Canadian Imperial Bank of Commerce Q4 2021 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : First is a bit of a housekeeping one for Shawn Stage 2 classification is the higher-risk performing loan category, up 25%. You mentioned the model parameter updates. That's the main driver there, not negative migration. And if that's the case, can you give me some broad strokes on maybe what sort of assumption changes you made?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Great. And Hratch, the expense operating leverage commentary. You made continued investments in the business in 2022. It sounds like we're going to keep going with elevated expense growth perhaps medium-term objective of positive operating leverage, does that mean next year, we might not have that outcome? It sounds like maybe first half will be a little bit soft. Second half, you'll get back into positive territory. And if you can clarify like what you're targeting for absolute expense growth is mid-single digits, is it 6 this year on an adjusted basis, but 2/3, I guess, from variable comp. Maybe clarify a few of those points, if you can.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Okay. 10% revenue growth this quarter and nothing to sneeze at. So yes, clearly, the expenses are -- investments are helping and paying off.

Question: Sohrab Movahedi - BMO Capital Markets Equity Research - Analyst : I just wanted to go to Harry for a second, please. A few years ago, when you had said the franchise was around $1 billion or so in earnings annually. In the past couple of years, you've rolled in the DFS, which I think is probably rough numbers, a couple of hundred million dollars at. So let's say, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 02, 2021 / 1:00PM, CM.TO - Q4 2021 Canadian Imperial Bank of Commerce Earnings Call relative to a baseline of at $1.3 billion, $1.3 billion, $1.4 billion. You did very well this year. Where do you think your franchise is going forward? And maybe you could talk us through, Harry, the geography of the income statement because presumably adding DFS will put a little bit more pressure on your PCL line, but you'll pick it up on the pretax preprovision. I'm just trying to kind of get a feel for what's the franchise capability from here on? And how it's going to be contributing to some of the broader metrics that Hratch and the team have talked about vis-a-vis the total bank operating leverage and so on and so forth. Harry K. Culham - Canadian Imperial Bank of Commerce - Senior EVP and Group Head of Capital Markets & Direct Financial Services Sohrab, thank you for that question. The short answer is we see continued growth as we move forward in both revenue and PPE in a very diversified manner. You've seen the delivery of strong performance in absolute and relative terms over the last several years, as you point out. This has been a consistent strategy that we continue to enhance, and we really are I think, pleased with our leading PPE (inaudible) growth this year and for the previous several years. So this is a differentiated platform as Victor has said in his opening remarks. We remain very disciplined around our resources as a starting point, but we're continuing to build our leading Capital Markets platform for our core clients in Canada. And we continue to grow market share. And you've seen growth in rankings in most league tables and I think, truly enhance client relationships across our platform. We're also growing our U.S. platform, as Victor mentioned, and the doubling of the size of the platform since our last Investor Day until now has shown a leadership position in many of the areas that we're focused on, including the new economy, where we see the intersection of private capital, renewable, sustainable finance. Key focus areas where we think we have a strong competitive advantage. And we're also very focused, of course, by the way, just on the U.S., we saw 9% growth this year in U.S. dollar in U.S. dollar terms as well. which is, therefore, leading to a doubling over the last 4 years, just about. And then, of course, the area of connectivity we talk a lot about, really diversifying our franchise by delivering Capital Markets products and solutions to commercial wealth and retail clients. And that connectivity has been further enhanced by the inclusion of Direct Financial Services within the capital markets franchise. And we're seeing revenues from nontraditional Capital Markets clients grow significantly 27% year-over-year this year. So we may see some normalization of markets over the next little while. We expect to see continued robust activity, however, across our corporate and institutional client base, and you've seen some significant increases in our underwriting advisory and lending capabilities, and we continue to see growth in our Global Markets platform as well which has great diversification across products, industries and geographies. We think that we can see -- we can deliver pre-provision earnings growth next year again and revenue growth in the higher single-digit area as we go forward. This is well above pre-pandemic levels, as you will note. So in terms of geography, continued focus on the U.S. A 25% of our income is approximately the level we come from with respect to the U.S. platform, and we expect to see further resources deployed into the United States.