Building A Model For Long-Term Growth December 2004

Transcription

1 Building A Model For Long-Term Growth INVESTOR PRESENTATION Information disclosed within this presentation is current through October 31, 2004, unless otherwise indicated Presentation Outline Investing in Canada Investing in the Banking Sector Investing in CIBC A Model for Long-term Growth Financial Summary Update on Key Business Strategies 2 1

2 Economy High relative returns 2004 S&P/TSX total return is 16.1% vs. 9.4% for S&P 500 Favourable economic indicators Core inflation is low 1.4% Steady growth in employment and consumer spending Strong Canadian dollar USD/CAD exchange rate at $0.82, up 7.9% YoY and highest month-end close over a decade Solid fiscal performance Canada expected to be the only G-7 country to post government surplus in actual surplus was $9.1B 3 Banking Industry Strong Fundamentals Favourable credit conditions Personal and corporate bankruptcies have declined from last year Interest rates remain at low levels despite rate increases in second half of 2004 Sustainable earnings growth Canadian Financials Index has outperformed S&P/TSX composite by 68.3% since October 1999 Philadelphia Bank Index has outperformed the S&P 500 by 39.8% since October 1999 Diversified revenue stream Net Interest vs. Non-interest CIBC mix was 45/55 in % of CIBC s 2004 core (1) revenue was from Retail, 22.3% from Wealth and 31.2% from World Markets (1) Excluding revenue from Corporate and Other. 4 2

3 Banking Industry Compelling Valuations Low multiples (1) Canadian bank average P/E is 12.0x 2005E earnings compared to 18.2x for the utilities sector High yields (1) 75.0% 65.0% 55.0% 45.0% 35.0% Bank index yield is 3.0% vs. S&P/TSX at 1.7% Bank dividend to long bond yield remains high (inexpensive) vs. historical levels Dividend Yield Indicator ( ) 62.9% (1) As at November 19, DYI (Bank Index to Long-term Bond Yield 5 Banking Industry - Canada vs. Others Canadian returns are second highest among major global banking centers Global Bank Index Return (Calendar YTD 2004) (1) Australia 14.2% Australia 7.9% 7.8% Canada 13.2% US Europe UK Canada Europe US 3.7% UK 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% (1) As at November 19,

4 A Model for LT Growth - Sustainability CIBC included on the Dow Jones Sustainability Index for 3rd consecutive year Top 10% of global large-cap companies Only 2 Canadian Banks (CIBC and RBC) DJ Sustainability Index vs. DJ World Index (Ten years ended November 19, 2004) Index 10-Year Price Appreciation % DJ Sustainability 111.4% % DJ World 79.3% 7 A Model for LT Growth -Returns to Shareholders Since 1999, dividends have increased 100%; above the average among Canadian banks Increased target payout ratio in 2004 from 30-40% to 40-50% CIBC Quarterly Dividends per Share (annualized) $2.60 $ % $ % $1.40 $1.00 Q4 99 Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q

5 A Model for LT Growth -Returns to Shareholders Share repurchases Since October 31, MM shares repurchased for consideration of $3.5B Normal course issuer bid for 2005 announced for 17MM shares Shares Repurchasedd MM Investing in CIBC - Financial Summary 2004 (1) Market capitalization $25.7B Market to book 2.47x Assets $279B Tier 1 capital 10.5% ROE 18.7% PE ratio (12 months trailing) 13.2x $508 MM unrealized corporate equity gains Dividend payout ratio 39.2% Efficiency ratio 69.4% AUA $771B (1) All figures as at October 31, Retail Markets $1,043MM NIAT by SBU World Markets $684MM Wealth Management $402MM 10 5

6 Investing in CIBC - Key Business Strategies Scorecard Reducing Risk Shifting Business Mix Promoting Efficiency 11 Key Business Strategies Several Medium-Term Objectives Achieved Well Ahead of Schedule Goal By 2005 Achieved By 2004 Shift retail/wholesale mix 72/28 to 70/30 Reduce economic capital (1) required 69% for large corporate loans by 33% Decrease carrying value of merchant banking portfolio by 33% 39% (1) See Notes to Users on slide

7 Key Business Strategies And Good Progress Achieved on Others Objective Best total shareholder return of major Canadian banks on rolling 5 year basis ROE of 14-18% 18% through the cycle Fiscal 2004 Result 172.9% for 5 years best of major Canadian Banks 18.7% Tier 1 ratio 8.5% Total capital ratio 11.5% Revenue growth to exceed expense growth Efficiency ratio of 60% Tier 1 ratio 10.5% Total capital ratio 12.8% Revenue growth exceeded expense growth Efficiency ratio: 69.4% Dividend payout ratio 40-50% 39.2% 13 Key Business Strategies 1. Reducing Risk Continued Commitment to Good Governance Governance at CIBC Rated AAA+ by Clarkson Centre for Business Ethics & Board Effectiveness $60MM investment in specific initiatives in 2004 CIBC has complied with SOX 404, one year ahead of the compliance deadline and became one of the first companies in North America to report that its internal control over financial reporting is effective Documented and tested key controls Initiated Board and senior management reports and mandate review Implemented Global Reputation and Legal Risk processes monitor Governance will be an ongoing investment Full section of CIBC s 2004 Annual Accountability Report dedicated to CIBC s governance initiatives 14 7

8 Key Business Strategies 1. Reducing Risk $B Specific Provision for Credit Losses as % of Net Loans and Acceptances (1) Annualized % of Net Loans and Acceptances % 1.50% 1.00% 0.50% 0.00% -0.50% Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04 Q4/04 Consumer Business & Government (incl. Reverse Repos) Total Bank (1) Excludes loan loss on transfer to Held for Sale portfolio: $135MM in Q3/03 and $93MM in Q4/ RWA and Capital Ratio Trends 1999 Risk Weighted Assets Q1/04 Tier 1 Capital Q2/04 Q3/04 Q4/ % 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% $B $MM * 2000* 2001* CIBC Trading Books Total VaR Impaired Loans Gross Impaired Loans Net Impaired Loans (excluding General Allowance) Net Impaired Loans as % of Loans & BAs 2002* 2003* Q1/03 Q2/03 Q1/04 Q2/04 Q3/03 Q4/03 Q1/04 Q3/04 Q4/04 1.9% 1.7% 1.5% 1.3% 1.1% 0.9% 0.7% 0.5% 0.3% 0.1% -0.1% Q2/04 Q3/04 Q4/04 NIL as a % of Total Loans and BAs 15 Key Business Strategies 2. Shifting Business Mix We have exceeded our target of 70% Retail ahead of schedule 80% 70% 60% 50% 40% 30% 20% 10% 0% 50% 48% 55% Retail (1) Economic Capital (2) 58% 60% 64% 65% 67% 71% 72% Q3/02 Q4/02 Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04 Q4/04 Going forward we will manage economic capital in the range of 65 75% Retail (1) Retail = Retail Markets, Wealth Management and Commercial Banking. See Notes to Users on slide 34. (2) See Notes to Users on slide

9 Key Business Strategies 3. Promoting Efficiency Target 60% Objective sustained reduction towards target over the medium-term Progress made in 2004 Implemented revised global expense policies and online reporting Negotiated more favourable contract rates Streamlined online processes Increased automation of workflow processes Implementing online employee expense reporting Expense initiatives will not involve large restructuring costs or extensive staff reductions 17 Key Business Strategies 4. Growing Core Businesses Solid earnings from retail & wealth (1) franchises (Fully Diluted EPS) (2) $ $3.38 $3.65 $3.66 $ (1) Retail = Retail Markets, Wealth Management and Commercial Banking. See Notes to Users on slide 34. (2) Fully Diluted EPS shown here excludes earnings/losses not directly attributable to Wholesale or Retail businesses as follows: F 99: $(0.18); F 00: $(0.16); F 01: $(0.02); F 02: $(0.26); F 03: $(0.44); F 04 $(0.46). 18 9

10 Retail Markets Strategy Retail Markets Deliver a superior banking experience Increase operating efficiency Drive superior performance Goal Become Canada s best retail bank as measured by relative earnings growth and client satisfaction 19 Retail Markets Great brand with an emotional connection to the client Starting Point Transactional, nonemotive brand End Goal Brand with emotional customer ties 20 10

11 Retail Markets Doing More with the Same Resources Net revenue per Regular Workforce Headcount (RWH) up 28% since January 2001 $MM $80 $75 $70 $65 $60 $55 $50 $45 $40 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Revenue Per RWH (1) Q2/02 Q3/02 Q4/02 Gross Revenue Per RWH (1) Excludes non-recurring items as follows: Q2/01 Sale of merchant card services ($58MM). Q3/02 Sale of Life of Barbados shares ($13MM). Q4/02 Gain on combination of West Indies operations ($190MM). Q1/03 Q2/03 Q3/03 Q4/03 Q1/04 Q2/04 Q3/04 Net Revenue Per RWH Q4/04 21 Retail Markets Product strength through multi-channel distribution Mortgage Market Share (1) Card Loans Administered ($B) 240 bps gain 34% Growth 14.8% 14.7% 14.4% % 12.3% #1 in Purchase Volumes Market Share 29.3% (1) Two month lag

12 Wealth Management Wealth Management Strategy Leadership in.advice-based.distribution Strength in product development and.packaging Continued growth and momentum Scale to maximize.share & drive.synergies 23 Wealth Management Business Mix Distribution is the key driver of revenue Imperial Service $764.8MM Private Wealth Management $140.7MM Wealth Products (1) $477.4MM Retail Brokerage $1,035.6MM Other $87.7MM (1) Wealth Products includes Consolidated Mutual Funds, Fixed Term Investments and TAL Global

13 Wealth Management Full Service Brokerage Leadership AUA surpassed $100B in 2004 $B Growth 135% Assets Under Administration 25 Wealth Management Imperial Service A Unique Market Position Imperial Service is a leader in branch-based based advice Revenue per advisor on average has annually increased by 13% Funds managed per advisor have grown 39% since 2000 $56MM $59MM $62MM $45MM $47MM $665K $616K $401K $514K $584K Funds Managed / FA (million) REV. / FA (thousands) 26 13

14 Wealth Management Leadership In Managed Solutions MUTUAL FUND WRAPS 16% market share #1 position SEPARATE ACCOUNT PROGRAMS 39% market share Market dominance & established competitive advantage #1 position 27 Wealth Management Mutual Funds 8.50% Market Share $40B $20B 5.54% Market Share $19.9B Doubled Mutual Fund AUA since 1999 $40.4B Acquisitions (1) $8.8B Organic Growth $11.7B (1) At time of acquisition, Talvest $4.03B, Merrill Lynch $4.74B

15 World Markets World Markets Strategy Support Client Franchise Reduce Merchant Banking to $1.5B by 2007 Drive Quality Earnings And Sustainable Growth NIAT of $400 to $600MM Maintain Risk Discipline ROE of 15% to 20% Goal Driving sustainable growth while maintaining the risk discipline we have embedded in the organization for the past 2 years 29 World Markets Canadian Market Leader Again in 2004 #1 in Equity Underwriting #1 Domestic M&A Advisor #2 in Income Trusts #2 in Credit Underwriting 30 15

16 World Markets Refocused US business Enhanced discipline and capital use in credit Originate and sell Refocused industry groups Specialized sectors: financial sponsors, healthcare, consumer growth, technology, energy and media/telecom Solidified US mid-market market focus Integration of origination and distribution capabilities IDS product 5 IDS deals filed with SEC for aggregate value of $2.5B 31 World Markets Outlook for 2005 Capital Markets Increase volume in existing platforms Develop additional product capability Expand US mid-market cash equities business Investment Banking and Credit Building strong relationships with our core clients Maintaining leadership position in Canadian franchise Increasing productivity within US investment banking platform Merchant Banking Discipline and alignment with Investment banking Commercial Banking Balance return and risk objectives to support profitable growth 32 16

17 A Model for LT Growth -Returns to Shareholders Total Shareholder Return (1) since October 31, 1999 % CM # % CM = 172.9% BNS = 172.5% RY = 132.0% BMO = 136.4% 50 - TD =67.8% (50) Oct-99 Jan-00 Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 CM RY BMO BNS TD (1) Total Shareholder return = capital appreciation, plus common share dividends, reinvested quarterly. 33 For What Matters Critical value drivers Client satisfaction Employee commitment Excellent risk management Stable growth in economic profit $60 Sustainable Growth Meaningful contribution to our $50 $40 communities Financial transparency $30 $20 $10 $0 Sep-60 Reducing Risk Sep-03 Good governance 34 17

18 Notes to Users Performance measurement CIBC uses a number of financial measures to assess the performance of our lines of business. Some measures are calculated in accordance with GAAP,while other measures do not have standardized calculations under GAAP and, accordingly, these measures described below, may not be comparable to similar measures used by other companies. This document references the following non-gaap measures: Net interest income (TEB) Management adjusts net interest income 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 (TEB) is used to calculate the efficiency ratio, trading revenue, net interest margin and net interest margin on average interest-earning assets, all on a taxable equivalent basis. Management believes these measures permit uniform measurement, which enables users of our financial information to make comparisons more readily. Economic capital Economic capital provides the financial framework to understand the returns of each line of business, commensurate with the risk taken. Economic capital is based upon an estimate of the equity capital required to protect the business lines from future potential adverse economic scenarios that would result in significant losses. It is comprised of credit, market, operational and strategic risk capital. The capital methodologies employed quantify the level of risk within products, clients, and business lines, as required. The difference between CIBC total equity capital and economic capital allocated to the business lines is held in Corporate and Other. From time to time, CIBC's economic capital model may be enhanced as part of the risk measurement process and these changes are made prospectively. There is no comparable GAAP measure for economic capital. Economic profit Net income, adjusted for a charge on economic capital, determines economic profit. This measures the return generated by each business line in excess of our cost of equity capital, thus enabling users of our financial information to identify relative contributions to shareholder value. Reconciliation of net income to economic profit is provided with segmented information on pages 6 to 8. Segmented return on equity We use return on equity (ROE) on a segmented basis for performance evaluation and resource allocation decisions. While ROE for total CIBC provides a measure of return on common equity, ROE on a segmented basis provides a similar metric related to the capital allocated to the segments. We use economic capital to calculate ROE on a segmented basis. As a result, segmented ROE is a non-gaap measure. Business mix: Retail / wholesale ratio While we manage commercial banking operations within CIBC World Markets, some financial institutions include commercial banking in retail operations. From time to time, some measures will be presented on an aggregate basis for Retail Markets, Wealth Management, and commercial banking operations for comparison purposes. Such measures include revenue, net income, and economic capital. ROE and EPS on cash basis Cash basis measures are calculated by adding back the after-tax effect of goodwill and other intangible expenses to net income. Management believes these measures permit uniform measurement, which enables users of CIBC s financial information to make comparisons more readily. 35 Forward Looking Statements This presentation release 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 U.S. regulatory changes affecting foreign companies listed on a U.S. exchange, as well as amendments to, and interpretations of, risk-based capital guidelines and reporting instructions; the resolution of legal proceedings and related matters; the effect of applying future accounting changes; changes in tax laws; political conditions and developments; the possible effect on CIBC's business of international conflicts and the war on terror; the accuracy and completeness of information provided to CIBC by clients and counterparties; intensifying competition from established competitors and new entrants in the financial services industry; technological change; global capital market activity; interest rate fluctuations; currency value fluctuations; general economic conditions worldwide, as well as in Canada, the U.S. 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

19 Forward Looking Statements Investor Relations contacts: Kathy Humber, CFA, Senior Vice-President (416) John Ferren, CA, CFA, Director (416) Katherine Young, Senior Financial Analyst (416) Investor Relations Fax Number (416) Visit us in the Investor Relations section at