Canadian Imperial Bank of Commerce

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

Canadian Imperial Bank of Commerce (CIBC) is a major Canadian multinational bank, providing a diverse range of financial products and services across retail, commercial, and capital markets segments.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

CIBC’s core revenue streams are primarily divided into four major segments, namely: Canadian Personal and Business Banking (P&C), Canadian Commercial Banking and Wealth Management, U.S. Commercial Banking and Wealth Management, and Capital Markets. In their latest earnings call they highlighted their focus on three key priorities: executing their client-focused strategy, strengthening their platform, and creating an inclusive workplace.

They also highlighted their digital transformation initiatives. They have a goal of reaching 80% of their retail clients for digital banking and that has seen strong results, with digital transactions being up 12% year over year.

Business Description

Canadian Personal and Business Banking is CIBC’s largest business segment and delivers a range of financial products and services to individual clients and small and medium sized businesses.

This includes personal banking, mortgages, credit cards and everyday banking services.
These services are distributed through branches, digital channels and ATMs.
This segment makes up the bulk of the company’s revenue and earnings.
In recent earnings calls the CEO mentioned this group is their “growth engine,” and they want to drive better growth over the next five years. They plan to achieve this by focusing on client relationships and offering a comprehensive range of services.
In the latest quarterly earnings, this sector continues to grow, with total loans and deposits in Canadian P&C up 4% year over year, driven by growth in mortgages and credit cards. They also reported strong margins in the commercial market.

Canadian Commercial Banking and Wealth Management operates to support small, medium, and large businesses, and high net worth clients.

This includes commercial banking, wealth management, private banking, and asset management services.
The bank is focused on the long-term value for clients by leveraging its knowledge and client relationships.
In recent earnings calls the management noted that they are focused on attracting high net-worth clients.
In the current quarter the total assets under management within this segment increased to $302 billion.
This is a result of strong wealth management sales and higher client inflows in the quarter.
This sector saw continued growth in client assets, up 9% year over year. They are accelerating their business model to generate growth and increase client satisfaction and loyalty.

U.S. Commercial Banking and Wealth Management offers services similar to the previous one, but for American clients.

This segment focuses on wealth management and commercial lending for high net worth individuals.
It also focuses on private and commercial banking services.
In recent earnings calls management notes their U.S. Commercial Banking & Wealth Management saw the largest growth of deposits and loans.
This segment continues to see organic growth within their loan portfolio, particularly with commercial real estate.
Within Wealth Management, they reported strong client flows and have increased investments in sales.

Capital Markets provides a range of investment banking, corporate banking, and trading services.

This includes underwriting, advisory, and trading across a variety of asset classes.
This business segment is highly sensitive to market conditions.
In their most recent call, they stated capital markets have continued to deliver strong, diversified results across all geographies. They have focused on generating recurring revenues, and building relationships with high-value clients.
This group continues to be profitable and has delivered a 13% return on equity.
They do face higher trading losses as of late. They plan to improve their risk controls while continuing to focus on providing client access to capital markets.

CIBC’s business model is highly diversified across multiple sectors, and this provides the company with good downside protection. The Canadian personal and business banking is very stable, and is the biggest contributor of revenue and profits to the company. While their operations are in a range of different places, their revenues are mostly concentrated in Canada. This means their business is very susceptible to the Canadian market.

Financials

Based on their latest earnings call, the company is reporting revenues of C$6.6 billion, up 7.4% compared to previous year, and a net income of C$1.7 billion, up 11% compared to last year. They are also reporting an ROE of 12.2%, up considerably from 7.2% at the end of 2023. The company has increased loan loss provisions. Their provision for credit losses is approximately $438 million for the current quarter compared to the prior year, at $274 million. This was a result of increasing macro-economic pressure, as they expect a slowdown in the economy, in response they have increased their allowance for loan losses. Their balance sheet continues to be solid, with a tier 1 capital ratio of 12.8%, higher compared to 11.7% a year earlier. They also note that the average market estimate for their earnings growth is roughly 5%. They are committed to paying dividends and have increased dividends by 4% year over year, putting their dividend yield at around 6%

Net interest income comprises a big part of their revenue mix, and has increased to $4 billion. The increase is due to a combination of high-interest rates and growth in their loan books.
Their non-interest income is $2.6 billion. This comes from trading revenues, investment management fees, and other service fees. Their commissions, fees and securities sales were up roughly 6% this quarter.
Their operating expenses were $3.6 billion, and were up slightly compared to last year.
They have a high leverage in their capital structure, because they operate as a bank and make use of fractional reserve banking practices. Their debt is mostly in the form of customer deposits, and they have around 9x more assets compared to equity. Because of these high levels of leverage, there are risks associated with their equity. A sudden drop in asset values could drastically hurt the company, and as such, they have to maintain high credit ratings and capital reserves in response.
The book value is a little bit lower than its intrinsic value. This is due to some intangible assets such as goodwill. The tangible book value is about $38.6 per share.
Earnings have fluctuated a lot in the last few years due to Covid. Since then, earnings seem to be stabilizing. In 2024 their earnings are up 15%, putting them on a good track. Management expects to continue this earnings trajectory.
Return on equity, as previously mentioned, has increased to 12.2% from 7.2% in 2023.
Their common equity tier one ratio has remained stable at 12.8% compared to a year ago.
They have high net-interest income compared to non-interest income, indicating that they rely heavily on interest income, a vulnerability considering their dependence on interest rates.
Their dividend yield is currently around 6%, and is a big attraction point for shareholders.
They have a decent liquidity buffer of 124 billion, which they can utilize to handle potential losses or unexpected client withdrawals.

Their return on equity is driven by net income, which is influenced by several key metrics, like interest rates, loan demand, and non-interest income activity. Their return on equity has fluctuated in the past couple of years, which indicates that the moat can be a bit unstable at times. While they are targeting improved ROE’s, and plan to be around 14%, this is still unproven.

Their total revenue comes from net interest and non-interest income.
Net interest income is driven by the net interest margin (NIM), the interest spread from loans and securities.
Non-interest income is influenced by fees from wealth management, credit cards, investment banking activities and trading income.

Moat

While CIBC has some level of competitive advantage, its moat is narrow. While it is a large bank that should be well positioned to have a dominant position in its markets, its business can be hurt by external factors such as regulations and higher interest rates that can affect the profitability of lending businesses.

Switching costs: They have a decent level of switching costs from their bank accounts, as consumers prefer convenience and having all financial affairs at a single institution, but these are not insurmountable and smaller and nimbler fintechs can challenge them here.
Intangible assets: They are well known in Canada, and have a solid reputation amongst its customers, but their brand is nothing extraordinary.
Economies of scale: They are a large organization that benefits from economies of scale, having low operating costs, but they are not as effective as tech companies, because the majority of their growth requires manual operations which cannot be automated to lower costs further.
Network effects: The network effect that they have is not very strong and does not keep out competitors. Their banking business is not really about networking, but more about the convenience and trustworthiness of a place where customers keep their money.

Considering these points, their moat is not really that wide, so I have rated it as a 2/5. This makes their business riskier in the face of rising competition.

Risks

Their most pressing issue is the volatile macro-economic climate that is affecting their business. They have made provisions for increasing loan losses and their high dependence on the Canadian market makes them more susceptible to the negative impact from it. Their reliance on interest income may make them vulnerable to changing interest rates as well. Their expansion into the U.S market is not very strong and could easily lose ground to more established players. They are also behind when it comes to digital banking, and even though they are trying to develop their own digital platform, they are late to the game, with many fintech startups taking away market share from larger banks. Their revenue is largely dependent on fees which, like trading profits, are often volatile and can fluctuate depending on the overall market conditions. Also, banks are exposed to the tail risk of black swan events which have historically hurt them. The great recession, and other black swan events that hurt the banking industry in the past may repeat in the future. They are also heavily regulated and exposed to any changes in that regulation. The Canadian government, or the global regulatory landscape, could make changes that affect their profitability in the future. Finally, they have a high level of leverage which may make their equity very vulnerable to any bad news.

The CEO mentioned that their key priorities for 2024 are to continue to deliver on client-focused growth, invest in technology, enhance their financial performance and operational agility, and create a inclusive culture. They have mentioned that their operating model is focused on flexibility and productivity, and they’ll utilize data to drive future decisions. These objectives should mitigate some of the risks faced by the company.

Understandability

The bank’s business is overall pretty complex. It is a big financial institution that operates with significant leverage, multiple revenue streams, and is influenced by multiple external factors such as interest rates, government policies, and economic conditions. Therefore, for an average person, it will take some time to grasp the full complexity of the business, and thus, its understandability has been rated as 3 out of 5.

Balance Sheet Health

They have good equity reserves as of writing. Their tier 1 capital ratio is well above regulatory minimums. But their debt is large due to their business nature. They are also exposed to a lot of risk due to loan losses that can eat into their earnings. I would give their balance sheet a 3 out of 5, as they are stable right now, but I would like to see how they manage to grow their earnings, while lowering their debt levels to become a more attractive business.

Common Stocks and Uncommon Profits | Moat: N/A | Understandability: 4/5 | Balance Sheet Health: N/A

This book explains how to successfully invest by focusing on finding great companies that have unique characteristics that enable growth and profitability.

Business Description

This book focuses primarily on analyzing common stocks and developing a strong investment philosophy, that you can use to find great stocks. It is more like an investment guide, instead of an analysis of a specific company.

It has very insightful tips for investors to find companies that have a durable competitive advantage over their competitors, with the ability to deliver profits for a long time. It emphasizes the importance of long-term value investing and avoiding the mistakes of others. It is a very useful and easy-to-read book, which provides a useful framework for new and experienced investors. The book highlights some key points that one should look at for identifying great companies, such as:

Strong products/services with market potential
A determination to continuously develop products/processes.
A good research and development division
Above average sales capabilities
Worthwhile and increasing profit margins
Good labor and executive relations
Management that provides reliable communications to the shareholders
Management that has unquestionable integrity.

It emphasizes the need to analyze not only a company’s operations but also the quality of management and financial strength. It explains that to obtain the kind of business which is worth the investor’s time, effort, money, and anxiety, requires patience, and a keen ability to learn from other people’s mistakes and good investments.

It also offers guidance on how to evaluate companies, including the importance of the margin of safety, and avoiding overpaying for assets. The book explores how to analyze companies effectively, and what are the characteristics and attributes that a company needs to have to have the greatest chance of success and returns for its investors.

Financials

This book does not contain a specific company’s financial information. It focuses on providing a framework for investing in common stock.

Moat

This book does not cover a specific company, and hence, does not have a moat of any sort. However, the analysis of the book is largely focused on companies that have wide economic moats, based on strong competitive advantages. These moats are based on characteristics that allows a business to create value, which helps in generating high returns over a long period of time. The book also highlights the importance of identifying businesses that can maintain and protect their profits, despite the intense competition. It stresses the importance of being able to discern between a true moat and a fake moat.

Risks

This book mainly focuses on avoiding risks that exist in investing in the market. It shows ways how not to make mistakes that would end up in losing money or underperforming the market. It explains the psychological aspect of investing and the importance of self-control.

Understandability

The book is written in plain and simple language, and is relatively easy to understand. Even though it explains very high-level concepts, it explains them in such a way that anyone with a decent understanding of the markets can easily grasp. I would give this book a 4 out of 5 in understandability.

Balance Sheet Health

This book does not contain any financial information and hence can’t be evaluated. It talks about how good companies have to have a strong balance sheet, but it does not present any company with one.

The Little Book That Builds Wealth | Moat: N/A | Understandability: 2 / 5 | Balance Sheet Health: N/A

This book is an investment guide on how to use the concept of economic moats to identify great companies that have long-lasting business models and high profitability.

Business Description

This book does not describe a specific business, but instead outlines the core concepts of creating wealth by investing in stocks that have good underlying economics. It focuses on identifying and investing in stocks that have moats, meaning companies with durable competitive advantages that can resist market pressures and produce profits for the long run. The book has the following principles:

Identify Businesses with Moats: Look for businesses that have the ability to produce returns on invested capital above the weighted average cost of capital for several years. It stresses on the importance of identifying the sources of those economic profits and if those sources are stable and long-lasting.
Wait for an attractive price: The stock must have a reasonable price which must be less than its actual potential value. This means one should not buy stocks just for the sake of it, but to wait for the price to align with their own valuations. It emphasizes that value is determined by what a company can earn in the future, which needs to be understood properly before jumping into an investment decision.
Hold for Long term: If you buy a company that meets the above criteria, then it should be held until the fundamentals change, until the company becomes overvalued, or another better option appears.
Repeat: Repeat the cycle once over and over again to take advantage of the opportunities that appear in the market. The book describes multiple types of moats, such as, intangible assets(brands, patents), high switching costs, network effects, and cost advantages. It offers detailed analysis and explanation of each type. The book guides on how to assess the importance of the moats and their ability to sustain competition. The book stresses that management matters less than we think in the presence of a good moat.

Financials

The book does not contain any financial data for a specific company. Rather, its focus is on the use of the economic moat concept, along with valuation techniques, to select investment choices.

Moat

This book does not apply to a specific company, but provides a framework to determine a business’ moat. It emphasizes on the importance of identifying companies with strong and defensible competitive advantages to ensure long-term returns. It also highlights that just having moats is not enough, one needs to look at the valuation, and buy at a reasonable level to take advantage of those moats.

Risks

The book emphasizes that risks lie in paying too high a price and also focuses on avoiding speculative investments. It provides guidance on how to identify a company that is not worth the price being paid by considering the financial fundamentals and long-term competitive positioning.

Understandability

This book, even though it discusses core financial concepts, is pretty easy to read, and easy to understand for an investor. The analogies and real world examples make it easy to grasp and apply to investment decisions. The concepts are straight forward and are pretty digestible. I would give the understandability of this book a rating of 2.

Balance Sheet Health

This book is not analyzing any specific company, so it’s balance sheet health is not applicable. The book advises on understanding the quality and strength of a company and its moat, which can result in good financials.

The Essays of Warren Buffett: Lessons for Corporate America | Moat: N/A | Understandability: 2/5 | Balance Sheet Health: N/A

This book compiles the essays of Warren Buffett, where he discusses his investment philosophies, and offers his guidance on various financial topics.

Business Description

The book collects Warren Buffett’s essays, which are taken from his letters to shareholders and other articles. It provides valuable insights into his investment methods and thinking.

The book is divided into several different parts, such as, corporate governance, corporate finance, common stock, mergers and acquisitions, and accounting and taxation. Through these essays, Buffett provides key learning on his approach to value investing, management analysis, capital allocation, and financial statements. His wisdom comes from decades of investment experience, and understanding of businesses. Some key topics and takeaways include:

The importance of integrity: Honesty and good morals in management is a crucial factor for long term success.
Value Investing: The focus of buying businesses based on their intrinsic value instead of their price.
Owner-Oriented Business Principles: The importance of treating shareholders as partners.
Understanding financial information: Knowing how to look at financial information and avoiding manipulation.
Focus on a few things: Not over-diversifying. Instead, focus on a limited number of well-understood companies.
Avoidance of excessive leverage.
Importance of long-term thinking
Using cash wisely
Importance of intrinsic value. The book stresses that one should not look at the market price of a stock to determine whether it is good, but instead one has to determine what a business is worth, and make a decision based on that.

Buffett uses various illustrations and case studies to explain his concepts. It also shows the evolution of his investment techniques and thoughts over time.

Financials

This book does not focus on any specific company’s financials. It focuses on the main ideas behind investing wisely and following key financial principles.

Moat

This book doesn’t analyze any specific company. However, it explains what characteristics a business should have in order to create a durable moat. It describes how management can build a business with strong moats and how investors should find these companies.

Risks

This book emphasizes the importance of managing risk by focusing on value investing and avoiding speculative investments. It shows how not to make mistakes and be a sensible investor by identifying the key tenets of good investments.

Understandability

The book’s writing is quite eloquent and has a high number of anecdotes, which makes it a bit more difficult to follow. However, if you have the prerequisite knowledge it won’t be too difficult to understand the core concepts. It requires careful reading, but it is worth the effort to read them, given the kind of wisdom that is present in each section. For this reason, it gets a 2 out of 5 when it comes to understandability.

Balance Sheet Health

This book does not talk about the balance sheet health of specific companies, but instead focuses on the qualitative aspects of the business. However, it often refers to the importance of balance sheets, and that companies with large assets and lower liabilities are typically the best candidates for investments.

The Intelligent Investor | Moat: N/A | Understandability: 3/5 | Balance Sheet Health: N/A

This book is a comprehensive guide on value investing. It shows how to find investment opportunities using a defensive and enterprising approach.

Business Description

This book provides a good summary of the author, Benjamin Graham’s investment philosophy. Graham provides a framework for selecting investments, while also providing examples of both the good and the bad that has happened in the past. He categorizes investors into two types, the defensive and the enterprising. The book focuses on the importance of long-term analysis and maintaining a good margin of safety. It also stresses on avoiding speculative investments and focusing on high quality, stable companies. It emphasizes that a good and informed investor needs to have a strong discipline and control over emotions to be able to effectively navigate the market. Some Key Topics covered are:

The importance of the margin of safety: The stock price should be well below the underlying value of the business to be a worthwhile buy.
The difference between investment and speculation.
Methods to evaluate bonds and preferred stocks.
The stock market history
The importance of value investing
Strategies for defensive and enterprising investors
An analysis of the various common stock and their characteristics
The role of management in business and investing.

The book also focuses on how investors should approach the market, and how to build good portfolios that provide a sufficient amount of safety to the invested capital, while still providing a decent return over the long run.

Financials

This book does not contain any specific financial data of any company. It is a general investment book which provides a framework on investing using the value investing approach, with strong emphasis on safety. It relies on financial information when making valuation judgments, but it does not focus on a single company.

Moat

This book does not apply to a specific company and its moat. But it explains how to identify companies that have a lasting competitive advantage over time, through qualitative and quantitative analysis.

Risks

This book focuses on avoiding undue risks by practicing value investing and focusing on the protection of principal. It emphasizes the importance of having a margin of safety, while warning against speculative stock practices. It also discusses the risks of relying too heavily on past data and financial statements, and how to identify red flags from companies in order to avoid the pitfalls of the market.

Understandability

The writing is slightly complex, but it is well-structured and easily understandable. It covers a large number of concepts which require a deep understanding of how the market works and how investment is done. A beginner might have some difficulty understanding the intricacies explained in the book. For this reason, I have rated its understandability at 3 out of 5.

Balance Sheet Health

The book does not talk about the balance sheet health of a single company, and instead provides the framework to analyze different balance sheets, and emphasizes the importance of having adequate cash reserves, low debt to equity ratio, and strong financial position in a business that one wants to invest.