UPDATE 2-CIBC profit drops less than expected as it eyes bigger deals

Thu May 29, 2014 10:49am EDT

(Adds CEO comments on acquisitions, analyst's comment)

By Cameron French

TORONTO May 29 (Reuters) - Quarterly profit at Canadian Imperial Bank of Commerce fell by nearly two-thirds due to a charge taken by its Caribbean unit, the bank said on Thursday, but the result topped analysts' estimates and CIBC's chief executive signaled a willingness to pay more for acquisitions.

CEO Gerry McCaughey has targeted wealth management as a business he'd like to expand, and said last year he'd entertain deals in the billion-dollar range.

Speaking on a conference call on Thursday, McCaughey suggested he now might be willing to pay more.

"I'd be inclined to go bigger if we got something that was a strategic fit," he said, adding that CIBC, Canada's fifth largest bank, would likely issue equity to help cover any transaction in the billion-plus range.

He said he didn't want to put a limit on how much the bank would pay, but said its tolerance for equity dilution would be a consideration.

"For CIBC to do a transaction that was highly dilutive at the C$1 billion dollar level is quite different than CIBC doing a dilutive transaction at a C$2 billion level or a C$3 billion level, and I think that the constraints are the nature of the dilution," McCaughey said.

Appetite for Canadian bank shares has stayed solid, with the share prices of five of the country's top six banks hitting record highs over the past week, the exception being CIBC, which while up nearly 8 percent year-to-date, is still shy of of its levels before the 2008-09 financial crisis.

CIBC earned C$306 million ($281.68 million), or 73 Canadian cents a share, in its second quarter, down from a year-before profit of C$862 million, or C$2.09 a share. The bank raised its dividend by 2 percent to C$1.00 a share.

The result caps off a second-quarter reporting period in which the results of Canada's other top banks beat estimates on higher wealth management income and a domestic loan business that has continued to grow despite concerns about a slowing housing market.

CIBC pre-announced the Caribbean charges - a C$420 million noncash goodwill impairment charge and C$123 million in loan losses - earlier this month, blaming poor economic conditions in the region.

Excluding those charges and others, the bank earned C$2.17 a share. Analysts had expected a profit of C$2.07 a share.

Profit at CIBC's Canadian retail and business bank fell 5 percent to C$546 million, due largely to the loss of about half of its Aeroplan Visa credit card portfolio, which it agreed to sell late last year.

Wealth management income rose 29 percent to C$117 million, while wholesale banking income fell 19 percent to C$213 million.

"The beat was largely driven by wholesale banking while Canadian (retail and business) earnings missed our forecast," RBC Capital Markets analyst Darko Mihelic said in a note.

($1=$1.086 Canadian) (Editing by Sofina Mirza-Reid; and Peter Galloway)