. How concerned should we be about the Canadian consumer? If the unemployment rate was to go up 100 basis points over the next year, what would happen to PCLs?

Most economists are probably predicting 100 basis points is likely, but everyone on the phone will have their view I suppose. With respect to CIBC, as you know, I think you have to think of it in two parts. The personal lending business as you've heard for three to four years now, we've repositioned that business considerably much more secured than unsecured. The unsecured is performing very well and is very stable now.

In a continuing economic decline, no bank is going to be able to avoid losses there, but we've been very cautious for three to four years. I think on that line, while I can't give you complete comfort, I think I can give you some comfort even in a weakening environment. On the credit card business, as we've said, we and probably every other North American bank have seen higher delinquencies already. Although I can't give you a specific number because that would really depend on where you saw the economy in Q3 and Q4, I think Q1, Q2, you can probably predict where it's going. I think it's fair to say that as you've seen higher delinquencies in the last couple of months through the quarter, you are going to see higher loan loss provisions there.

I would wrap it all together with the basis point objective we have over the medium term of 50 to 65 basis points. We were well below that in Q1, albeit with hardly any write offs in world markets. Although I'm not going to give you a guidance for next year, I think that 50 to 65 basis points is a roadmap over the next two to three years. Where we are within that range or outside that range is really going to be driven by the consumer and by the economy.

Is there anything -- maybe talk a little bit about credit quality and FirstCaribbean. Is there anything to talk about there?

Yes. FirstCaribbean, as with every -- certainly the big Caribbean banks is very much driven by tourism. I think most analysts see arrivals falling probably 25% over the next 18 months. The tourism related businesses which drive the secondary economies are going to have an impact.

In our case -- again, I don't think any bank can give complete comfort. Our losses in '08 were higher. We had one larger item, but small in a CIBC context.

But it may be that even in a weakening environment, our loan losses next year are in the same ballpark as this year because of the one item. But the whole economy is driven by that. In our case, we've got a very diversified portfolio. A lot of the portfolio is residential which is very secured and is in a credit environment there where defaults are very low. I think it's really a question of the US economy -- the extent to tourism arrivals declining, but we are very comfortable with our overall portfolio overall there.

That's helpful. Thanks.

Thank you. The next question is from Mario Mendonca from Genuity Capital Markets.

Good afternoon. Question, a broad question about the retail business. Revenue growth softer this year and we can all appreciate why. Operating leverage in the last few quarters was fairly light. When you look out to 2009, again, a broad question, if you could just do the best you can to answer it even if it is very broad. Is it reasonable to expect that the retail bank can generate positive revenue growth and positive operating leverage in 2009? Is that a reasonable expectation?

Sonia Baxendale here. I would say in a moderate way that we should -- that is a reasonable expectation. Of course, that is going to be very much impacted by the environment. We've had some good volume growth this year. We would expect in certain of the segments, although down from this year, to still be in the single-digit, mid single-digit range. Quality of our portfolio is still very strong and expense management continues.

On the world market side, I think you said that the core number or the number -- the earnings number for the quarter was $83 million in world markets if you exclude everything. Did I hear that correctly?

$73 million if you strip out all the items of note.

Clean it up, about $73 million.

Yes.

Does that number -- and again a very broad question, does that number feel about right for world markets in 2009 on a quarterly basis? Or do you feel that world markets is now prepared to give us something a little better than that?

It's Richard. It's generally -- I would say that that's at the lower end of our objective range. Our objective, as I said last meeting I believe it was, is $300 million to $500 million net income after tax from our continuing business on a go-forward basis. It really does depends somewhat on getting slightly improved market conditions. These have been the most dire market conditions that any of us have ever experienced. That $73 million would be on the low end of that range.

Thank you. The next question is from Ian de Verteuil from BMO Capital Markets.

The question I have relates to the VFN. I'm not clear on the gain that you booked on this. I think you said that it was related to the various assets that you had sold to Cerberus, but you retained the upside. Can you articulate what went on there?

Yes. A couple of things. It's related to Cerberus in the senses that these assets were part of the pool that were back stopped by Cerberus. But other than that -- that's the only connection with Cerberus. Just that these assets -- the original Cerberus note was $1.050 billion and this pool of assets was back stopped by Cerberus. That's as I say -- that's the one linkage with Cerberus. Thereafter, and the reason for the gain, was a different counter party. It was a guarantor of the credit default swap into the CDO when they went into bankruptcy in mid-September. That's what was the event or default that triggered the decapitating that resulted in our VFN being taken down to zero.

I think I understand. What I would -- is do you have any more of these billion dollars gains knocking around?

We are looking. We are looking and we haven't identified any at this point.

Do you have other exposures where if -- because when I think of you booking again on a counter party field, I'm always concerned about that because I think if you book again on a counter party field very often -- if you were the other way on the counter party deal sometimes you ends up with a loss. Is there any way that could have -- any other positions that where you have this scale of exposure? It just seems odd to have $1 billion of counter party risk where a counter party failed and you booked a gain. Lehman -- I think you said Lehman was $30 million, $40 million. I think of that kind of scale of exposure.

I take your point. Frankly, our experience to date over the past year has been the other side of the equation where our counter parties have been weakening and if not failing -- just the spreads expanding out and not taking losses as a result. This is a different situation and a fairly specific and isolated situation.

Whereby the CDO structure as a result of that event, effectively was starting to get unwound if I can use that expression. The upshot -- it is a strange circumstance. But the upshot is that we were reduced down to zero. As a result of the actions of the trustee, and I'd point out one item of note which is that note holders who are subordinate to our positions, were also paid out by the trustee of this CDO. Not all, but some of the positions subordinate to us were paid out by the trustee.

Ian, it's Gerry here. Your question in relation to potential for large gains, I think David has addressed the adverse of that. But I'm going to turn it over to Ron Lalonde to talk about that. The reason why I think it's important that he explore it is although we are not trying to emphasize this element of our portfolio, the transaction that we did with Cerberus was very specifically structured so that recaptures would flow back to CIBC. That was something that was constructed with the full knowledge of our counter party. The facts that there was a partial pay down of their note was something that had been contemplated in the structure.

I did want to note here before I turn it over to Ron to talk about the various potentials for gains. As I say we are not trying to emphasize that but we you did ask the question. I did want to note here that the Cerberus note which was $1.050 billion -- there was a limit on the amount of pay down that a single item could trigger. In addition to that, this note paid down a certain amount. Also in addition to that, there was amortization in our portfolio which paid down another $100 million. And we did refer to that in the Cerberus webcast where people were trying to forecast how much this was going to cost us over the next couple of years and Ron mentioned amortization as one of the factors. That's come into play this quarter.

We did also have some optionality when this event was triggered to pay down another portion of the note. Given that our outstandings that this note is backed by are down to $700 million. We did exercise the optionality which was to pay down an additional $50 million. As a result of that, you had been doing some calculations on the Cerberus call around the cost of the $1,050 billion. We want to do make sure you were up to date that as a result of this VFN plus amortization in the portfolio, plus an optional pay down on our part, the remaining amount is -- as I mentioned in my notes, in the $600 million range. The amount of that is back stopping is something as in the slightly over $700 million range. That was first factored in the Cerberus call. You had been trying to do some calculations around the $1.050 billion and I wanted to make sure that you were up to date on the new number. Ron will now talk to you about the upside potential that might occur under certain circumstances. Ron?

Maybe just a couple of comments to add, Ian. We talked at the webcast on the Cerberus transaction in terms of expectation of amortization of this financing over approximately a three-year timeframe under our most likely model. We've got a range of scenarios that we have modeled. I think -- what you have seen in this quarter is that we are seeing some real amortization on this transaction.

I think the other thing you are seeing in this quarter is a significant gain coming through. While I -- unfortunately we don't have any other situations like this that we are aware of at this point, we certainly model a range of outcomes on this portfolio that included the possibility of things like this happening as well as just the basic performance of the underlying portfolio.

Our view was that the more likely gains on this portfolio were going to extend over an extended period of time. Those are gains that you would not get significant value for at heavy discount rates in the financing transaction which is why it was so important for us to retain that rear-end or residual value of the transaction for CIBC shareholders. We also structured the transaction, as Gerry indicated, so that if we did have any of these types or this specific type of windfall event that we would be able to retain a significant piece of that for CIBC shareholders as well. What you're seeing in this quarter are a couple of examples of issues that validate the structure that we put in place here to preserve value for CIBC shareholders.

The second line of questioning relates to the CLO. In your MD&A, you provided some disclosure with respect to the subordination across the various tranches, Ron. It looks as if in the investment grade component is down a bit on some of these and the subordination is also down a bit. Specifically with respect to the CLO, I know most of it is noninvestment grade. I think this 31% average subordination with 6% being the bottom. On the 6% tranche, can you tell us how much of the $13 billion is -- has that low level of subordination?

We can't give you those details, Ian. But what I can tell you is that the subordination relates as well to term on transactions and also the quality of the underlying assets. You can assume on those structures that have relatively lower amounts of subordination that they have some combination of lower term and or higher quality of underlying assets. There is not a material degradation of credit quality in those structures. They continue to perform as expected. We've not seen any material deterioration anywhere in the portfolio at this point.

If I was to ask you what the average rating would be on that, just so I could go back to traditional default rates, do you have something you could tells on the CLOs, Ron?

At origination, they are typically in the single-B, double-B low-type range. We've not seen material down grades of that portfolio at this point.

Thank you.

Thank you. The next question is from Michael Goldberg from Desjardins Securities.

Thank you. There are so many items of note that it's hard to discern what a normal level of trading revenue would be. I'm hoping that you can give me a hand. What do you think we should view normal trading revenue to be out of the $599 million negative revenue for the fourth quarter? And then taking it a step further, what would a normal level be if you got completely out of the prop trading business?

Michael, I'll handle the prop trading question first. As you know, we are in the trading business and that's what we do. Clients -- we do trades with clients -- clients we give -- often we take risks as a result of the trade with clients. In one part of the our business, the equity division, there has been a number of activities that you would consider much more proprietary in nature than client. Many of these were discontinued in 2008. These activities really weren't part what have we do any more, not core to our mission. We did have concerns about the profitability of those activities.

Those are the activities that we talked about moving into run off and we are in the process of managing those positions down to zero. Of the remaining activities -- some of the remaining activities while related to our equities business as a whole, they do contain certain proprietary elements. We went back and looked at it, and those activities have been consistently profitable but only -- represent less than 5% of our overall revenues.

Less than 5% of --

Of our total revenues for world markets.

As I said there's so many items of note, what do I take as that revenue number?

Let's go from -- in order to meet our earnings objective of $300 million to $500 million per year, which if we are roughly on track for -- on the low end of that in the fourth quarter. We would need revenues in the -- we would have an objective of having revenues somewhere in that $1.4 billion range and less than half of that would come from trading .

If I said $600 million from trading, that would be a normal -- you would figure a ballpark normal number?

I think that would be roughly accurate. Again, we're talking about if we were to meet our objective of the $300 million to $500 million. Yes.

Of that, you're saying also that perhaps something in the neighborhood of $30 million would be prop trading?

No. I said 5% of the total revenue so 5% -- less than 5% and it's going down -- less than 5% of the $1.4 billion would be proprietary.

Something in the order of $50 million to $60 million?

That would be closer. Yes.

Could you just elaborate on what world markets looks like in the future with taking into account the businesses that your discontinuing?

Happy to. We have our four businesses which are the traditional businesses of world markets which have always made us money -- our figured income and currencies business. That business we expect to see growth, particularly from our foreign exchange side of that business.

We have our equities business. That equities business, we would expect to see going forward that business to be slightly down from the past couple of years simply because of the environment we are in, but also reducing resources -- reducing balance sheet resources and other resources in some of those businesses that we're no longer involved in as we move to run off.

Our third one, investment corporate merchant banking, we are the top investment banking shop in Canada. That's business is very strong and will continue very strong. We would hope to have gains in the future from our merchant bank as opposed to do losses that we saw in the fourth quarter. If you go back the previous three years they had very, very substantial gains in the merchant bank.

And in the fourth business is our real estate financial business which is a US commercial real estate business which has been operating at a very, very low levels in the past 18 months and has avoided so far -- through I think excellent management on their part -- have avoided any of the problems that we've seen in the US market. That business will continue to operate at a very low levels until we get through the, this market environment that we are in. But it remains profitable even at these low levels.

Thank you.

Thank you, the next question is from Sumit Malhotra from Merrill Lynch. Please go ahead.

Good evening. First for David Williamson, just a couple of things I want to make sure I heard properly. First off, for counter party V, I think you said you had given this the same treatment that ACA got back in Q1. If I look at your CVA charges in the USRMM book and nonRMM book, it seems like the proportion of the insurance that's been taken through earnings or charged off through earnings is different for this counter party on both of those sides. Am I looking at that correctly, first of all?

On slide eight, you're right, the counter party is three and five were the ones that we put on to specific recoverable. Now, that should kick out the same level of and would kick out the same level of percentage recoverable. The thing is that on slide nine, we've got there the fair values but not by line item. The CVAs attached to each counter party.

I think that was in the MD&A.

Yes. It is separated out in the MD&A.

Okay.

You're right, both three and five were put on to specific recoverable basis.

Okay. I'm not sure if we are on the same page. It seems like the proportion of insurance that you've charged off to earnings for this same counter party is different unless I've done something wrong, but I could follow up afterwards.

We could do that. I think when we look at the -- why don't we do that, just make sure we are on the same page.

Okay. Secondly did you mention -- you did this last quarter and it was helpful, Did you mention the amount of risk related assets that's now backing the total amount owing from there guarantors in both of these portfolios?

No, I didn't. I can give you a sense of that, though. The last quarter, we had about a four times multiple on the risk weighted assets associated with the nets receivable from the mono lines, guarantors. This quarter it would be slightly lower multiple than that. I haven't got the specific number, but because we put counter party three and five on a specific recoverable basis that releases some risk weighted assets which we benefited from this quarter which would lower the multiple from the four that we saw this quarter, not massively but it would come off that something just north of three.

Thanks for that. And then for -- finally for Tom and probably Sonia. If I look at retail markets, credit cards is has actually been probably the best performing revenue item in the last number of quarters. I've heard both of you saw in the last number of quarters that you've been experiencing volume growth at some of the best levels in years. Now in the last two quarters, we have the uptick in loan loses even before we've seen employment turn down in Canada. I would ask here, what would you say to give me some comfort that this isn't the same experience had you in unsecured personal loans and lines from '03 to '05. Especially since you've talked about how that book has been, for lack of a better term cured, but credit card growth has continued and now we are seeing the losses go through. Anything you can offer me there on why this is not the same story?

Why don't I kick it off. It's Sonia. Then Tom will likely want to add to it. As we talked about talked about in credit card, our account management, our adjudication, all of our processes in credit cards are very strong. We continue to believe that. We have also highlighted throughout that period while we were growing credit cards that they are -- cards generally are a leading indicator. We have a large portfolio.

As the economy changes, one would expect some change in your loss rates. This is in line with that. We continue to have good processes in place to manage that. It is clearly distinguished from some of our other portfolios at least historically in terms of that capability that we've had.

Thank you. The next question is from Andre Hardy from RBC Capital Markets. Please go ahead.

Thanks. Just one question on credit and one on the CLOs. If we go to your supplementary back page, I believe it's 24. If we look at our story, let's start with -- I'm sorry, I'm drowning in paper as well. Which one shows the gross impaired loans? It's on page 19, my fault.

If we look at page 19, there's an increase in impaired loans for mortgages which we see at the top. Then if we go further down, it doesn't seem to be coming from Canada, it seems to be coming from country's outside of North America. I presume that's the Caribbean and correct me if I'm wrong. Then I look at page 20 and what I see is a very small increase in allowances for credit losses related to mortgages. First of all, am I correct? Are these coming from the Caribbean? Can you please help us understand what underwriting there would have been or why is the bank so confident that losses are going to be low?

Andre, it's Tom. The Caribbean mortgage market is quite different than North America. I'll have to generalize here, but as a general comment, banks do see somewhat higher instances of delays in payments; but very, very high success rates in ultimately receiving those payments. Part of it has to do with the seasons.

What you're seeing indeed is an uptick, both in absolute dollars US dollars. But the Canadian translation is probably most of that in terms of impaired. But the typically low coverage or allowance attribution in respect of that which reflects the confidence and the history we have of ultimately turning those around.

Are these mortgages that are -- were given to people who worked down in the Caribbean? Or are these -- I should say it differently, are these investor owned? Are they condos that people use on vacation or are they primary residences?

It's both. Again, this is a general comment. I don't have the data. But just anecdotally, the delays in the impairments are more from the second category than the first.

Not in the second homes, you're saying?

Just to reiterate, it's mostly FX.

FX would have helped your allowance. If it was mostly FX, your allowance would have gone up a fair bit.

No. Let me be -- the impaired -- well, both are FX. The uptick in FX raised the impaireds. It also raised the allowances. The five in allowances, the Caribbean component of that would have been lower.

The other one relates to CLOs. Now that you are going to consider models and not just broker quotes, there is a certain amount of trust to us. You are telling us to trust your models, that these things are going to be much good. Can you help us understand as outsiders, what needs to happen for these assets to not be money good at maturity? Ian tried to get at that, but I think we need a better answer. If you are not going to be using broker quotes, we would like to have a better idea of how conservative these marks are or these models are.

Okay. I can make a couple of comments in that regard. First off, were using a blend.

We're saying that given there is no trading in the space of CLOs, we are introducing models but not going solely to models. We are still looking at broker quotes so it is looking at the two data points. As you can see from materials in the MD&A, we are not taking these back to par.

There is substantially value still off of par. In fact responding to discussions we've had on this conference call where there is the CLOs should be money good but they continue to be written down. Are we missing something was a question. No. You are not missing anything. Our models would indicate that they are money good. But what we are seeing in the quotes is the effect of the illiquidity in the markets. I would make two comments. One is that we have introduced models but we've only done it in the space of CLOs. There would be the possibility to do it in other spaces, but we focused on CLOs where the credit quality and the modeling is much crisper.

Second comment is that although we've introduced CLOs, the MD&A would show that we are substantially off of par value. We are still giving a big weighting to the broker quotes which are substantially off. The third comment I would make with respect to CLOs, generally Ron made the comments earlier about the quality of the CLOs. But I will just add a couple which is to say that these positions continue to perform well.

Subordination is strong across the portfolio and our senior position gives us the preferential or first payment on default. The portfolio itself is well diversified. We have a lot of loans. The underlying loans are about 20,000 loans underneath all the CLOs -- about 3,000 counter parties, companies. We've got a lot the industry, geographic and company diversity that also mitigates the risk.

But what we do have always is spreads. Over time, these CLO holdings, now that we've got them in a held to maturity book, they are either -- market conditions are goes to ease or these positions are going to amortize down. They are not -- the weighted-average life you'll see in the MD&A is about five years or so. Either the market will ease or will amortize down, but we'll start to see a harmonization of the market pricing and the credit quality of these assets.

If I were to look at a high yield index, how high would defaults have to rise before we would see real losses? And I know it's not a perfect comparable, but it's the best we can do as an outsider. Would that be a fair point?

It's Ron Lalonde. Maybe I can get at it a different way for you. When we stress these portfolios for purposes of our own internal models as well as for purposes of models that would be used by our accounting community and by our auditors to review the models, we looked at stresses of as much as 25% constant default rates over the remaining terms of these assets.

That compares to -- the worse year we've ever seen is a little under 20% default rate in a single year. We also stressed our recovery levels down to 50%. Normally, we would expect recovery on secured loans as these are in the range of 70%. And the worse one year that we've ever seen is 65%.

Even under those stress conditions, we have minimum losses in the portfolio. It's that kind of stress testing that gives us confidence in the value of the portfolio and also provides support for the accounting approach that we've taken.

That's helpful. Thank you.

There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Ferren.

Thanks everyone for joining us and we do wish everyone a safe and happy holiday season. We look forward to talking to you in the new year.