The Canadian Imperial Bank of Commerce says it will raise its five-year fixed-rate mortgage rate by 15 basis points on Tuesday. A CIBC sign is shown in the financial district in Toronto on Tuesday, August 22, 2017. THE CANADIAN PRESS/Nathan Denette

CIBC expects 50 per cent drop in new mortgages in latter half of year

TORONTO — The Canadian Imperial Bank of Commerce anticipates it will issue half as many new mortgages in the latter part of the year as it did in the same period of 2017 amid cooling in the real estate market.

The bank has noticed a slowdown in the housing market in the last few months, likely due to changes to mortgage underwriting guidelines, Christina Kramer, CIBC’s group head of personal and small business banking for Canada, said Wednesday. Those changes include a new stress test for buyers who don’t need mortgage insurance, which has made it harder for some would-be homebuyers to qualify.

“When we take a look at the second half, we continue to see that there will be origination decline, probably in around 50 per cent range relative to the same period last year,” Kramer told analysts on a call discussing CIBC’s results for its second quarter, ended April 30.

CIBC, the first of Canada’s Big Six banks to report second-quarter results, announced a double-digit profit bump Wednesday, handily beating market expectations despite slowing growth in mortgage lending.

Concern has been mounting over the impact of a cooling real estate market on mortgage loans at Canada’s biggest banks, as national housing sales activity reach lows not seen in several years.

In April, home sales dropped to a seven-year low for the month that typically kicks off the busy spring real estate season. The Canadian Real Estate Association largely blamed a new stress test for uninsured mortgages that came info effect on Jan. 1. The new stress test requires would-be homebuyers with more than a 20 per cent down payment to prove they can service their mortgage if interest rates rise.

CIBC’s said its quarterly profit attributable to common shareholders was $1.29 billion, up from $1.04 billion a year ago on strong results both at home and south of the border after some U.S. acquisitions last year.

On an adjusted basis, it earned $1.32 billion, or $2.95 per diluted share for the quarter, up from $1.06 billion, or $2.64 a year earlier. Analysts had expected a profit of $2.81 per share, according to Thomson Reuters Eikon.

CIBC’s spot mortgage balance for the second quarter was $203 billion, up 6.8 per cent from a year ago, but flat compared with the first quarter. By comparison, in the second quarter of 2017, CIBC’s spot mortgage balance was up 12.4 per cent from the previous year and up 2.2 per cent from the previous quarter.

In the latest quarter, the bank booked $7 billion in uninsured residential mortgage originations, down from $11 billion a year ago.

“We’ve actually seen a very soft start with the spring market,” Kramer told analysts. “We don’t know whether that’s a bit of a pause in the market or consumers changing behaviour or waiting to see what happens.”

The slowdown in mortgage originations at CIBC was welcomed by analysts, which had been concerned about how quickly the bank’s mortgage book was growing compared to its peers.

“CIBC’s domestic residential mortgage growth was essentially flat, potentially relieving a relative overhang on the stock as investors have become increasingly concerned with CM’s relative exposure,” Barclays analyst John Aiken said in a research note.

Real estate secured lending accounted for 49 per cent of total net loans across the Big Six Canadian banks during the fiscal first quarter of 2018, according to a recent CIBC World Markets report. CIBC had the highest exposure among its peers, at 62.8 per cent.

Kramer said CIBC has become less reliant on real estate lending for revenues.

“A year ago, two-thirds of our revenue would be directly related to our mortgage performance and our mortgage business. And today that’s about one-quarter.”

In other banking operations, CIBC’s U.S. commercial banking and wealth management arm saw net income in the second quarter jump by 431 per cent year-over-year to $138 million, helped by its acquisition of Chicago-based PrivateBancorp, which closed in June 2017.

The lender’s domestic commercial banking and wealth management arm earned $310 million for the quarter, marking a nine per cent increase from the same period a year ago. However, its capital markets arm saw a seven per cent decrease in net income to $249 million compared with one year ago.

Despite headwinds in the Canadian real estate market, CIBC’s chief executive Victor Dodig said the bank expects to continue generating strong earnings growth in excess of its five per cent target going forward, if macroeconomic environment conditions remain benign or relatively positive.

However, Shannon Stemm, an analyst with Edward Jones based in St. Louis., said while it appears CIBC’s diversification is paying off, questions remain about how it will compensate for lower mortgage revenues.

“It could be difficult for them to continue to offset such a big chunk of what’s been driving growth, over the next couple of years.”

Companies in this story: (TSX:CM)

Just Posted

WATCH: Central Albertans learn about farm life at Sunnybrook Farm Museum

Pioneer Days Festival in Red Deer Saturday-Sunday

Number of seniors who play bridge in Red Deer growing

Red Deer Bridge Club has been around for close to 60 years

PHOTOS: Buccaneers battle Wolfpack in AFL semifinal

The Central Alberta Buccaneers battled the Calgary Wolfpack in the Alberta Football… Continue reading

Raising awareness for Bikers Against Child Abuse

Second annual Raise A Ruckus Against Child Abuse was held at the Red Deer Radisson Hotel Saturday

Central Alberta Yogathon cancelled Saturday

Due to air quality concerns the fourth annual event will take place Sept. 15

VIDEO: Central Albertans learn about Icelandic poet at Stephansson House

Harvest Fair and Quilt Show hosted at Stephansson House in Spruce View Sunday

Trump says his White House counsel not a ‘RAT’ like Nixon’s

BRIDGEWATER, N.J. — President Donald Trump insisted Sunday that his White House… Continue reading

Wildfire moves closer to Glacier National Park’s scenic road

MISSOULA, Mont. — A wildfire in Montana’s Glacier National Park is forcing… Continue reading

Prime Minister Trudeau, Premier Couillard march in Montreal’s Pride parade

MONTREAL — Thousands of cheering spectators lined the streets of Montreal on… Continue reading

All eyes on Andrew Scheer as Conservative convention set for Halifax

OTTAWA — After a week of internal caucus squabbles, Conservative Leader Andrew… Continue reading

Canadians fear for relatives trapped amid flooding in Indian state of Kerala

In the wake of deadly flooding in the Indian state of Kerala,… Continue reading

Indonesia’s Lombok island jolted by multiple quakes

SEMBALUN, Indonesia — Strong earthquakes jolted the Indonesian tourist island of Lombok… Continue reading

Afghan president calls for Eid cease-fire, Taliban to reply

KABUL — Afghan President Ashraf Ghani has called for a conditional cease-fire… Continue reading

Montreal may have less influence after October provincial election

MONTREAL — When Coalition Avenir Quebec Leader Francois Legault recently dismissed the… Continue reading

Most Read


Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month