CIBC says mortgage sales down less than expected

TORONTO (Reuters) - Canadian Imperial Bank of Commerce CM.TO said an anticipated drop in its mortgage sales had not been as bad as it had feared after reporting third-quarter results that beat market expectations.

FILE PHOTO: A Canadian Imperial Bank of Commerce (CIBC) sign is seen outside of a branch in Ottawa, Ontario, Canada, May 26, 2016. REUTERS/Chris Wattie/File Photo

Canada’s fifth-biggest lender forecast in May that new mortgage sales would fall by 50 percent in the second half of the year due to stricter lending rules introduced by the country’s banking regulator.

“Three months later we are now seeing some positive signs that suggest better growth in our portfolio than we had seen over the past six months,” the bank’s Canadian retail banking head, Christina Kramer, told analysts on a conference call.

Kramer said sales of new mortgages were up C$2 billion ($1.5 billion) compared with the previous quarter but still down year-on-year.

“We see it as positive in terms of the outlook for the market,” she said.

In an interview, CIBC Chief Financial Officer Kevin Glass said new mortgages sales dropped by more than 40 percent in the quarter compared with a year ago.

Canada introduced new rules at the start of the year that require borrowers to be tested on their ability to pay back loans at an interest rate 200 basis points higher than the actual rate on their mortgages.

CIBC has seen the biggest impact of any Canadian bank from the changes and is the most exposed to the market, with residential mortgages making up a higher proportion of its loan book than for rivals.

The bank had ramped up its market share aggressively before pulling back over the past year. Kramer said CIBC’s pace of sales growth was slowing to match that of rivals, in line with past guidance.

CIBC has looked to reduce its reliance on its domestic market by expanding in the United States, where it acquired Chicago-based PrivateBancorp for $5 billion in June last year.

The benefits of that strategy began to come through in the latest quarter, with a 295 percent rise in earnings at its U.S. business. That helped the bank lift total net income, excluding one-off items, by 20 percent to C$1.4 billion.

Earnings per share, excluding one-off items, rose to C$3.08, ahead of the average analyst forecast of C$2.93, according to Thomson Reuters I/B/E/S.

CIBC shares were up 0.8 percent at 10:40 a.m. ET (1440 GMT), having earlier risen 1.1 percent to C$123.26, hitting their highest level since January.

Reporting by Matt Scuffham; Editing by Mark Potter and Dan Grebler