Canadian Imperial Bank of Commerce (CM) 2011 Q4 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the CIBC fourth quarter results conference call. Please be advised that this call is being recorded. (Operator Instructions). I would now like to turn the meeting over to Mr. Geoff Weiss. Please go ahead.

Good morning and thank you for joining us. This morning CIBC's Senior Executives will review CIBC's Q4 and fiscal 2011 results that were released earlier this morning. The documents that will be referenced on this call including CIBC's Q4 news release, investor presentation and financial supplement as well as CIBC's 2011 financial statements and MD&A can all be found on our website at www.CIBC.com.

In addition, an archive of this audio webcast will be available on our website later today and CIBC's full 2011 annual report will be available this coming Monday, December 5.

This morning's agenda will include opening remarks from Gerry McCaughey, CIBC's President and Chief Executive Officer; Kevin Glass, our Chief Financial Officer, will follow with a financial review; and Tom Woods, our Chief Risk Officer, will provide a risk management update. After the presentation, there will be a question-and-answer that will conclude by 9 a.m.

With us for the question-and-answer period are CIBC's business leaders including Victor Dodig, Group Head Wealth Management; Richard Nesbitt, Group Head Wholesale International and Technology and Operations; and David Williamson, Group Head Retail and Business Banking, as well as other senior officers. At the conclusion of the question-and-answer period, please stay on the line as Kevin Glass will take a few minutes to highlight some of the main impacts of CIBC's transition to IFRS. Kevin will be joined by Shuaib Shariff, our Chief Accountant. Following Kevin's comments, we will reopen the telephone lines and take any questions. This portion of the call will conclude by 9.15 a.m.

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. These statements may include material factors or assumptions that could cause CIBC's actual results in future periods to differ materially. 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 Gerry.

Good morning and thank you for joining us. Before I begin, let me remind you that my comments may contain forward-looking statements. Today CIBC reported net income for the fourth quarter of CAD794 million and cash earnings per share of CAD1.91. Return on equity for the quarter was CAD20.6%. Adjusting for items of note, cash earnings were CAD1.87, up 11% from a year ago.

For fiscal 2011 overall, CIBC reported net income of CAD3.1 billion and cash earnings per share of CAD7.39. Return on equity for the year was 21.3%. These results reflect our first principle and strategic imperative which is to be a lower risk bank targeting value creation for our shareholders by delivering consistent sustainable earnings over the long term. We achieved these results while strengthening our capital base.

We closed fiscal 2011 with a Tier 1 ratio of 14.7% up from 13.9% in 2010. Our pro forma Basel III common equity ratio is estimated at 8.1% well in excess of the minimum standard.

The strengthening of our capital base in 2011 was done while investing for strategic growth. On August 31, we completed a transaction to acquire a 41% equity interest in American Century Investments. We also increased our quarterly common dividend to CAD0.90 per share effective October 2011.

Looking forward, the external environment remains very uncertain. We continue to target our medium-term objectives that we have maintained for a number of years including average EPS growth through the cycle of 5% to 10% and return on equity of 20% while paying out dividends within our target range of 40% to 50% and maintaining strong capital ratios.

As we prepare for the Basel III phase-in which begins in 2013, we will monitor our return on equity target in light of the greater weighting towards common equity that will exist.

Now turning to our business results, retail and business banking reported net income of CAD580 million for the fourth quarter of 2011 up 15% from Q4 of last year. Revenue for the quarter was CAD2.1 billion up 5% from a year ago supported by volume growth across many of our retail businesses and higher treasury revenues. Credit quality in our retail portfolios continues to be strong.

Retail and Business Banking made good progress in 2011. We opened 27 new branches, we launch several new products to enhance the experience for our customers including new MasterCard credit cards, and we were named Best in Mobile Banking among banks globally by Global Finance Magazine recognizing our leadership in this emerging and rapidly growing channel.

Looking forward, it appears the external headwinds that have negatively impacted industry profitability are likely to continue to be with us in 2012. Interest rates are expected to remain low and growth rates and consumer credit are expected to slow down slightly. Demand for business credit should continue to grow which will help offset some of these headwinds.

To further our retail business in 2012 and beyond, we are focused on priorities that build deeper relationships with our clients, improve our sales and service capabilities and acquire and retain clients where we have opportunities for wider margins and more extensive relationships. David Williamson is here this morning to answer questions about our progress and strategic direction in Retail and Business Banking.

Wealth Management earnings of CAD65 million were up 20% from the same quarter last year due to higher assets under management driven by strong growth in long-term net sales and the equity pickup on our stake in American Century Investments. Wealth Management delivered a very strong year in 2011. Our transaction with American Century Investments will complement our existing investment capabilities and provide additional growth opportunities. We became the first bank to offer mobile stock trading to Canadian investors over their smartphones and we delivered record long-term mutual fund net sales growth of 44% driven by investment performance that consistently ranked among the leaders in Canada.

Our strong capabilities in Canada and internationally along with favorable capital and demographic characteristics make Wealth Management an integral part of our plans for growth at CIBC. While the outlook for Wealth Management in the coming year will depend on market and economic conditions abroad, we believe that our history of strong investment performance and opportunities to realize the full value of our partnership with American Century position Wealth Management well for continued strong performance in 2012.

Victor Dodig is here this morning to answer questions about our progress and the strategic direction in Wealth Management.

Wholesale Banking reported net income of CAD172 million in the fourth quarter. Excluding items of note, net income was CAD154 million. Our core wholesale banking business in capital markets and corporate investment banking achieved very strong results in volatile market conditions. During the year wholesale banking continued to deliver excellent service and value to our clients. We grew or maintained market share in our traditional areas of strength in Canada including equity trading, equity underwriting, mergers and acquisitions, corporate and government debt underwriting, and loan syndication.

We made significant progress in expanding lending activities in Canada and internationally which drives ancillary growth in other wholesale banking products and service areas where we have long-standing tradition of expertise. And we continue to invest in innovative technology offering e-commerce and foreign-exchange platforms for our clients to go alongside our industry leading position in electronic trading of equities.

The strong performance for Wholesale Banking in 2011 is aligned with our strategic principle of being a lower risk bank as evidenced by industry low VaR levels. While the outlook for Wholesale Banking in 2012 will depend on market and economic conditions, we believe that our client focused lower risk strategy along with investments we have made in our business position us well to continue to deliver risk controlled earnings as we grow with our clients. Richard Nesbitt is here this morning to answer questions regarding our progress and strategic direction in Wholesale Banking.

In summary, 2011 was a good year for CIBC and our stakeholders in what has been a difficult environment for banks globally. Our progress supports the strategic path we are on and positions us well for the future.

Before I close, I would like to take this opportunity to thank our shareholders for their continued support and all of CIBC's 42,000 employees for their ongoing dedication to serving our more than 11 million clients in Canada and around the world.

Let me now turn this meeting over to Kevin Glass for his financial review. Kevin?

Thanks, Gerry. I am going to refer to the slides that are posted on our website starting with slide five which is a summary of results for the quarter.

We reported strong results this quarter that were helped by volume growth in regional and business banking, higher wholesale banking revenue and higher treasury revenue and hurt by lower spreads in deposits and mortgages. Earnings per share this quarter were CAD1.89 or CAD 1.91 on a cash basis.

As listed on the top right of the slide, we had three items of note this quarter the positive impact of which nets to CAD0.04. The first item of note was a net gain of CAD0.12 per share on the sale of a merchant banking investment. The next item was a loss of CAD0.05 per share related to a loan loss in the exited European leveraged finance business. And the last item was a loss related to structured credit runoff which totaled CAD0.03 per share and I will provide more details on this in a few moments.

As Gerry mentioned in his remarks, our capital position remains strong and we finished the fourth quarter with a Tier 1 capital ratio of 14.7% and a tangible common equity ratio of 11.4%. We continue to strengthen our capital base and our pro forma Basel III common equity ratio is estimated at 8.1% which already exceeds the 2019 minimum requirement of 7%.

Also earlier this year, OSFI confirmed non-viability contingent capital treatment for CAD881 million of convertible preferred shares which provides approximately 50% of the non-common Basel III Tier 1 capital requirements.

We also remain focused on optimizing our capital structure with just over CAD1 billion of preferred shares redeemable in 2012. These securities do not have NVCC features and therefore will be phased out under Basel III rules and redeeming them would be accretive to earnings by approximately CAD0.09 per share on an annualized basis.

Then turning to slide six which provides a summarized statement of operations on a reported basis showing net income for the quarter of CAD794 million which concludes a very strong year for CIBC overall. Excluding all items of note, net income this quarter was CAD776 million, up CAD82 million or 12% from the same quarter last year on the same basis.

Turning now to our business results starting with Retail and Business Banking on slide seven. So here our revenue for Retail and Business Banking in the quarter was CAD2.1 billion, up CAD100 million or 5% from the same quarter last year. Personal banking revenue of CAD1.6 billion and business banking revenue of CAD357 million were both relatively flat compared to the same quarter last year.

On a year-over-year basis in personal banking, we were hurt by lower spreads but had solid volume growth with growth of CAD10 billion in funds managed which was driven by mortgages and deposits market share growth in the branch channel where we have stronger client relationships and in general are able to earn higher net margins.

In business banking, we were hurt by lower spreads attributable to a combination of the current interest-rate environment which affects all banks as well as ongoing competitive pressures. However, this is offset by volumes which continue to generate strong growth with year-over-year lending and core deposit balances up 11% and 12% respectively. And each of these product categories have also gained market share over the past year.

Other revenue was up CAD105 million from the same quarter last year primarily driven by higher treasury allocations. These were higher than normal this quarter and we do not expect them to remain at this level going forward.

On slide eight, net income this quarter from Retail and Business Banking was CAD580 million, up CAD75 million or 15% from the same quarter of the prior year. Revenue was up CAD100 million for the reasons previously discussed.

The provision for credit losses of CAD266 million was up CAD25 million from the same quarter last year as a result of write-offs from the acquired MasterCard portfolio as expected and was partially offset by lower bankruptcy and write-offs across other products. Tom Woods will discuss credit quality in his remarks.

The non-interest expenses were just over of CAD1 billion, up CAD14 million or 1% from the same quarter last year and our objective is to continue to maintain this expense discipline going forward.

Retail net margins were down [7] basis points versus the prior quarter primarily due to lower net prepayment fees on mortgages which have now started to stabilize as well as the low interest rate impact on deposit revenue which will persist until short-term rates increase. Total bank margins were up 10 basis points from the prior quarter primarily due to Treasury related activities.

Turning to slide nine, revenue for Wealth Management in the quarter was CAD396 million, up CAD18 million or 5% from the same quarter last year. Wealth Management results reflect solid revenue growth in asset management driven by record net sales of long-term mutual funds and increased assets under management.

Looking at the results of the specific business lines on this slide, retail brokerage revenue of CAD256 million was flat from the same quarter last year. Lower commissions per trade and new issues volume were offset by increased trading volumes and higher assets under administration.

Asset management revenue of CAD115 million was up CAD16 million or 16% from the same quarter last year. This is primarily due to solid asset growth driven by record net sales of long-term mutual funds of CAD3.4 billion and strong investment performance.

Slide 10 reflects the net income this quarter from Wealth Management of CAD65 million, up CAD11 million or 20% from the same quarter of the prior year. Revenue is up CAD18 million for the reasons previously discussed and noninterest expenses of CAD307 million were up CAD9 million or 3% year-over-year mainly due to higher performance related compensation.

Turning to Wholesale Banking, reported revenue this quarter was CAD557 million, up CAD103 million or 23% compared to the prior quarter. During the fourth quarter, capital markets revenue was steady at CAD251 million and while we had lower equity new issues and fixed income revenue, this was offset by higher foreign exchange and derivatives revenue.

In Corporate and Investment Banking, revenue of CAD334 million, up CAD102 million or 44% compared to the third quarter of 2011 primarily driven by the merchant banking gain previously mentioned as an item of note.

In the Other segment, revenue of CAD28 million was up CAD8 million from the prior quarter primarily due to higher treasury allocations. Excluding items of note, Wholesale Banking revenue was CAD418 million, down CAD37 million or 8% on a same basis last quarter.

We are very pleased with these results given the challenging market conditions under which we operated.

The Wholesale Banking reported net income on slide 12 was CAD172 million this quarter, up CAD27 million from the prior quarter. Reported revenue was up CAD103 million from the prior quarter for the reasons previously noted.

Credit quality continues to remain strong with a provision for credit losses of CAD27 million this quarter compared to CAD6 million in the prior quarter and the current quarter includes a CAD25 million provision related to our exited European leverage finance portfolio.

Noninterest expenses were CAD330 million, up CAD36 million from the prior quarter mainly due to higher performance-based compensation and fees associated with our merchant banking gain in the quarter. Excluding all items of note, net income for this quarter was CAD154 million, down CAD4 million from the prior quarter on the same basis.

The next slide summarizes our structured credit runoff results. We had a pretax loss of CAD14 million this quarter versus a loss of CAD18 million last quarter. So starting with row 1, the increase in the credit valuation adjustment generated a loss of CAD34 million. This was driven by an increase in the fair value of purchased credit derivatives due to declines in the underlying value of holdings hedged by financial guarantors. The impact of widening credit spreads also contributed to the loss.

On row 2, we had a gain of CAD49 million on purchased credit derivatives that are marked to market and hedge loans which are carried at amortized cost. This is largely a timing issue and there was a gain this quarter due to declines in the market value of the underlying loans.

On row 3, we had a net gain of CAD19 million resulting from the unwinding of positions. These transactions reduced our notional position by CAD2.6 billion. For the full year, we have reduced our notionals by CAD18.5 billion from CAD48.7 billion down to CAD30.2 billion and subsequent to year end, our notional position has been further decreased by CAD2.2 billion.

The loss on row 4 represents the net effect of gains and losses on the remainder of the hedged and unhedged positions as well as net interest and non-interest expenses.

Our fourth quarter represented a strong finish to strong financial results in 2011. Full year reported net income of CAD3.1 billion was up 26% from 2010 and cash earnings per share in 2011 if you exclude all items of note were CAD7.51, up 16% compared to 2010. We had solid revenue growth of over 3% excluding items of note. Lower spreads were more than offset by volume growth in our Retail and Business Banking and Wealth Management businesses.

We were pleased with the strong performance from Wholesale Banking given the challenging market conditions under which they operated and as a result of improvements in credit quality, we had better loan-loss performance.

We maintained our expense discipline throughout the year and our cash efficiency or nix ratio excluding items of note was 58.2% essentially flat compared to the prior year on the same basis. Our capital is strong and we are well positioned for Basel III requirements.

This concludes both a very strong year, strong quarter and a very strong year for CIBC. Thanks for your attention and I would now like to turn the meeting over to Tom Woods.

Thanks, Kevin. Good morning, everybody. With respect to credit risk on slide 22, specific loan-loss provisions this quarter were CAD257 million versus CAD232 million in Q3. All of this increase came from a reserve we took against a loan in our European leverage finance runoff portfolio. Apart from this, loan losses in First Caribbean were up and losses in credit cards were down.

General loan losses were a recovery of CAD14 million compared with a CAD37 million recovery in Q3 where we had a large general reserve release due to a credit card securitization. Gross impaired loans were of up CAD78 million in the Q4 mainly due to higher impaireds in the Caribbean. Our Canadian portfolio has remained relatively stable and since the end of the quarter, we have restructured one large loan in Canada and reduced impaireds by CAD25 million.

On slide 23, our cards portfolio loss rate in Q4 was 4.6% versus 5% last quarter. Losses were down CAD13 million versus Q3. Our cards delinquency rate continued to trend positively quarter over quarter.

With respect to our Canadian residential mortgage portfolio on slide 24, we have insured 77% of our managed portfolio and 66% of our own portfolio with over 90% of the insurance being provided by CMHC. The average loan to value of our uninsured portfolio based on August home price data is 49%.

Slide 25 shows our exposure to the European peripheral countries and countries in North Africa and the Middle East. As you can see we have no sovereign exposure to these countries and very little non-sovereign direct exposure, less than CAD50 million net after deducting the collateral we hold.

We have under CAD400 million indirect exposure to corporates in the peripheral countries in our structured credit runoff book where our interest benefit from significant subordination to our position. But here too, none of this exposure is to peripheral sovereigns.

On slide 26, our US real estate finance business had CAD3.4 billion of drawn exposures and [CAD629 million] of undrawn. In Q4, we had no loan losses, down from CAD7 million in Q3. We had CAD167 million of net impaireds. As discussed in our Q3 webcast, we could see a slightly higher loan loss rate in this business in the next few quarters.

Our European leverage finance runoff book had CAD457 million in drawn exposures and CAD91 million in undrawns. In Q4, total provisions were CAD22 million including the CAD25 million provision I mentioned earlier.

Our US leverage finance runoff book had CAD112 million in drawn exposures and CAD179 million in undrawns. There were provisions of CAD5 million in Q4 in this portfolio.

Turning to market risk, slide 28 shows the Q4 distribution of revenue in our trading portfolios. In Q4 we had positive results 86% of the days. Our average trading VaR was down 26% from Q3 and we continue to maintain a low risk profile given continued market uncertainty.

Our Tier 1 ratio was 14.7% at Q4, up from 14.6% at the end of Q3. Our intangible common equity ratio increased to 11.4% from 11% in Q3. Our Tier 1 ratio increase was mainly due to earnings and dividends and equity issued in our dividend reinvestment plan partially offset by the regulatory deduction related to our investment in American Century Investments which closed in the quarter.

As Gerry and Kevin have both said, CIBC is well positioned for the Basel III transition. Our pro forma Basel III common ratio at the end of 2011 was 8.1% exceeding the Basel III minimum requirement of 7%. Back to you, Geoff.

Thank you, Tom. Operator, we would now be pleased to take questions on the phone.

Thank you, Mr. Weiss. (Operator Instructions). Peter Routledge, National Bank Financial.

Thanks very much. Just notwithstanding a very strong quarter and year, I wanted to just ask some questions about risks in light of the volatile markets. First, the CLO book, you've got 35% of the notional and European leverage loans and I am aware that you've got pretty good subordination. But if you assume a rather disruptive resolution to the sovereign debt crisis, do you guys have a sense of what a stress loss range would be from that part of the CLO book?

Peter, it is Tom. We have done a number of stress tests and the main focus of those is an impact on our various capital ratios and I don't have the numbers with me right now but I can tell you that -- I know the number of our base case stress test which is a Tier 1 ratio impact of less than 50 basis points. We have also done what we call worst of the worst cases and I can tell you in this particular book, one would have to assume a very, very severe global recession for losses here to be in the territory that anyone would call material and that is just based on the huge subordination rates -- levels that we have.

So you've got -- there is adequate subordination in the European (multiple speakers)?

The European book has about 38% subordination.

Peter, it is Gerry here. One of the elements of the overall CLO book which earlier this year we did manage to reduce it significantly across the board, one of the elements that has been of particular interest over the last several years is that the amortization and runoff of this book has been slower because of the credit experience. Meaning when you start to get defaults in the book, the way the waterfalls work and the structures work is you actually end up getting paid down more rapidly. So the initial phase of any pick up in defaults across the board in the book would actually have a positive impact or our modeling says it has a positive impact because you start to trigger the waterfalls and the paydowns accelerate very rapidly.

So what would happen and again, this is something that I don't want to belabor because as Tom said, it would be very surprising circumstances where you actually pierced our senior position. But what would happen is that as you saw the defaults coming, the actual amount of exposure that you had would shrink. So the ability to define a much smaller subset as the portion that you had at risk in the event of piercing the subordination would be I think significant given that this is a very small part of the overall exposure the bank has.

So the tranches are thick?

And they actually -- yes.

Okay. Just one other question perhaps for Richard on your trading portfolio of public equities. I presume this is in line with the electronic trading business. But you've had a real spike in just on balance sheet public equities from like CAD5 billion in 2009 to CAD22 billion roughly at the end of 2011. How do you hedge risk in that book, downside risk?

Hi, it is Richard. So that would primarily relate to our equity derivatives activities and those books we maintained on an almost fully hedged basis. So you would have a derivative on one side and perhaps a cash equity on the other side or vice versa.

And how about counterparty risk on the derivative side? It is --?

Yes, so that all goes through our normal risk management process where every counterparty has to have a available credit line.

You keep it granular I guess is the question, like there is not one or two counterparties you are particularly long?

We diversify our portfolio. We have maximums that will permit with any particular counterparty, yes.

Okay, thanks very much.

Steve Theriault, Bank of America Merrill Lynch.

Thanks very much. A couple of questions to start. First, maybe probably for Kevin and maybe I missed this during the commentary. But how much did American Century add to the Wealth division in Q4?

Then for Gerry, it would appear that changes to the Bank Act will force you to clear any acquisitions greater than 10% of assets with the Minister of Finance. So I would be interested in your thoughts there. Was this a surprise? What is your initial thoughts and do you think this is a reasonable expectation?

It's Kevin. So with respect to American Century, we only had a American Century in for a couple of months of the quarter so it didn't make a significant contribution. We don't disclose it separately at this point but it has strengthened since then -- it was a very volatile market. We only had it in for a couple of months in the quarter but has made a good start and is in line with our business case.

Okay.

It is Gerry. Could you repeat the Bank Act question?

In reading the draft changes to the Bank Act, it looks like there is going to be a provision where Minister Flaherty has to approve large acquisitions and I think the benchmark was a certain level of assets which I think was 10%.

Right. Well, we actually in the past have always been under the assumption that we would go through our full consultation process including our regulator and in the event of anything substantial again the regulator has their processes and I won't speak for them but on anything that got large I think in the past the fact that their consultation process might have included finance as part of their process anyway was not an unreasonable assumption.

So like the reality here is that Canada tends to be a principles-based system. This rule does reflect the principles that I believe we have been operating under anyway. I believe our principles have been prudent. Rules that reflect principles that are prudent are prudent rules and therefore, I think that the conclusion of this is it is all part of keeping Canada at the forefront of the financial systems in the world.

Okay, so you don't view it as a meaningful change. That is helpful.

Well, I didn't say that. Far be it from me to comment on changes that people are making. I view it as prudent and an important part of keeping Canada at the forefront of the world's financial systems.

Fair enough. And one last one if I might for Tom Woods. On slide 25, you provide an update to your GIIPS exposure. Certainly a nominal amount overall but can you give us a little flavor -- I am curious as to the composition of the $240 million of collateral I guess for Ireland and Italy specifically given the rest of the countries aren't all that material.

The collateral meets our standard collateral requirements. And with respect to the European exposures, roughly 50% of that would be governments, US, Canada; probably 40% would be supernationals AAA rated; and the balance would be a variety. We however have the flexibility with our counterparties and this is standard industry practice to change those guidelines. There is no reason for us to change them at the moment but our counterparties understand that we could go back to them and require a different collateral.

So that number you see is the collateral that our European counterparties have provided but it is standard high-quality collateral that applies right across our whole portfolio.

Okay, that is helpful. Thank you very much.

John Aiken, Barclays Capital.

Good morning. I wanted to focus on the retail banking operations. Wanted to detail the margin compressions, see if you can give us a sense as to what the breakdown was between the macro environments and the competitive pressures? And secondarily, what you are seeing on mortgages, it does look like your volumes declined sequentially from the third quarter.

Certainly, John. David speaking. So let's start with the NIMs questions. There are actually four factors that are coming into play when we are looking at the seven basis point drop in NIM. So the largest driver was the impact of net cost to the bank when a customer breaks their mortgage early. For a good portion of the quarter, the prepayment fees collected from customers were actually lower than the actual breakage cost to the bank. This was largely due to the interest-rate environment and should be a factor for the industry as a whole.

The second issue is one you refer to as again an industry one. That is the low interest rate environment and the impact on deposits. We have discussed in the past couple of quarters and Kevin mentioned in his remarks how the low interest rate environment is impacting our revenue on our deposit business and this has obviously continued given a current rate environment.

And then you mentioned competitive pressure. So on the asset pricing, there are competitive pressures primarily I would say on the mortgage books and that is having an impact on the spreads of the mortgages that are rolling off are more robust than the mortgages that are being added on to the books currently.

Then the final factor is one we have also talked about in prior quarters and that is that the retail business unit spreads are feeling the pressure of paying higher internal liquidity premiums to treasury. The residual amounts of that net liquidity are then allocated back into retail. That is the other line and that accounted for some of the uptick in the retail other revenue this quarter. But that is not included in the calculation of Retail and Business Banking NIMs.

So it shows up in retail revenue but does not show up in the NIM calculation. So, John, can you give me your second question again, that was on mortgage volumes, was it?

Yes, David, it looks like the mortgage volumes declined sequentially from the third quarter and just wondering if this was a strategic choice from CIBC in terms of deemphasizing a channel or this is another factor?

The overall growth rate I don't think changed too much but let me talk about a strategy that we do have in play. So growth levels I think have tracked along pretty well. They are 0.6% quarter over quarter but to your point, John, what strategy do we have in play?

So there is focus on our part on looking at those channels and I think I mentioned this last quarter, those channels that offer enhanced net interest margins and most importantly where there is the opportunity for deeper client relationships where those are more prevalent, and that is leading us to focus on our branch channels more so than our broker channels.

So to your point, John, if you look, there is a slide in the materials I think it is slide 16 where we take our market share information. This quarter we have broken it out just a bit further and it speaks to your point. What you will see is in our branch and related channels, we are actually growing faster than market, picking up market share but in some of our other channels where we are seeing a bit more compression, a bit more aggressive pricing and where we don't see the same opportunity to build deeper relationships with our customer base, there we are losing market share.

So this is probably what picked up your question, you see the mortgages overall market share is down but that is being driven by channels other than branch where we are actually picking up market share points. The same thing is going on in deposits as well where both in deposits and GICs we are emphasizing our branch and related channels.

That's great. Thanks, David.

You are welcome. Thanks, John.

John Reucassel, BMO Capital Markets.

Good morning and a question for David Williamson as well. Just if I look at the slide seven and the revenue in the Retail Business Banking, you know, revenue is pretty flat to down in personal and business banking and all of the growth has come from the other. So when we think about forward revenue growth, should we think of it as pretty flat, yes or no if that is the case?

And then in that environment, can you keep your expense ratios at 51% which you have roughly over the last few years?

Okay. So a couple of points. First point I would make is I wouldn't fully exclude the treasury revenue element of things just for the reasons I have outlined. Some of the liquidity premiums paid to personal banking and business banking come back down into the other lines so I wouldn't fully discount that.

So putting that aside, the factors that are affecting revenue a couple of elements of it, one, we spoke of the deposits side. That is the low interest rate environment. We anticipate that to continue. The asset margins I touched on that as well, we are seeing less pressure on that, we are seeing -- it is abating on that front and that does bode better for the future.

But I should touch on the volume side because there are some dynamics there that are offsetting to a certain extent and I touched on it in my comments just to John a few moments ago. So -- and the volume growth of side, we are seeing strong volume growth; it is up strong quarter over quarter and year over year. But the offsetting factors at play, we are seeing pretty strong branch growth but on the broker side, we are actually seeing quarter over quarter and year over year decline.

So within volume growth although it is robust in aggregate, we do have that internal dynamic. So then looking to the future, so expect volume growth as I say, it is robust now. I anticipate it to grow, hopefully it will build. But there will be that dynamic where you will see the bulk of it coming from branch and related channels and we are investing in our channels, we are investing in those related channels, two branches to try to build upon that growth.

Asset compression seems to be abating. However, we do have this low interest rate environment and that is going to be a factor for us and any bank that has a substantial deposit base. So that is more of an industry factor.

So turning now to your third part of your question, what does that mean for expenses and do we need to track them? So we are focused on building our revenue growth but the environment is such that we do have to keep an eye on expenses. I would make a couple of comments. One is we are investing where we need to. We are investing in branch growth, we are investing in mobile banking as a result of the Global Finance award, we are being recognized as a leading in that space. We will continue to invest in that space.

Irrespective of those investments which are built into the fourth quarter, I think our fourth or year-over-year growth rate is 1.6% in expenses and that's our best in eight corners. It shows that our expenses are coming down after a period of them being elevated with HST and pensions and such [for it].

So I believe to draw to a close, I believe that we are at now an expense level which is maintainable whilst we still invest in the franchise.

But you still think positive operating leverage next year even with a slower loan growth environment -- or a slower top-line growth environment?

Yes, I think our operating leverage now is getting better each of the last three quarters and I think we can.

Okay, I just wanted to make sure. Then the last question is I think it is for Kevin or Gerry but the repurchase of preferred dividends, did you say that was CAD0.09 accretive? Did I get that right?

Yes, that is right, John.

Thank you.

Robert Sedran, CIBC.

Just a quick question on the pre-funding that was done a couple of quarters ago. I gather it has largely been redeployed and I am just wondering -- and I don't know if this is for Kevin or for Gerry -- but how the bank is positioning itself from a liquidity perspective and just a balance sheet perspective given some of the storm clouds that are out there? And I'm wondering if there has been any explicit discussions with [OFSI] or whether OFSI is guiding the group as well in terms of how to position themselves for the environment?

It is Gerry. We always have ongoing discussions with all of our internal and external stakeholders and part of that is informational to understand or get a feel for where the industry is. And on the topic of -- on all of these topics, it would be our belief that we would be in a very strong position. And interestingly enough despite the fact that there is some ebb and flow in terms of the availability of liquidity in the market place, overall we have found that liquidity is readily available and there is actually a fair bit of excess liquidity down in the shorter end. But more importantly, the term funding markets have been opened in Canadian dollar Canadian names and also in US dollars for Canadian names in a variety of areas and we have managed to continue our term funding program as have the other Canadian banks without interruption.

So conditions actually have been rather favorable in terms of availability. Obviously prices are more elevated than they might have been earlier in the year but continue to be reasonable if you look at them through the lens of say the 2008 period.

So I have to say that so far it has been -- while I wouldn't exactly put it smooth sailing -- I would say it has been very normal course.

Does that mean, Gerry, you are comfortable basically running and assuming that that is going to continue or would you be inclined to a more liquid balance sheet given what is going on?

We have been running our liquidity profile well above what our targets would be in normal conditions. So we do not feel that there is any need to increase from these levels. We have been running that way for probably six months we have been at an elevated level, maybe eight months since the storm clouds started to gather. And we also have internal targets that even under normal conditions we run well ahead of what would be industry requirements. And that is reflected in higher costs but that is baked in now to our ongoing cost profile so we feel comfortable maintaining this at least for the foreseeable future.

Okay, thank you.

Michael Goldberg, Desjardins Securities.

Good morning. My question is about the 10 basis point NIM increase which I guess is related to the net interest margin on average earning assets. How much of that is related as you said to treasury contribution and is that sustainable? How does the treasury impact compare with prior periods?

Michael, it is Kevin. Just to talk about the 10 basis point increase, that has largely been driven on the asset side of our balance sheet. On a quarter-over-quarter basis, our average interest earning assets came down about CAD15 billion so the good news is we maintained our [NII] but as a result of that reduction that has obviously had a very positive impact on our leverage.

With respect to specific treasury activities, in order of magnitude it is not going to significantly change that particular number. In the current quarter we did have some securities gains which are slightly higher than we have had in previous quarter but again lower than in others. That is just part of our regular treasury activities. It is a volatile area, perhaps a little higher than we would anticipate going forward but not a significant impact in terms of our overall NII.

All I am getting at is the un-matching component of the treasury contribution. was that a -- so I guess what I see is that you are saying that really the 10 basis point improvement in margin is mostly enriched asset mix as you brought your earning assets down during the quarter. But just the impact of unmatching in treasury, how much of that would have contributed to net interest margin and is that sustainable?

Michael, could you just clarify exactly what you mean by unmatching?

Yes, the difference in your net interest revenue between what it was and what it would have been if everything on your balance sheet had been perfectly matched?

I would say that there was no major change to that on a quarter-over-quarter basis. That wouldn't have been a factor.

So then what did you mean by the increased contribution from treasury?

When we look at treasury, I mean in terms of the 10 basis points, what we are referring to is total bank. When we look at it on a business unit by business unit perspective, that takes into account actually treasury income and treasury costs because that takes into account the impact of funds transfer pricing. So as David outlined, he gets charged liquidity premiums by treasury and the difference between our cost of funding and those liquidity premiums is what would flow through treasury. So when we refer to treasury profit being up or down, it is that internal allocation of funds we are talking about.

In terms of the 10 basis points, that is an all bank picture which wouldn't really impact that particular treasury comment.

Okay. I have one other question. How much of the CAD314 million variable comp in the quarter was related to your merchant banking gain? And typically I look at variable comp in relation to your brokerage underwriting and trading revenue overall. It has been quite high. I know that it relates to other parts of the bank also but what should I be looking for going forward in terms of trying to model your variable comp?

I think the percentages this quarter, Michael, are actually more or less in line with the previous quarter but in answer to your first part of the question, that was about CAD20 million-odd that we would have applied relating to that gain.

Thank you.

Gabriel Dechaine, Credit Suisse.

Good morning. Can you tell me if there is a CVA gain in the trading number. Sorry if I missed this, are you reiterating your commitment to redeeming those prefs in 2012? And could you quantify -- actually I will save that one for the IFRS discussion. But the portfolio mix impact on your Canadian retail NIM, can you give us a sense for how much of the mortgage book is turning over on a normal basis, not refinancing activity but how should we expect that to affect your NIM in the coming year?

Let me take the first part on the CVA and may have to ask you to repeat some of those questions since it was a long list. CVA didn't have a material impact on our trading for the quarter.

The second one I asked was you did recommit to the CAD1 billion of preferred share redemption in 2012. And then my last question was really about the -- to better understand how your mortgage book is going to roll over in 2012 and how that is going to be translating into lower NIM? Because if we've got a combination of slower asset growth and ongoing spread pressures, it is not looking pretty.

Gerry here. On the preferred shares, as you know, the Basel III regime which comes in January 1 of 2013 does not give effect to our preferred shares that we have in the same fashion as they were of value under Basel II. As a result of that, a redemption of our preferred shares that have redemption features in them coming up next year would lead to a CAD0.09 accretion. In the normal course, roughly on schedule with those redemption dates -- so if you are wondering which ones we would be looking at first -- it is all according to the first redemption dates and there is I think one in February and the next two are later on in the year.

So our normal course review would bring these up for redemption and as I have said in the past, it is subject to our normal consultation process but we do have an expectation that given that these securities no longer have value to our balance sheet, that we would be looking at redeeming them.

Yes, my question is more the environment the way it is, there is no change in the way you are looking at it today, there is no change in your plans, really?

I don't have a change in my thinking but I would always add that before we would pull the plug we would look at the environment and engage in our normal consultation with our Board and other stakeholders. So however at this time, conditions that existed where we were looking at these and have indicated we are looking at redeeming them, the conditions have not changed in a fashion that would lead us to change our view on that.

Then I will pick up on your question on the broker NIMs.

-- on mortgage.

-- on the mortgage NIMs, I am going to touch on the broker branch element in answering that. So our overall mortgage book is about CAD140 billion-odd -- CAD143 billion to CAD145 billion. So it is coming off at a rate of let's say a third just roughly. So you are right, there is a lot of repricing and refreshing of that book over time as in any given year there is CAD40 billion to CAD50 billion of mortgages that are being renewed.

So a couple of comments I would make regarding NIMs. One is that there has been aggressive pricing. We are seeing that pressure abate somewhat. I think I mentioned that in an earlier comment. So we are seeing that abate so we will see how that plays out over the next little while.

And then the second element is what I touched on before which I think an important one for us, which is our balance between branch and related channels and broker and related channels. There what we are doing is we do see better net interest margins in the branch and related channels, and hence focus there.

And what we are actually doing in the broker channel now is we are thinking about what we consider to be appropriate NIMs or appropriate pricing. And what that is causing is in certain places we are pricing slightly higher than the market and that should help our NIMs. It should get us -- help get those NIMs closer to branch NIMs. It also is the cause as to why you are seeing our volumes come off in that channel, and hence the reference to our market share where we are up in branch and down in the broker channel.

So I don't know exactly what it means for NIMs going forward. Obviously, you're exactly right, the book does refresh at a fast pace. The level of pricing pressure seems to be abating and we're trying to pick our channels with net interest margins in mind.

Thanks, that's helpful.

It is Gerry here. Just on a point of clarification which I think everybody understood, but the preferreds when we refer to the CAD0.09 accretion, we are talking about the accretion once one has redeemed them all on a look-forward annualized basis. I think everybody understood that, but that is not a 2012 number. The number in 2012 would be as per the phase-in given the redemption dates.

Darko Mihelic, Cormark Securities.

Just one point of clarification first on American Century, could you just tell me what line item, where the equity accounted earnings are coming in on the line item?

Right now it is not a material item, although it would just be included in our other.

Okay, thank you. I guess my second question is related to the big decline in the average earning assets quarter over quarter. Can you just walk me through what the decline was related to?

Sure. So let me just go back to some of our discussions we have had earlier in the year. So in the first half of the year, we had a significant increase in our liquid assets on the balance sheet and that was driven by a couple of factors. First of all, market conditions gave us the opportunity to take some short-term funding at very good rates, and we took advantage of that and placed these in liquid assets.

And then earlier in the year we had accelerated our funding program just to pre-fund our requirements. So that is what happened at the beginning of the year and that significantly increased our balances. In the latter part of the year we have seen a big decrease because first of all, we have reduced the usage of the balance sheet for this short-term borrowing opportunities. We just got out of that program to a large extent. So it doesn't have a big bottom-line impact, but obviously significantly reduces our asset.

And then we have also -- some of that pre-funding we have not redeployed those funds into higher-yielding assets. So those are the dynamics that have driven the movement in the assets over the year.

Okay, fair enough. My last question is for David Williamson. David, it has long been known that the brokerage channel in mortgages generally comes with lower NIMs. And CIBC's through first line has long been the largest bank in the broker channel. So what has changed?

And I guess on a go-forward basis what makes you think that through the retail bank branch that a channel that historically CIBC hasn't really been that strong in terms of mortgage originations, what is changing now that that is going to make you a stronger player in branch originations in mortgages? I guess that is the question that I have in terms of the retail strategy; what has changed?

I would start with -- I will hand it over to David in a second. It is Gerry here. But I would start with the all bank strategy and our view of the environment going forward. You have heard me in a number of forums talk about the world of tomorrow and there are a number of components to that one of which is the Basel III regime which is coming in. And the differences in terms of how one foots elements like the balance sheet which is now far more common equity oriented as opposed to preferred shares and other capital. And therefore, we have over the course of the last year spent a lot of time on looking at efficiency of balance sheet, value of volumes versus NIMs, what drives volumes versus NIMs, i.e., deeper client relationship, investment in the business, and all of the things David will talk to you about.

And concluded that we are going to be targeting businesses that -- and client activities that as much as possible occupy both sides of the balance sheet. To only occupy one side of the balance sheet with a very narrow NIM product that does not have any attraction to the other side of the balance sheet and no margin, it is just a net -- the other side is just used on a wholesale funding basis is of diminishing value in any event but of faster diminishing value in the world of Basel III.

That is part one. And that relates to all activities throughout all of CIBC that tend to be low NIM and high balance sheet usage particularly where they only generate one part of the balance sheet.

The second part of this is that the macro environment also is changing in terms of our view of the overall configuration of the marketplace in Canada. You have heard David talk about the fact that -- and many other forecasters have talked about the fact that there is an expectation of a slowing in loan growth at the consumer level. We believe that that makes it even more important that one target the higher value-add relationships that occupy on a population basis both sides of the balance sheet.

In addition to that, the level of indebtedness and the actual size of the mortgage marketplace in Canada unto itself is a macroeconomic factor that leads us to believe that reduced volume in terms of our participation at a higher NIM is something that is prudent from a macroeconomic viewpoint.

With that, I will turn it over to David.

So that was a pretty comprehensive answer so let me, Darko, just pick up on one of the elements of what Gerry spoke of because there is a few prongs to what we are going to be doing in retail over the next while.

But one of those prongs is to focus on building deeper relationships with our clients which implies a shift towards more of a client view of our operations from the current more product oriented view.

So along with a number of other related changes, one focus that generates is to try to build and develop a client base that is consistent with that objective of having deeper relationships. What do I mean by deeper? Relationship with our client were of a multi-product kind of view has what Gerry spoke of, is both sides of the balance sheet brings them the deposit element to it but it also results in a more sticky enduring kind of relationship. It is less velocity as far as the client base goes.

And frankly also, it is more of a fulfilling relationship from a client perspective. The client satisfaction stats just show a correlation between depth of relationship and contentment with that relationship with the bank all of which is driving us from less product view, more client view.

So then when you start to go into first line in the channels, we look at what can be done in our branch and related channels as far as depth of relationship and then what can be done in the broker channel as far as depth of relationship. And we are taking certain steps right now to test how that relationship could develop and whether it could be made to be a deeper relationship.

And then the final point I would make is just NIMs in the broker space, I think have been particularly -- you have asked what has changed. One thing that has changed in addition to Gerry's comments is just the pricing in that channel has gotten much more aggressive and that is something that rather than us just following that trend, what we have been doing is saying that some of those prices and the variable in particular just don't make sense to us so we have not priced with the market. We have priced in some cases substantially above the market and we are still seeing volumes anyway but obviously at a markedly different level.

So those prices change if not weekly quite frequently. But we are not just matching prices in that channel anymore. If they get to a place that we think is not appropriate, we won't follow.

Thanks very much. I think I understand the dynamics of why you are making the changes. I just thought to myself I didn't think that CIBC's branch was well positioned for the change. Some of your competitors have large sales forces that actually can compete well against brokers and can originate a lot of product and can create that strong client relationship. I wasn't aware that CIBC had changed much at the branch level to do in fact what you are actually aiming to do.

If we looked actually in the market share, we have picked market share and mortgages quarter over quarter and for a while now we have been picking it up in the branch relative to those other competitor branch channels. So we are picking up share in that space.

To your point, Darko, there is more we can do. We've started the branch build. We have been adding to our mobile mortgage advisors and we have been focusing on other channel improvements. There is more we can do but we are already under way and some of the evidence is we are picking up market share points so we are competing fairly well in the branch channel.

Thanks very much.

Andre Hardy, RBC Capital Markets.

Thank you. First question I have is for Tom Woods. The slide that shows the exposure to the periphery, do you have been numbers on what it would look like for the Eurozone?

Yes, there is a slide 36 in the SFI, I believe it is 36, let me just go there.

Sorry, what?

Slide number 36 in the supplementary package. This is a slide that is dictated by Basel II and it is a bit of an arcane slide but it is the best way to see what each of the bank's exposure is. But I have to caution you if you are not familiar with this slide, the CAD15.6 billion exposure, the bottom two numbers the off-balance-sheet 5.05, that is essentially indemnities out of our CIBC Mellon business on a 100% basis where in fact we indemnified by Mellon.

And the OTC derivatives is before collateral so the real exposure I would say the way you would tend to think of it is that first number, the CAD5 billion and that consists of bank corporate loan exposure and treasury exposure to non-peripheral sovereign debt and the balance of that or the majority of that would be the latter category.

Our corporate loan exposure is about CAD1 billion; our bank exposure is about CAD1 billion. As of October 31, it was about CAD1.5 billion and the remainder of that CAD5 billion or roughly CAD3 billion would be high quality European non-peripheral sovereign treasury liquid securities.

That is very helpful. I was actually asking about the Eurozone specifically so presumably in that CAD5 billion, a fair bit of it is in the UK?

Yes, it is. Yes.

Okay. That is helpful. The second question I had was for a Gerry. Gerry, you brought up liquidity and how you are running well ahead of targets and industry standards. Are you running ahead of the 2015 standards for liquidity coverage as well?

Well, the 2015 standards are not yet completely finalized and I would like to turn it over to Andrew Kriegler, from our treasury department to give you a little more -- shed a little more light on that.

Good morning. We haven't disclosed the bank's position on the liquidity coverage ratio which I think is the standard to which you are referring and I don't believe generally that other institutions have either. Having said that, I can tell you that we have a good sense of where we think that standard is going to play out. It has not been finalized and we do have some monitoring of it. So we continue to feel very comfortable with our liquidity position and are mindful of where the standards are going to go. We have maintained a fairly conservative posture and expect to continue to do so going forward particularly given these market conditions.

Now is it fair to say that as a bank that is smaller in capital markets and has done a lot of term funding, you are probably fairly comfortable relative to peers?

I think that is a reasonable statement. We are fairly comfortable with our position obviously, it is not always easy to tell what is inside other institutions.

Okay. Then last quick one, I know it's always tough to comment on court cases and legal matters but can you at least comment on the expected timing of a resolution with the CRA on the matter related to Enron?

This is Michael Capatides, the General Counsel. We really cannot in the sense that it is in the hands of the CRA and we are awaiting the latest ruling from CRA on a motion we filed to strike -- I'm sorry -- from the court on a motion that we file to strike CRA's answer. But in terms of timing, we really can't predict.

Okay. Thank you.

Sumit Malhotra, Macquarie Capital Markets.

Good morning. A couple of hopefully quick questions on credit for Tom Woods. Firstly on your gross impaired loan slide, it looked like you had a decent sized increase coming from the commercial real estate book. Obviously first of all, I apologize if you talked about it in your prepared remarks in relation to your US portfolio but was hoping for some color there. And along with that, credit card trends look like -- your loss rate looks like it is at the lowest level we have seen since early 2008.

With employment situation in Canada somewhat choppier in recent months, wanted to get some comments from you in regards to the outlook on how much potential improvement remains in the credit card portfolio?

Okay, thanks. On the US commercial real estate, we did have a relatively small number of new impaireds in the quarter and I have been guiding in my comments for the last couple of quarters that we might have a slight uptick. We had a pretty low loan loss quarter this quarter in Q4 but some of the new impaired that have come in were sort of just one side of the line so we impaired them.

I don't think it is going to be a severe change in 2012 but the next couple of quarters we could have higher loan losses than you have seen. Nothing dramatic I don't expect at the moment.

In the card space, the comment I made was delinquencies continued to trend positively. I should caution you in the supplementary package delinquencies, they look quite a bit better and my guidance was they are somewhat better because of the postal strike impact in the previous quarter that caused an uptick.

I would say that we would expect credit card losses in 2012 unless -- with the economy, unemployment continuing where it is to be slightly better. I would think wholesale should be probably slightly worse and First Caribbean probably about the same. So overall probably about the same but cards would be the one area where I would see some marginal improvement.

So your specific provision ratio this quarter is roughly 45 basis points which I think is in line with your long-term average. So based on those comments, fair to say you think we are close to flattening out here in terms of the potential benefit the bank has gotten from falling loan losses in the last two years. There is not too much left here would be the base case scenario?

You really do have to look at it in buckets. I think the very strong performance we have had in the wholesale side -- I mean if that continues -- then you are going to see continuing improvement next year. I don't think it is realistic to think it can continue. I think cards will get a little better so it really turns on whether we will see a continuing lower than normal provisioning in the corporate space and the guidance I just gave you presumes that that is going to come back a bit, come off a bit. But if it doesn't then we will see better loan losses still again next year. I am just not expecting that.

Thanks for your time.

I would now like to turn a meeting back over to Mr. Weiss.

Thank you, operator. I would now like to pass it over to Kevin Glass to provide a brief update on IFRS. At the conclusion of his comments, we will open the line for a few questions. Kevin?

Thanks, Geoff, and joining me today is Shuaib Shariff, our Chief Accountant. And so thanks for everyone who has stayed with us. So slide 32 summarizes our IFRS disclosure to date and what you can expect over the next few months.

So first, the notes to CIBC's annual financial statements released earlier today contain a November 1, 2010 IFRS opening balance sheet and a reconciliation to Canadian GAAP which I will walk through in a moment. In late January, we plan on issuing a news release to explain the impact of IFRS on our 2011 financial results as well as a restated Q4 2011 supplemental financial information package presented under IFRS. And then we will effectively go live with IFRS reporting with our first-quarter 2012 results to be released on March 8, 2012.

The slide 33 shows summarized November 1, 2010 IFRS opening balance sheet and the reconciliation to Canadian GAAP. So before we review the opening balance sheet, I do want to discuss some of the more significant elections that we applied under IFRS.

So the most important of these is a fresh start for post-retirement benefits where we elected to charge unamortized pension plan actuarial losses through retained earnings. The November 1, 2010 impact of this is about a CAD1.1 billion after-tax charge to retained earnings and this will obviously also Tier 1 capital which I will discuss in a bit more detail later.

And this election will however, have a positive impact to the P&L in 2011 and onwards.

We also chose the fresh start election for the foreign currency translation account. This election will not impact operating P&L and is also capital neutral as the CAD575 million after-tax charge to retained earnings is offset by a credit to AOCI and both are included in Tier 1 capital.

There are a number of gross ups to the balance sheet and as well as a number of reclassifications. And I am only going to highlight some of the material differences here but the full opening balance sheet and reconciliation can be found in Note 32 of our 2011 financial statement.

So first, you will see the large CAD50 billion increase in mortgages as CAD30 billion securitized and sold mortgages come back onto our balance sheet and CAD20 billion of MBS inventory which was previously classified as fair value option securities is now included in mortgages. And the associated funding liabilities are shown as secured borrowing which is a new line item on our balance sheet.

Similarly you'll also see an increase of CAD3.8 billion for credit cards as our two credit card securitization vehicles are now consolidated on the balance sheet with the associated liabilities reported under secured borrowings.

Other notable differences include the election to equity account for joint ventures under IFRS that were previously proportionally consolidated under Canadian GAAP and this had the effect of reducing gross assets and liabilities by CAD2.2 billion.

Turn to slide 34, while less material than the balance sheet impacts, there are a number of items that will affect 2011 IFRS income statement. The first is a fresh start election for pensions that I mentioned earlier and this will increase net income after tax by approximately CAD80 million in 2011 and this is mainly because we have no actuarial losses to amortize through the compensation expense line since as I noted before, they have been charged to the opening IFRS retained earnings.

And then second, we took a goodwill impairment charge of approximately CAD200 million under IFRS with respect to our first Caribbean subsidiary where there was no impairment under Canadian GAAP and the goodwill testing under IFRS is different than Canadian GAAP in that IFRS uses a single impairment test while Canadian GAAP is based on a two-step test. And this is obviously -- it is a non-cash item and again it is capital neutral as goodwill is already deducted from Tier 1 capital.

And then finally, there is a one-time charge of approximately CAD65 million after tax due to market moves on certain derivative hedge positions before they were fully designated as accounting hedges under IFRS. The hedges relate to our mortgage and funding liability balances which are both accounted for as amortized cost under IFRS.

There are several other items listed at the bottom of the slide that effectively net out to a minimal income statement impact or simply change the geography of where items are reported on the income statement. So as a result of securitized assets coming back on the balance sheet, we can expect higher net interest income and loan loss provisions offset by lower securitization fee income. The impact of these changes are relatively neutral to the P&L on an annual basis.

The transitional IFRS impact to our regulatory capital is a CAD1.4 billion reduction to Basel II Tier 1 capital or approximately 110 basis points at November 1, 2011. But this transitional relief afforded by [OFSI], which will allow us to phase this CAD1.3 billion impact -- will allow us to phase-in about CAD1.3 billion of this impact over time, some of it in the first year and then about half of it over five quarters.

So CIBC's capital position remains strong and it is important to note that Basel III pro forma common equity ratio that we have been communicating to the market already account for the effect of IFRS. As I stated earlier, our pro forma common equity ratio under Basel III is estimated to be 8.1% on November 1, 2011, which is well in excess of the current minimum requirement.

The conversion to IFRS has obviously been a significant undertaking for us but I'm pleased to report that we are well positioned for a successful transition from Canadian GAAP to IFRS.

So at this point, let me turn the call back to the operator for any questions that you may have.

(Operator Instructions). Gabriel Dechaine, Credit Suisse.

Just a clarification. What do you mean by your guidance on Basel III, the 8.1% already reflects IFRS. Did I misunderstand that or --?

All I was saying is that effectively Basel III looks through different accounting constructs. So the fact that we have had a retained earnings adjustment under IFRS in no way impacts our Basel III ratios.

So the 110 basis points of reduction, it won't be 7.9 next quarter, is that what you're saying?

That is a Basel II impacts so under Basel II, it will have 110 basis point impact but it has no impact on the Basel III ratio.

Okay, thanks.

Michael Goldberg, Desjardins Securities.

Thanks. A couple of questions. First of all, will you have a separate line item for net interest revenue from securitized assets or is that going to be buried right in your total net interest revenue?

Michael, that will be included in net interest revenue so there is no separate disclosure for that under IFRS.

Okay. And secondly, I guess among the points that Gerry and David were making about the strategy regarding broker originated mortgages, is there any visibility that you can see a way to originate mortgages that can still qualify for gain on sale accounting so that they would not have to go on the balance sheet? Is there any mechanism at all that you can foresee for that possibility?

Michael, there are ways to do it better but it would be very difficult to actually achieve that accounting and certainly it would not be a focus for us.

Okay, thank you.

Mario Mendonca, Canaccord Genuity.

Good morning. I actually want to focus on if I may the disclosure on -- in Europe. Are we missing anything -- this is for Tom obviously -- are we missing anything on the trading book? Is that captured in the third column?

Just pull that out again. I thought we were onto IFRS --

I just -- I had queued up for something before. (multiple speakers)

I am sure the answer is no but I want to be sure. You are back on page 36 are you?

I believe so, I am going there as well. Yes, it is 36.

So give me your question again.

Are we missing anything here, the exposure seems rather modest. I don't suspect there is something on the trading book that hasn't been disclosed?

No, no. Absolutely not. The OTC derivatives -- I mean that is a very arcane methodology. In fact, our real mark to market after collateral exposure is in the low hundreds of millions of dollars but we are required to in effect show you the aggregate mark to market before collateral. So it is very modest.

Okay and then -- sorry, the page I was actually referring to is page 25 of your presentation. Sorry about this -- sorry to make you go back and forth. See the 258 there?

Yes.

Does that -- the third column derivative mark to market receivables, what I suspect that you have captured any kind of trading exposure?

Absolutely and that slide is just the peripheral countries.

Right and I understand that. So we are really not missing anything at all then?

Nope. Not on the peripheral, no. We are not missing anything at all in Europe. In fact, the two slides together show you way more than anyone would view as our economic exposure.

I got it. And if I could just move to Kevin for a moment here. The summary you gave us of how things have evolved over the year in terms of liquidities and prefunding, that was a helpful summary. What I would like to understand is why the bank felt it was appropriate in the second half of the year to take those liquidities down. I don't believe your peers have necessarily and I suspect that the cost was still very favorable in the second half of the year as favorable in the second half as it was in the first half.

Maybe you could correct me on that. What was the logic in taking that down?

I think it is just more conservative balance sheet management so when we weight up what the potential bottom-line impact was relative to what the balance sheet impact was, our feeling was that it was just more prudent to bring those balances down both sides of the balance sheet.

What risk were you trying to take off by taking the balances down?

It is just a more volatile market so to the extent you have an inflated balance sheet, it is just conservative in running with a smaller balance sheet and also as we obviously as we move towards IFRS, we just wanted to make sure that we had appropriate ratios in place and so it was more just an ongoing management approach.

So just to be clear, was interest rate risk then that you thought was appropriate to take down a little? Because it is not credit because there wasn't really any credit risk in that book. So I am just trying to get a handle on -- was it interest rate risk then?

It is Gerry here. The reality of it is that strategically, we are targeting balance sheet efficiency as you heard me talk about earlier on and for a variety of reasons, some of which were funding related and ran their course. When you pre-fund, three months in advance or four months in advance or five months in advance as time passes, your ability to bring down your balance sheet while maintaining your liquidity is something that -- or increasing your liquidity is something that is not indicative of a change in posture.

It is the passage of time and we had indicated at the time that we had done some pre-funding and that with the passage of time our balance sheet would come down. This was discussed when the balance sheet went up. We laid out the game plan and this is exactly in sync with what we discussed at the time.

So there is not much mystery to this. I am happy to continue to try to answer or shed more light on it but it is something that was I think pretty clear.

Thank you.

Ohad Lederer, Veritas.

Thank you. Just back on the IFRS, has the bank talked about its asset to capital multiple on an IFRS basis with this new balance sheet?

It is not something that we disclose on an ongoing basis but I think that from the perspective of our asset to capital ratio, it does have an impact but as a result of the transitional relief that we get over five quarters, it has very little impact at this point.

It would increase from about [16] times 18.6 times but then that gets brought right down again as a result of the transitional relief.

So at the end of the transitional relief period when it is fully phased in, how close to Gerry's world of tomorrow concept -- how close does the bank get to where that is fully a part of the bank's day in and day out reality?

I think looking at our asset to capital multiple if that is the question, do we look at -- we look at it all the time, right, so it is one of the things we certainly focus on. And I think that in terms of where we are at right now we are in good shape of in terms of our transition to IFRS we are in good shape. And if you certainly, if you take the transitional relief into account, by the time that runs out, we will have another couple of years of earnings growth under our belt. So we will have created more wealth from that perspective so right now, we are comfortable with our ratios.

All that having been said -- it is Gerry again -- when I discuss the world of tomorrow and the activities that CIBC is engaged in in terms of how we see it important to change strategic positioning, we are engaged in a series of activities that will very specifically drive convergence with some of the targets that Kevin had indicated that we would land on down the road. He had talked about one way you can converge on that is through your earnings.

The other way is through how you have arranged your life in terms of your targeted asset mix and your asset base and there are some very significant changes for us in here. And the reality of it is is that we are no longer targeting a number two position in mortgages. We are targeting a number four position in mortgages and that I think will give you a little bit of clarity as to how serious we are and how important we think the strategic moves are.

We also believe that by targeting a number four rather than number two we well optimize CIBC's picture both in terms of its service to its client because the NIM configuration here will allow a larger reinvestment in our business from a client viewpoint. And also we think that it does match the macro environment in terms of regulatory change as well as what we believe is a prudent posture leverage wise and looking at the next few years in terms of how we see the future of the overall housing market and formation in this area.

So there are a number of ways that one can -- adapts to a new environment and one can adapt and put up with it or they can engage in strategic change. It is our choice to engage in strategic change.

Thank you.

Thank you. There are no further questions registered. I would like to turn the meeting back over to Mr. Weiss.

Thank you for joining us this morning. Please contact investor relations with any follow-up questions and on behalf of the team at CIBC, I would like to wish everyone listening this morning a very happy and safe holiday season, a successful year in 2012. Have a good day.