Canadian Financial Giant CIBC Pulling Back From U.S. Office Real Estate

Canadian Imperial Bank of Commerce is pulling back from U.S. office real estate in the wake of a weak earnings report, the company said Thursday during its second-quarter earnings call.

“It's a part of the business we're de-emphasizing,” U.S. Group Head Shawn Beber said during the call. “And as that transition continues, you'll see CRE wind up being a smaller percentage of the overall U.S. portfolio, as our commercial and industrial and our wealth businesses continue to grow.”

The company reported net income of $45.5M in U.S. commercial banking and wealth management for the second quarter, down 62% from the same period last year, which the bank chalked up to higher credit provisions, largely in its office portfolio.

Total provisions on impaired loans came in at $351M, up $72.8M quarter-over-quarter for the bank.

The increase was driven by the bank's U.S. commercial portfolio, the bulk of which was attributable to its office commercial real estate exposures, Chief Risk Officer Frank Guse said. CIBC also experienced significant impaired losses in its retail portfolio. 

“We saw sustained headwinds in the U.S. office sector,” Guse said, also noting that the bank's exposure to the sector is relatively small, totaling less than 1% of its loan portfolio.

CIBC was the latest in a string of Canadian banks to report weak second quarters due to bad loans, Reuters reported.

"That's the No. 1 theme ... the big increases in credit loss provisions," Brian Madden, chief investment officer at First Avenue Investment Counsel, told Reuters.