The Canadian bank CIBC expects losses from its office-related commercial real estate portfolio to continue into next year.
One of the Toronto company's problem areas is its U.S. commercial banking and wealth management business, which had a steep decline in quarterly net income. CIBC primarily blamed its higher provision to cover potential losses in the unit's office portfolio next year.
The U.S. commercial banking and wealth unit produced net income of $35 million for the three months ended Oct. 31, a 70% drop from the same period in 2022, according to CIBC.
"Our U.S. office portfolio continues to see elevated losses," Frank Guse, the bank's chief risk officer, told analysts during CIBC's fourth-quarter earnings call on Thursday.
The unit's provision for loan-loss reserves more than doubled from a year earlier to $183 million. To be sure, that figure was slightly lower than in the previous quarter, but the bank's allowance coverage ratio for U.S. office loans increased by 150 basis points from July 31 to Oct. 31 to 9.1%.
"While our impaired losses over the full year continued to perform in line with our expectations, we have seen elevated losses in the back of this fiscal year," Guse said.
More than half of CIBC's office loans on U.S. commercial properties — $2.1 billion — matured in fiscal 2023. Of those loans, about 31% were classified as nonaccrual, according to Guse.
"Despite the headwinds in the U.S. office sector, our credit performance remained within our expectations," he said. "We will continue to proactively manage portfolio exposures, and we will work with our clients to mitigate risks."
As U.S. workers have emerged from the COVID-19 pandemic with greater flexibility to do their jobs remotely, many banks have reported
Losses from office loans and the potential for more have dented the earnings of many banks including CIBC throughout the year.
"We expect office to moderate in the next year in line with our maturity profile," Hratch Panossian, CIBC's chief financial officer and head of enterprise strategy, told analysts. "We feel very confident with our base case outlook even though there is … risks to the downside."
CIBC signaled during the previous quarter's earnings that it would
The Canadian bank is deemphasizing American office loans amid rising loss provisions. The decision could lead to decelerating growth in the U.S. market.
Despite facing economic uncertainty and continued office-related CRE stress, executives at CIBC said the bank is still planning to move forward with its expansion in the U.S. market. Growing CIBC's footprint in the U.S. has been one of the bank's top priorities since
CIBC is focusing on growing the bank's wealth management business, including expansion in "fast-growing affluent markets" such as southern Florida, Panossian told analysts.
"We remain focused on prudent and profitable growth to scale this business across both commercial banking and wealth management," Panossian said.
