Canadian Imperial Bank of Commerce (CM.TO)

#1 safest bank of the top 100 according to Bloomberg. Has best ROE of Canadian banks. Also, highest Basil 3 capital levels. Trades at 10 X below its 2012 EPS. Yield of 4.47% and this could rise 20% in the next 2 years.

All the banks have done pretty well this year and will probably all increase their dividends 4% to 5%. Doing pretty well in Canada as well as doing well with their US assets. 4.5% dividend.

If the market hangs together here and works its way higher, driven by some of the liquidity in the market, then the Canadian banks are going to perform just fine. Dividends are going to continue to get paid and continue to grow, albeit it will be slower than has been historically. Thinks the long-term theme in this market is dividend growth and you will get a more significant total return if you can pick up the yield plus you get some growth in the capital value. In the last 15 years, financials have been big winners. Feels that the long-term secular growth rate in North America is going to be better found in energy infrastructure.

What is the effect of Basel III on the future of this bank’s preferreds? The main change in Basel III is that preferred shares must be convertible to common shares in the event the relevant bank is no longer viable. He thinks what will happen is that all existing preferreds will go away, called by the banks and they’ll issue new ones with a conversion feature. When talking to your advisor, this is called NVCC (nonviable contingent capital).

NA-T is 20% upside to model price, CM-T is 13% upside at $90, BMO is 12%, and the rest are right on their model price. CM-T is the second highest ranked compared to model price.

Banks are looking quite attractive in valuation terms. All of our big 8 banks are pretty well managed and you can’t go too far wrong. This one screened #1 in terms of the big banks today on his screens.

(Top Pick Nov 25/11, Up 20.79%) A favourite bank. Is discounted on a PE ratio basis but on a book value basis it is at a slight premium. 4.8% Dividend. The most profitable bank on an ROE basis but BASL3 will reduce that somewhat. We will see some modest growth going forward. 7-10% overall return expected for the next few years.

Preferred shares. What is the effect of Basel III on the future of these? These are international standards and the big thing here is the Tier 1 Capital rules and what is included and what is not included. Old rules allowed certain long-term investments, including longer-term bonds and preferred shares. Learned in 2008 that the cushion wasn’t as big as had been expected and they wanted a concept called Tangible Common Equity. Common shares are tier 1 capital but exclude a number of things including preferred shares. Phases in starting in 2013 with a reduction of 10% per year. There is less of an incentive for banks to issue this kind of security. CIBC is interesting. They have recently called in all of their longer-term perpetual except for 3 (D, E and G) which where convertible. An agreement was reached where these are now designated as non-viable contingent capital.

Well managed but doesn’t see as much growth as with the other banks. Blew their brains out a couple of times in the US so they have come back to Canada and are trying to be more efficient in Canada. Good yield. He would rather have the growth banks.

Thinks you will see dividend growth out of the banks in general. He is underweight financial services sector as he is concerned about the health of the Canadian consumer. There were some interesting stats last week relating to household debt and personal disposable income which will affect the banking sector. In the last few years, banks have made a lot of money through personal loan growth. Although this could be offset by an increase in commercial loan growth, in the meantime it is a headwind that they are going to have to combat going into 2013. This has one of the highest consumer concentrations in Canada so is one of his least favourites. Dividend of 4.8%

Likes banks and is overweight in financials. A lot of people should be considering purchasing banks because of the dividend. CM has good support at $74. Looks like it is turning over a bit but thinks it is temporary. We are close to a breaking out point. If we get above $78 we will get to the mid-$80s. $73.50 stop loss.

(Market Call Minute) One of the better banks.

Still has room to grow. It is under a cloud along with the Bank of Montréal (BMO-T) over some past miscues and management is going to have to work hard to dispel those worries. If you are looking at it on a three-year basis, he would own it.

This bank has done a tremendous job in improving its operations. Hasn’t been any mistakes lately. Valuation is very cheap. If you can buy a top quality bank at 10X earnings with a 5% dividend with a growing dividend in an economy that is doing quite well, you should be buying it all day.

Has an above average yield for banks of 4.85%. From a long-term perspective, it is trading a little bit on the high side of its long-term valuation. Doesn’t think there is a ton of risk but if you own, you should expect a 10%-15% downside risk.