Building A Model For Long Term Growth August 2004

Transcription

1 Building A Model For Long Term Growth INVESTOR PRESENTATION The information in this presentation is current to July 31, 2004, unless otherwise noted. Presentation Outline Investing in Bank Stocks Investing in Canada Who We Are Financial Summary Key Business Strategies Brand People 2 1

2 Investing in Bank Stocks Sustainable earnings growth Canadian banking industry returns have outperformed S&P/TSX returns by 62% since October 1999 US banking industry returns outperformed S&P 500 by 49% since October 1999 Diversified revenue stream Canadian and US banks are earning more fee-based revenues 57% of CIBC revenue was from Non-Interest Income in 2003.compared to 52% five years ago 3 Investing in Bank Stocks Low trading multiples Canadian banks are currently trading at an average of 11.5x..estimated 2005 earnings Utilities sector, by comparison, trades at 13.5x, despite lower. relative earnings estimated Strong industry fundamentals Defaults and bankruptcies in Canada and the US have declined in personal and corporate loan portfolios Interest rate increases should provide some relief for net interest margins Canadian banks have outperformed the TSX market for 8 consecutive years 4 2

3 Investing in Bank Stocks The highest bank index dividend yield to long bond yield in 25 years (64% at July 31,2004) Dividend Yield Indicator ( ) 70.0% 60.0% 50.0% 40.0% 30.0% Dividend Yield Indicator 5 Investing in Canada Favourable economic indicators Core inflation - 1.7% (1) Steady growth in consumer spending Healthy trends in employment growth 1.9% annualized average growth over last four quarters Corporate Canada is in good shape Canada has emerged from 2002 recessionary period faster than the US (Total S&P/TSX returns up 42% since Oct 2002 vs. 39% for S&P) Strong exports created Current Account surplus since 1999, which is estimated to be $38.6B in 2004 and $37.3B in 2005 Since January 2004, the TSX total return has been 3.9%, compared to 0.01% of the S&P (1) Annualized rate for the six months ended June, Source: Bank of Canada 6 3

4 Investing in Canada Stable Canadian dollar Currently trades at about 75 US cents Estimates are for a 74 US cents by the end of 2004 and 72 cents in 2005 Strong fiscal performance Canada is expected to be the only G-7 country to post a government surplus in 2004 Canada s Surplus/GDP is 0.7% compared to US Deficit/GDP of 5% 7 Investing in Canada FAVORABLE RELATIVE VALUATIONS Canada U.S.* Bank P/E Ratio (05E) 11.5X 14.4X Dividend yield Dividend to long bond yield 3.3% 3.0% 64.0% 59.% * US valuations are obtained by using weighted average of S&P 500 Diversified Banks Index and S&P 500 Regional Banks Index Values are as of August 16,

5 Investing in Canada 04E P/E 05E P/E Yield Market / Book CIBC 11.7X 10.8X 3.7% 2.2x S&P/TSX Bank 12.4X 11.3X 3.3% 2.3x Index Regional Banks 13.6X 12.4X 3.4% 2.5x Money Centers 11.X 10.1X 3.9% 2.0x Australian 12.6X 11.6X 3.5% 2.2x UK 12.7X 11.5X 2.8% 1.9x German 10.3X 7.9X 1.7% 0.8x Global Bank Index Return (Calendar YTD 2004) Australia 5.8% Canada 5.5% US -0.1% Europe -2.4% UK -5.1% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% Canada Australia US Eur ope UK Prices as of August 6, Who we are Full-service financial institution Approximately 37,000 employees 3 Strategic Business Units, diversified earnings Retail Markets Full service national retail bank Wealth Management Branch-based advice, full-service brokerage, on-line brokerage, private banking, investment counsel and trust services World Markets Investment bank delivering full capital solutions in all capital markets 10 5

6 - Financial Summary Q3/04 Market capitalization $23.3B Market to book 2.18x Assets $279B Tier 1 capital 10.9% ROE 21.3% PE ratio 11.4x $539 mln Unrealized Corporate Equity Gains Dividend payout ratio 37.0% Efficiency ratio 66.3% AUA $750B YTD 2004 NIAT Retail Markets $740 mln World Markets $710 mln Wealth Management $297 mln 11 - Financial Summary Since 1999 CIBC stock price appreciated 19% more than Financials Index Average CIBC 12-month target share price among Canadian and US bank analysts is $75 Price Appreciation of CIBC and the Financials Index (October 1999 to July 2004) 160% 120% 80% Price Appreciation CM: 109.1% Financials Index: 90.6% 40% 0% -40% Oct-99 Jul-00 Apr-01 Jan-02 Oct-02 Jul-03 Mar-04 CM Shares SP/TSX Financials Index 12 6

7 - Financial Summary Since 1999, CIBC has increased its dividend by 100%; above the average among Canadian banks In 2004, CIBC increased target payout ratio from 30-40% to 40-50% $2.50 CIBC Quarterly Dividends per Share ($) $2.00 $ % 20% 22% 22% $1.00 Q4 99 Q2 00 Q4 00 Q2 01 Q4 01 Q2 02 Q4 02 Q2 03 Q4 03 Q Financial Summary CIBC is part of the Dow Jones Sustainability Index, which tracks the financial performance of the leading sustainability- driven companies worldwide DJ Sustainability Index vs. DJ World Index (March July 2004) Index 10-Year Price Appreciation DJ Sustainability 92.2% DJ World 63.4% Note: Values indexed as of March 29,

8 Report Card Reducing Risk Shifting Business Mix Promoting Efficiency Growing Core Businesses 15 - Medium-term strategic objectives achieved well ahead of schedule 71/29% retail/wholesale mix Goal: 70/30 by the end of 2005 Economic capital allocated to large corporate loans has been reduced by 65% since Q Goal: 33% by the end of 2005 Merchant banking portfolio has decreased by 22% since Q2 2002, 35% taking into account pending sales at July 31 Goal: 33% by the end of

9 1. Reducing Risk Large Corporate Authorizations Watchlist Accounts (B) (MM) $70 $6,000 $60 $5,000 $50 $40 $4,000 $30 $3,000 $20 $2,000 $10 $1,000 $0 Sep-02 Nov-02 Jan-03 Mar-03 May-03 Jul-03 Sep-03 Nov-03 Jan-04 Mar-04 May-04 Jul-04 $0 Jul 02 Sep 02 Nov 02 Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Authorisation Outstanding Reducing Risk Specific Provision for Credit Losses as % of Net Loans and Acceptances 2.00% Annualized % of Net Loans and Acceptance 1.50% 1.00% 0.50% 0.00% -0.50% Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04 Consumer Business & Government (incl. Reverse Repos) Total Bank Note: Excludes loan loss on transfer to Held for Sale: $135MM in Q3/03 and $93MM in Q4/

10 1. Reducing Risk CIBC Trading Books Total VaR CIBC Non-Trading Books Total VaR C$MM C$MM Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Merchant Banking Portfolio Q2/04 Q3/ Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04 2,702 Carrying Value 2116 Tier % Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 F 02 F 03 F Reducing Risk Continued Commitment to Good Governance $50MM investment in comprehensive governance & reputational risk initiatives initiated in February 2004 Further $10MM initiated in May 2004 Mandatory online training for all employees on Global Reputation and Legal Risk Advanced training for 1,875 employees involved in complex financial transactions Mandatory online training on Anti-Money Laundering Ethics hotline established Created new COO role in the U.S. with a primary focus to strengthening governance and reputational risk processes 20 10

11 2. Shifting Business Mix Retail Economic Capital 80% 70% 60% 50% 40% 30% 20% 10% 0% 71% 64% 65% 67% 58% 60% 50% 48% 55% Q3/02 Q4/02 Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04 Note: Retail = Retail Markets, Wealth Management and Commercial Banking Promoting Efficiency Implemented revised Global Expense policies covering 60 categories of spend Accomplishments: Action Negotiated better rates for brokerage services Implemented an automated mortgage appraisal service Negotiated better rates for ABM maintenance Benefits Realized Savings of $10MM annually Savings of $5MM annually Savings of 1.7MM annually Implementing online employee expense reporting Expense initiatives will not involve large restructuring costs or extensive staff reductions 22 11

12 3. Promoting Efficiency Objective to achieve sustained reduction over 2 to 3 years Efficiency Ratio (NIX) (1)(2) Disciplined Strategy 76.00% 74.00% 72.00% 70.00% 68.00% 66.00% 64.00% 62.00% Re-engineering processes + Reducing Overhead 60.00% 58.00% Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04 NIX NIX (TEB) Peer Average (1) Management reviews net interest income adjusted to reflect tax-exempt income on an equivalent before-tax basis. This measure enables comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a taxable equivalent basis (TEB) is used to calculate NIX (TEB). (2) Bank Peer Group: RBC, TD, BMO and BNS. 23 Solid earnings from retail & wealth franchises (FD EPS) (1)(2) 14 $3.08 $3.38 $3.65 $3.66 $4.03 $ YTD/04 (1) Excludes unusual items and Amicus and includes Commercial Banking. (2) EPS shown here excludes earnings/losses not directly attributable to Wholesale/Retail businesses: F 99: $(0.18); F 00: $(0.16); F 01: $(0.02); F 02: $(0.26); F 03: $(0.44); F 04 YTD $(0.27);. Wholesale EPS F 99: $1.35; F 00: $2.54; F 01: $1.83; F 02: $(0.83); F 03: $1.00; F 04 YTD $

13 Increase operating efficiency by being innovative in the way we manage our organization and key processes Retail Markets Strategy Deliver a superior banking experience that inspires customers to consolidate their business with us through best-in-class merchandising, excellent sales and service, and innovative products Drive superior performance as measured by revenue growth, employee productivity and NIAT growth Goal Become Canada s best retail bank as measured by relative earnings growth and customer satisfaction 25 4.Growing Core Businesses Product strength through multi-channel distribution Mortgage Market Share Card Loans Administered ($B) 13.2% 14.8%14.7% 14.8%14.8% 14.4% 290 bps gain % Growth % 11.9% Q1/04 Q2/04 Q3/ Q1/04 Q2/04 Q3/ % Market Share Purchase Volumes (#1 in Canada) 26 13

14 Wealth Management Strategy Wealth Management Strategy Leadership in advicebased distribution Focus Further strengthen and expand sales and service capability Leverage sales capability Objective Leadership in product development and packaging Continue to enhance current offer Develop innovative, market-leading product solutions Market leadership in key areas Scale to maximize share and drive cost efficiencies Capture operating efficiencies Leverage capabilities across Wealth Management 27 Wealth Management Distribution is the key driver of revenue % of YTD 2004 Revenue Distribution 80% Product 17% Money 3% Management Imperial Service CIBC Wood Gundy Private Wealth Management Online Brokerage TAL Global Mutual Funds & Managed Solutions Fixed Term 28 14

15 Wealth Management Imperial Service is a leader in advice-based distribution Revenue per advisor has annually increased by 14% Funds managed per advisor has increased 38% since 2000 $45MM $401K $47MM $514K $56MM $584K $59MM $616K $62MM $669K YTD 04 Funds Managed / FA (million) REV. / FA (thousands) 29 Leader in advice-based distribution # Of Registered Advisors Wealth Management 2,500 Imperial Service & Private Banking 700 Merrill Lynch & TAL

16 Scale to maximize market share $40 B Mutual fund assets have doubled $20 B #6 by Assets 5.54% Market Share $19.9B Wealth Management Largest increase in rank & assets of top fund companies #3 by Assets 8.60% Market Share $40.5B $8.7 $11.9 Mergers & Acquisitions Strategic Growth $ Q World Markets Strategy In 2003, World Markets set out clear strategic objectives aligned around profitability and stability Focus on profitability & stability of earnings Reduce capital and risk Refocus U.S. Business Extend leadership in Canada Reduce Economic Capital to under $4 billion by 2005 NIAT breakeven in U.S. equities/ CLF in 2003 NIAT of $400 to $600 million ROE 15% to 20% Mindset: Manage Defensively Goal To be the most profitable Canadian Wholesale Bank and a top tier performer in North America, by maximizing revenue for every dollar deployed 32 16

17 Market leader in Canada World Markets #1 Equity Underwriting #1 Domestic M&A Advisor #1 Income Trusts #1 Credit Underwriting 33 World Markets US business delivering solid levels of performance Continued success in U.S. Real Estate Finance Overall, positive NIAT and economic value-added neutral through the year to date 10 IDS deals filed for aggregate consideration of over $5.7B 34 17

18 World Markets 2005 and beyond Further Potential Investment in the Canadian Business Leverage Full-Service, Mid-Market Client Focus in US Remain Disciplined in Deploying Resources 35 -Brand Beyond Business $60 $50 $40 Sustainable Growth Strategies $30 $20 $10 $0 Sep-60 Reducing Risk Sep

19 -Brand 37 -Brand Working Towards the Right Branch Network 15% reduction in network size since % reduction in network planned for Flagship branches launched to date 10 more Flagships Branches to open by December 2004 New customer interface technology in all 1,091 branches Invested over $180MM in branch technology 38 19

20 -People Vision and Values Fairness Transparent Performance Measurement Training Diversity Health and Well-Being Communication 39 Conclusion Generating the Best Total Shareholder Return Governance Engaged employees Putting customers first Building brand Sustainability Creating value for all our stakeholders 40 20

21 Forward-Looking Statements This presentation contains forward-looking statements which are made pursuant to the safe harbor provisions of the United States Private Securities Litigation Reform Act of These forward looking statements include, but are not limited to, statements about the operations, business lines, financial condition, risk management, priorities, targets, ongoing objectives, strategies and outlook of CIBC for 2004 and subsequent periods. Forward-looking statements are typically identified by the words "believe", "expect", "anticipate", "intend", "estimate" and other similar expressions or future or conditional verbs such as "will", "should", "would" and "could". A forward-looking statement is subject to inherent risks and uncertainties that may be general or specific. A variety of factors, many of which are beyond CIBC's control, affect the operations, performance and results of CIBC and its business lines, and could cause actual results to differ materially from the expectations expressed in any of CIBC's forward-looking statements. These factors include: current, pending and proposed legislative or regulatory developments in the jurisdictions where CIBC operates including pending developments in Canadian laws regulating financial institutions and US regulatory changes affecting foreign companies listed on a US exchange; as well as amendments to, and interpretations of, riskbased capital guidelines and reporting instructions; the resolution of legal proceedings and related matters; the effect of applying future accounting changes, change in tax laws; political conditions and developments; intensifying competition from established competitors and new entrants in the financial services industry; technological change; global capital market activity; interest rate fluctuation; currency value fluctuation; general economic conditions worldwide, as well as in Canada, the United States and other countries where CIBC has operations; changes in market rates and prices which may adversely affect the value of financial products; CIBC's success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels, including electronic commerce-based efforts. This list is not exhaustive of the factors that may affect any of CIBC's forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on CIBC's forward-looking statements. CIBC does not undertake to update any forward-looking statement that is contained in this presentation. 41 Investor Relations Contact Information Investor Relations contacts: Kathy Humber, Senior Vice-President (416) John Ferren, Director (416) Katherine Young, Senior Financial Analyst (416) Investor Relations Fax Number (416) Visit us in the Investor Relations section at