Wealth Management Results Shine After Deal At Canadian Bank

Eliane Chavagnon

30 May 2014

yesterday said that its wealth management arm – a strategic priority at the firm - logged net income of $117 million for the second quarter, up $26 million or 29 per cent from the same period a year ago. Net income across the whole of CIBC fell, however.

Net income at the wealth unit for the six months ended April 30, 2014, was $231 million, up $51 million from the same period in 2013, which the New York- and Toronto-listed firm said was primarily due to higher revenue and partially offset by higher non-interest expenses.

Wealth management revenue of $548 million was up 24 per cent compared with Q2 2013 and up 9 per cent from the prior quarter, due to a number of factors: higher client assets under management driven by market appreciation and net sales of long-term mutual funds; higher fee-based and commission revenue; the acquisition of US-based Atlantic Trust; and higher contribution from the firm's stake in American Century Investments.

CIBC’s wealth management business provides “relationship-based” advisory services and investment services to institutional, retail and high net worth clients. The firm’s asset management, retail brokerage and private wealth management businesses combine to create an integrated offering delivered through over 1,500 advisors across Canada and the US.

Asset management revenue at the business, meanwhile, was up $28 million from the same quarter last year and up $9 million from the prior quarter - primarily due to higher client AuM as well as higher contribution from its equity-accounted investment in ACI.

Private wealth management revenue was up $47 million from the same quarter last year, and up $29 million from the prior quarter, mainly due to the acquisition of Atlantic Trust on December 31, 2013, and higher AuM spurred by client balance growth.

On December 31, 2013, CIBC completed the acquisition of Atlantic Trust Private Wealth Management (Atlantic Trust) from its parent company, Invesco, for C$224 million ($210 million). Atlantic Trust provides integrated wealth management solutions for high net worth individuals, families, foundations and endowments in the US. The results of the acquired business were consolidated from the date of close and are included in the wealth management figures, the firm said.

According to a recent news report in The StarPhoenix, CIBC is “eyeing big-ticket acquisitions” in the US as the firm seeks to boost earnings from wealth management to about 15 per cent of overall adjusted profits.

Drop at group level

The story wasn’t as good for the group as whole, having reported a decline in net income to $306 million, compared with $862 million for Q2 2013, and $1,177 million for the prior quarter.

Results for the second quarter of 2014 were however affected by a number of items resulting in a negative impact of $1.44 per share. Namely, this includes $543 million of charges relating to FirstCaribbean International Bank (CIBC FirstCaribbean), comprising a non-cash goodwill impairment charge of $420 million ($420 million after-tax) and loan losses of $123 million ($123 million after-tax), reflecting revised expectations on the extent and timing of the anticipated economic recovery in the Caribbean region, the firm said.

As previously reported, last month the firm announced the retirement of its president and chief executive, Gerry McCaughey.

“The board has a succession process underway and is committed to ensuring a seamless transition to new leadership while continuing to deliver value to all of our stakeholders,” said Charles Sirois, CIBC's chairman of the board, at the time.