OREANDA-NEWS. Fitch Ratings has affirmed Canadian Imperial Bank of Canada's (CIBC) long- and short-term Issuer Default Ratings (IDRs) at 'AA-' and 'F1+' respectively. The Rating Outlook remains Stable.

This rating action follows Fitch's periodic review of the Canadian Banks Peer Group, which includes Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CIBC), Caisse Centrale DesJardins (CCD), National Bank of Canada (NBC), Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD).

For further discussion of the Canadian Bank Peer Review, refer to the special report to be published shortly.

KEY RATING DRIVERS
IDRS, Viability Ratings (VRs) AND SENIOR DEBT

CIBC's ratings are supported by the company's solid franchise in Canada, sound capital levels, strong asset quality, continued earnings stability, strong funding and liquidity position and favorable metrics relative to international peers. Furthermore, similarly to peers, ratings benefit from Canadian's strong regulatory environment and the concentrated banking sector with high barriers to entry, which has supported performance over a long history and various banking crises. Additionally, the Canadian Mortgage and Housing Corporation (CMHC) insurance plays an important role in supporting the balance sheets of all Canadian Banks.

That said, Fitch believes that all Canadian Banks, including CIBC, are vulnerable to credit deterioration in their domestic loan portfolios given pressures on the economy, particularly at a time when consumer indebtedness is at record high levels, combined with Fitch's view that the Canadian housing market is overvalued by about 20%. Should the rapid decline in global oil prices cause an economic slowdown in Canada that impacts employment levels it could hasten potential credit deterioration. For 2016, Fitch believes most Canadian banks' earnings will be challenged given that provision expenses will likely increase, the persistent low-rate environment, and potentially weaker economic activity in their home market.

CIBC's residential mortgage portfolio includes 64% insured, which is higher than its peers. For its uninsured mortgages, the company reported a low loan-to-value ratio of 59%. Given the characteristics of CIBC's residential portfolio, Fitch believes the bank is in a better position than some of its peers should a material housing correction occur. However, should pressures in the economy drive a sharp increase in unemployment, CIBC has the largest exposure to the Canadian consumer at 76.9%% of total loans at year-end 2015 (YE15) compared to a peer average of 68.3%.

CIBC continues its focus on growing its wealth management business and management has successfully increased contribution rate from the segment to 14% of net income, which is line with management target. Several acquisitions, such as Atlantic Trust Private Wealth Management and MFS McLean Budden, have all supported earnings growth in recent years. Fitch believes CIBC will continue to evaluate acquisition opportunities, particularly in the U.S, which continue to be in-line with strategic goals. That said, CIBC recently announced its 41% minority stake in American Century. In Fitch's view, the sale seems to be in contrast to CIBC's desire to grow wealth management business although the company noted that its decision to sell was driven by the fact it would be unable to gain full control of the company over the long term.

CIBC's capital position is solid for the rating category and compares well to other similarly rated global financial institutions, in Fitch's opinion. Fitch notes that Canadian Banks in general have risk-weighted assets (RWA) that may be lower given the 0% risk-weight assigned to mortgage loans that are insured by CMHC. However, OSFI has announced it plans to enhance its regulatory capital framework of residential real estate loans including risk sensitive floors to ensure capital requirements reflect underlying risks, which will likely take effect by the end of 2017.

SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF)

The affirmation of BMO's SR of '2' and SRF of 'BBB-' reflect Fitch's view that the likelihood of support remains relatively high for Canadian Banks due to their systemic importance in the country, significant concentration overall of Canadian banking assets amongst the institutions noted above (which account for over 90% of total banking assets), the large size of the banking sector with banking assets at 2.1x Canada's GDP, and the Canadian banks' position as key providers of financial services to the domestic economy.

In Fitch's view, Canadian banking authorities through the CDIC Act, have wide latitude to resolve a troubled bank including re-capitalizing an institution, creating a bridge bank, or imposing losses on creditors.

Fitch recognizes that the government's willingness to provide support for D-SIFIs in Canada has been reduced as seen by the Department of Finance consultation paper which outlines the proposed bail-in regime as Canadian banking regulators seek to protect taxpayers from the risk of a large financial institution failing. This is evidenced by the issuance of non-viability contingent capital (NVCC) instruments, resolution powers given regulatory authorities under the CDIC Act, and other initiatives that demonstrate the Canadian government's progress to reduce the propensity of state support for banks going forward.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by CIBC and its subsidiaries are all notched down from the common VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably.

CIBC's subordinated debt is notched one level below its VR of 'aa-' for loss severity in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

CIBC's preferred stock is five notches below the VR, made up of two notches down for non-performance and three notches down for loss severity.

SUBSIDIARY AND AFFILIATED COMPANY
All of the subsidiaries and affiliated companies as part of the Canadian Bank peer review factor in a high probability of support from parent institutions to the subsidiaries. This reflects that performing parent banks have very rarely allowed subsidiaries to default. It also considers the high level of integration, brand, management, and financial and reputational incentives to avoid subsidiary defaults.

RATING SENSITIVITIES
ISSUER DEFAULT RATINGS, NATIONAL RATINGS AND SENIOR DEBT
Given its already high rating level, Fitch does not expect any upside to CIBC's ratings over a medium-term time horizon.

However, negative rating actions could be driven by significant deterioration in earnings and/or credit performance, triggered by risks to the consumer, whose leverage profiles are at record highs. Fitch believes CIBC may be more exposed to consumer-specific trends than the peer average, given the relative size of its credit card book and overall consumer loan portfolio. As a result, material credit deterioration in those assets could have an outsized impact on overall results, and could drive negative rating actions.

While some credit normalization is expected, Fitch notes that this could be hastened or more severe due largely to exogenous macroeconomic risks, such as continued pressure in the global oil and gas markets, which impact consumers' ability to service debt obligations.

A change to CIBC's risk appetite, an inability to integrate accretive wealth management acquisitions, a weakening liquidity profile, and/or reduced buffers on new and updated regulatory capital minimums could also lead to negative rating momentum. Further, CIBC's future deployment of capital for acquisitions should continue to make strategic sense. The company has signaled its acquisition targets as private banking or commercial banking in the U.S., which ties in well with its existing wealth management business.

SUPPORT RATING AND SUPPORT RATING FLOOR
SR of '2' incorporates Fitch's expectation that there could be some level of support for the Canadian Banks going forward, although it has been weakened given bail-in legislation. Although Canadian authorities have taken steps to improve resolution powers and tools, they intend to maintain a flexible approach to bank resolution.

Fitch's assessment of continuing support for Canadian D-SIFIs has to some extent relied upon resolution powers granted regulators under the CDIC ACT as well as the potential size, structure, and feasibility of NVCC implementation. In addition, continued regulatory action to ensure sufficient contingent capital has been implemented for all Canadian banks.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The subordinated debt ratings are primarily sensitive to any change in the VRs of the banks (or bank subsidiaries).

The preferred securities ratings of CIBC and CIBC Capital Trust reflect the ability of management and regulatory authorities to suspend dividends, which results in the rating being five notches from CIBC's VR.

SUBSIDIARY AND AFFILIATED COMPANIES
The subsidiary and affiliated company ratings including CIBC are primarily sensitive to any change in the VRs of the banks.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by CIBC and its subsidiaries are primarily sensitive to any change in CIBC's IDR.

Fitch has affirmed the following ratings:

Canadian Imperial Bank of Commerce
--Long-term IDR at 'AA-'; Stable Outlook;
--Short-term IDR at 'F1+';
--Viability Rating at 'aa-'
--Short-term debt at 'F1+';
--Senior unsecured debt at 'AA-';
--Senior market-linked securities at 'AA-emr';
--Subordinated debt at 'A+';
--Preferred stock at 'BBB';
--Support Rating at '2';
--Support Rating Floor at 'BBB-'.

Canadian Imperial Holdings, Inc.
--Short-term debt at 'F1+'.

CIBC World Markets Plc
--Long-term IDR 'AA-'; Stable Outlook;
--Short-term IDR 'F1+';
--Support Rating '1'.

CIBC Capital Trust
--Preferred stock at 'BBB'.