CIBC (Stock symbol CM … I can never quite decide how to present it!) has released its 4Q08 Supplementary Package, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to!
Step One is to analyze their Tier 1 Capital, reproducing the prior format:
| CM Capital Structure October, 2007 & October, 2008 |
||
| 4Q07 | 4Q08 | |
| Total Tier 1 Capital | 12,379 | 12,365 |
| Common Shareholders’ Equity | 90.1% | 91.2% |
| Preferred Shares | 23.7% | 26.1% |
| Innovative Tier 1 Capital Instruments | 0% | 0% |
| Non-Controlling Interests in Subsidiaries | 1.1% | 1.4% |
| Goodwill | -14.9% | -17.0% |
| Misc. | NA | -1.8% |
| Shareholders’ Equity includes “Common Shares”, “Contributed Surplus”, “Retained Earnings”, “Net after tax fair value losses arising from changes in institution’s own credit risk”, “Foreign Currency translation adjustments”, and “Net after tax undrealized holding loss on AFS equity securities in OCI”
‘Misc.’ is comprised of Basel II adjustments to Tier 1 Equity |
||
Next, the issuance capacity (from Part 3 of the introductory series):
| CM Tier 1 Issuance Capacity October 2007 & October 2008 |
|||
| 4Q07 | 4Q08 | ||
| Equity Capital | (A) | 9,448 | 9,134 |
| Non-Equity Tier 1 Limit | (B=A/3), 4Q07 (B=0.666*A), 4Q08 |
3,149 | 6,089 |
| Innovative Tier 1 Capital | (C) | 0 | 0 |
| Preferred Limit | (D=B-C) | 3,149 | 6,089 |
| Preferred Actual | (E) | 2,931 | 3,231 |
| New Issuance Capacity | (F=D-E) | 218 | 2,858 |
| Items A, C & E are taken from the table “Regulatory Capital” of the supplementary information; Note that Item A is defined as total Tier 1 Capital, less preferred shares. Item B is as per OSFI Guidelines; the limit was recently increased. Items D & F are my calculations |
|||
and the all important Risk-Weighted Asset Ratios!
| CM Risk-Weighted Asset Ratios October 2007 & October 2008 |
|||
| Note | 4Q07 | 4Q08 | |
| Equity Capital | A | 9,448 | 9,134 |
| Risk-Weighted Assets | B | 127,424 | 117,900 |
| Equity/RWA | C=A/B | 7.41% | 7.75% |
| Tier 1 Ratio | D | 9.7% | 10.5% |
| Capital Ratio | E | 13.9% | 15.4% |
| Assets to Capital Multiple | F | 19.0x | 18.9x |
| A is taken from the table “Issuance Capacity”, above B, D & E are taken from CM’s Supplementary Report C is my calculation. F is taken from OSFI (4Q07) and reported total capital ($18,129-million) over Average assets ($342,621-million) |
|||
| Note that CM reports “Common Equity to risk-weighted assets” of 9.5%. They do not include “non-controlling interests”, “goodwill” and the Basel II adjustments in the numerator; I do. | |||
Again, the 4Q07 figures are not directly comparable with the 4Q08 figures due to the change from Basel I to Basel II.
On a Basel I basis, the Tier I and Total Capital ratios got a big boost in the first quarter with the capital raise, but have since declined; the Tier 1 ratio is now the lowest it has been in the last two years, but held steady in the fourth quarter. The total capital ratio declined over the quarter as issuance of sub-debt did not keep pace with the increase in RWA.
Further, on a Basel I basis, Total Risk Weighted Assets have increased somewhat since 4Q07, due to increases in the risk-weight of “Other Loans” and “Other Assets”. From the breakdown of loans on page 22 of the supplementary data, it looks like a fairly even increase in business across the board, led by personal loans and Commercial real-estate/construction.