Feb 25, 2016
Operator
Welcome to the CIBC First quarter Results Conference Call. Please be advised that this call is being recorded.
I would now like to turn the meeting over to Geoff Weiss, Senior Vice President, Corporate CFO and Investor Relations CIBC. Please go ahead, Mr.
Weiss.
Geoff Weiss
Good morning and thank you for joining us. This morning CIBC's senior executives will review CIBC's Q1 2016 results that were released earlier today.
The documents referenced on this call including CIBC's Q1 news release, investor presentation and financial supplement can all be found on our website at CIBC.com. In addition, an archive of this audio webcast will be available on our website later today.
This morning's agenda will include opening remarks of Victor Dodig, CIBC's President and Chief Executive Officer. Kevin Glass, our Chief Financial Officer will follow with the financial review and Laura Dottori-Attanasio, our Chief Risk Officer will close the formal remarks with a risk management update.
After the presentations, there will be a question and answer period that will conclude by 9:00 AM. Also with us, for the question and answer period are CIBC's business leaders including Harry Culham, Steve Geist and David Williamson, as well as other senior officers.
Before we begin, let me remind you that any individual speaking on behalf of CIBC on today's call may make forward-looking statements that are subject to a variety of risks and uncertainties. These statements may include material factors or assumptions that could cause CIBC's actual results in future periods to differ materially.
For more information, please refer to the note about forward-looking statements in today's press release. With that, let me now turn the meeting over to Victor.
Victor Dodig
Thank you, Geoff and good morning, everyone. Welcome to our first quarter call.
This morning, CIBC reported a strong quarter to start 2016. For the first time, our adjusted earnings surpassed CAD1 billion and adjusted earnings per share of CAD2.55 were up 8% from last year.
Our CET1 ratio remains strong at 10.6% and we announced another CAD0.03 increase to our quarterly dividend which is now CAD1.18 a share. We expect our CET1 ratio to increase by approximately 50 basis points, when the sale of our stake in American Century Investments closes later this quarter.
While our first quarter results were strong, we're very mindful of the difficult business and economic climate that we're in. In addition to weak energy prices, there's broad investor unease about the global economy.
The banking industry is also changing dramatically, as advances in technology are facilitating new channels for payments, lending and other financial transactions. At CIBC, we're focused on transforming the way we operate as a bank to address these headwinds.
We have initiatives in place to transform our culture, to transform our cost base and our growth profile within our existing footprint. Program Clarity which was introduced at our Investor Day last October is designed to reduce operating expenses by taking out old economy costs and reinvesting some of the savings into the new economy.
And to have a technology edge, when it comes to banking for our clients. From a financial perspective, we're on course to meet our 2016 target of approximately CAD100 million of run rate savings, most of which will be reinvested in strategic priorities to grow our business.
Some of the cost savings realized have come from the restructuring we announced in the fourth quarter of last year, renegotiating contracts with our vendors and other items like premises consolidation, data management, automation and digitization. The broader transformation and simplification of our bank for a better client experience is also progressing.
So here is a few examples. We simplified the structure of our banking centers, we have one leader running our banking center in their entirety.
We expanded the scope of our digital channels to allow our clients to bank when, where and how they want and we're improving our internal processes to make it easier to bank with us as a client. I'm going to turn now to the results from our business units.
Retail and business banking reported a very strong quarter, with adjusted earnings growth of 12% year-over-year. We continue to see evidence that our client-focused strategy is working.
We've taken management action to have a higher performing retail bank. We achieved solid volume growth in business and personal deposits, business lending and mortgages.
While we're pleased with the progress we're making, we also are continuing to invest. So to maintain our momentum in providing clients with choice and flexibility, we introduced two new products this quarter, the CIBC Smart Account and our new Dividend cash-back card.
The Smart account is a client-centric product that adapts to our client needs. It has a flexible monthly fee, a fee that's waived for clients who maintain a minimum daily balance of CAD3,000 and it's capped at CAD14.95 for unlimited every day bank transactions per month and that includes Interac e-Transfers.
Our new Dividend cash-back card is the latest addition to our non-travel card line-up and responds to direct feedback from our clients who want greater choice and more rewards on everyday purchases. During the quarter, we also continued to increase and be recognized for our investments in technology and innovation to meet the needs of our clients.
We opened Live Labs as part of the MaRS Discovery FinTech District cluster, a new facility where talented CIBC teams can collaborate to develop the next wave of relevant banking innovation for our clients. And for the second year in a row, we've received the top overall ranking amongst the five largest retail banks in Canada for our online banking functionality from Forrester Research.
My colleague, David Williamson, is here this morning to answer questions about retail and business banking. Let's turn to wealth management, where adjusted earnings were down 8% year-over-year or 1% excluding the divestiture of American Century.
In our wealth management business, we also remained focused on strengthening and extending our platform, while ensuring we support our clients to the current market volatility. During the quarter, we enhanced our internal client referral framework to make sure that our clients are served in the right CIBC offer for their banking and investment needs.
And furthering a strategic goal of expanding our wealth management presence in the U.S., CIBC asset management was granted Commodity Trading Advisor Registration to actively manage currency mandates in the U.S. market.
This will open up an opportunity for us to further leverage our Atlantic Trust footprint and expand our product offerings to U.S. clients.
My colleague, Steve Geist, is here this morning to answer any questions you might have on wealth management. In capital markets, earnings were down 7% year-over-year, but well up from the fourth quarter on the strength of higher revenue and global markets.
Our capital markets business performed well through the uncertain markets, effectively managing risk, while supporting our clients and helping them manage through their own business challenges. Our capital markets franchise continues to hold market leadership positions in syndicated loans, debt and equity underwriting, M&A advisory and trading activities.
Some highlights from this quarter including being awarded joint lead and bookrunner of the $1 billion global offering for the Province of Manitoba and being the exclusive advisor to Baybridge Seniors Housing, Inc. on its CAD1 billion acquisition of Amica Mature Lifestyles, Inc.
In the U.S., we strengthened their coverage and execution capabilities with the addition of new talent, specifically in the areas of global infrastructure finance, debt capital markets and global markets. My colleague, Harry Culham, who heads our capital markets business is here this morning to answer questions on that business.
In summary, I think we achieved very strong results this quarter during a period of greater market uncertainty and volatility, conditions that may persist for the near- to medium term, particularly as weak energy prices continue to be a drag on economic growth, both in our own country here in Canada and globally. But whatever market conditions we encounter, the collective focus of our CIBC team members will remain on the following, to sustain and build on our current financial strength, to simplify and transform the way banking is done for our clients and to deliver innovative and sustainable growth for our shareholders.
Before I conclude, I would like to thank the entire CIBC team for our collective efforts in serving our clients so well and for delivering value to our shareholders. Now with that, let me turn it over to our CFO, Kevin Glass.
Kevin Glass
Thanks, Victor. In my presentation, we'll refer to the slides that are posted on our website, starting with slide 6.
And as Victor mentioned, we're very pleased with our record first quarter results and our adjusted EPS of CAD2.55 for the quarter. Record earnings in retail and business banking reflect strong loan and deposit growth and despite the challenging marketing environment, we had stable results in both our wealth management and capital markets segments.
And also we increased our quarterly dividend by CAD0.03 to CAD1.18 per share. We have four items of note during the quarter which resulted in a negative impact of CAD0.12 per share.
The two more significant ones, being a CAD51 million after-tax charge against our non-impaired loans which have been included in the collective allowance and a CAD15 million income tax recovery, arising from a change in our expected utilization of certain tax loss carry forwards, primarily due to the sale of our minority position in ACI. The balance of my presentation will be focused on adjusted results which exclude these items of note.
We have included slides with reported results in the appendix to this presentation. Let me now review the performance of our business segments, starting with the results for retail and business banking on slide 7.
Revenue for the quarter was CAD2.2 billion, up 8% from last year driven by strong results in both personal and business banking. Volume growth was strong, with both loans and deposits up 8% year-over-year.
If we look at our individual lines of businesses, personal banking revenue was CAD1.7 billion, up 8% compared with the same period last year. Performance benefited from volume growth, wider spreads on our variable rate lending products and higher insurance and card fee income.
Personal lending balances were up 7% and personal deposits were up 6% from the same period last year. Business banking revenue was CAD425 million, up 6% from last year, driven by strong volume growth and higher credit-related fee income, partly offset by narrower spreads.
Business lending balances were up 12% and business deposits were up 11% from the same period last year. The other segment had revenue of CAD16 million which was down CAD7 million from the same period last year due to the continued run-off of the exited first-line mortgage broker business.
The provision for credit losses was stable at CAD163 million. Non-interest expenses of CAD1.1 billion were up 4% from the prior year.
We continued to invest in strategic growth initiatives directed towards our transformation into a modern, convenient and innovative bank, while remaining committed to improving productivity. While spending is in line with the expectations, stronger top line growth contributed to this quarter's positive operating leverage of 3.5%.
This resulted in a mix ratio of 50%, an efficiency improvement of 170 basis points from the prior year. Net interest margin was down 3 basis points from the prior quarter, mainly due to narrower spreads on variable rate lending products.
And retail and business banking reported record net income of CAD686 million, up 12% from the same period last year. Slide 8 reflects the results of our wealth management segment.
In December, we announced an agreement to sell our minority position in American Century Investments for approximately $1 billion. Following this announcement, in accordance with IFRS accounting rules our investment was reclassified to held-for-sale.
And as a result, we no longer recognize our proportionate share of ACI's income. The other line of business was established to include the results of ACI which was previously reported under asset management.
The revenue for the quarter was CAD602 million, down CAD19 million or 3% from the prior year. Retail brokerage revenue of CAD308 million was down CAD7 million or 2%, as a result of lower commission revenue mainly due to a decline in transaction volumes, partially offset by higher fee-based revenue.
Asset management revenue of CAD181 million, was up CAD9 million or 5% from the prior year, This was largely due to higher assets under management, driven by strong net sales of long term mutual funds over the course of the year. Private wealth management revenue of CAD98 million was down CAD11 million or 10%, mainly due to lower annual performance fees earned in our Atlantic Trust business.
While we earned a modest performance fee this year, it was down CAD23 million from last year, largely driven by market conditions, this is partially offset by the impact of foreign exchange rates and volume growth in Canadian-based loans and deposits. Other revenue was down CAD10 million, as we ceased recognition of income in ACI after announcing the sale in December.
Non-interest expense of CAD436 million were down CAD8 million or 2%, primarily due to lower performance-based compensation, driven by lower revenue. Net income in wealth management was CAD122 million, down CAD10 million or 8% from the first quarter of last year.
Excluding ACI, earnings would have been flat to prior year, despite the recent turmoil in the financial markets. Turning to capital markets on slide 9, we delivered strong results, despite the challenging environment.
Revenue this quarter was CAD686 million, in line with the prior year. Global markets revenue of CAD391 million was up CAD31 million from the prior year, driven by higher revenue from interest rate and foreign exchange trading and global markets financing activities.
Corporate and investment banking revenue of CAD286 million was down CAD23 million from the prior year, driven by lower CMBS revenue from our U.S. real estate finance business, lower investment portfolio gains and lower underwriting activities partially offset by higher advisory revenue.
The provision for credit losses was CAD25 million in the quarter, compared with CAD14 million in the prior year and this was due to losses in two accounts in the oil and gas sector, partially offset by lower losses in our U.S. real estate finance portfolio.
Non-interest expenses of CAD342 million were up CAD14 million from the prior year, primarily due to higher employee-related costs and the impact of a weaker Canadian dollar. Net income of CAD248 million was down CAD19 million from the prior year.
Slide 10 reflects the results of the corporate and other segment. The net loss for the quarter was CAD27 million, compared with a net loss of CAD55 million in the prior year and this was due to higher earnings in CIBC FirstCaribbean as a result of favorable foreign exchange and strong credit performance.
And going forward, we expect losses in this segment to be more in line with the prior year. But having said that, revenue in the segment including treasury and the TEB offset can be volatile and are impacted by a number of market variables.
CIBC's capital position remains strong and we continue to remain well-positioned for the evolving regulatory and capital environment. Our CET1 ratio was 10.6% or 20 basis points lower than the prior quarter.
Solid organic capital generation was more than offset by the impact of higher risk-weighted assets, largely as a result of strong growth in our corporate lending portfolios and to a lesser extent, portfolio downgrades. The repurchase of 2.3 million shares during the quarter reduced our CET1 ratio by 13 basis points.
Our Basel III leverage ratio was 3.8%, well above the minimum required by our regulator. To wrap up, we're very pleased with our record results for this quarter which demonstrates strong performance and continued momentum across our businesses.
With that, I'd like to turn the meeting over to Laura Dottori.
Laura Dottori-Attanasio
Thanks, Kevin. Good morning, everyone.
So let's begin with our loan loss performance on slide 13. On an adjusted basis, loan losses came in at CAD193 million or 26 basis points, that's down CAD5 million from the prior quarter.
On a reported basis, loan losses were CAD262 million this quarter, that's up 32% from CAD198 million last quarter, mainly due to a CAD69 million increase in our collective allowance for non-impaired loans which is treated as an item of note. This was primarily driven by the deterioration in the commodity sector.
Turning to slide 14, new formations were down to CAD329 million this quarter which is lower than the average over the past two years. Gross impaired loans were up quarter-over quarter, primarily as a result of the U.S.
dollar appreciation and one oil and gas account going impaired. This however, was partially offset by the repayment of an impaired oil and gas loan.
As a percentage of gross loans and acceptances, gross impaired loans remained unchanged at 49 basis points this quarter which is the lowest level we've had over the last two years. To review our oil and gas portfolio, slide 15 shows our corporate and business banking exposures.
You'll see they were up 8% from CAD17.3 billion in the fourth quarter to CAD18.7 billion, that's due to a combination of increased authorizations and foreign exchange. Our loans outstanding increased 13% quarter-over quarter to CAD6.7 billion and that's partly due to the utilization increase, some of which is seasonal as well as foreign exchange.
74% of our exposure is investment grade and that's down from 78%. From a subsector perspective, 56% is to exploration and production companies, with only 4% in the services space.
During quarter, we downgraded about 38 accounts and nine names were added to our oil and gas watch list and as discussed earlier, one name became impaired. Slide 16 shows our retail exposure to the oil provinces of Alberta, Saskatchewan and Newfoundland.
You'll see that our exposure was flat quarter-over quarter at CAD39 billion. Excluding insured mortgages, we have CAD18 billion which is up 3% or CAD500 million on a quarter-over quarter basis.
January saw Alberta's unemployment rate move from 7% to 7.4% which surpassed the Canadian unemployment rate for the first time in almost three decades. Against this backdrop this quarter, we did begin to see delinquency increases across various retail products, particularly in credit cards and unsecured lending.
So in response, we started to tighten some risk management strategies with things like limit decreases. Overall, I'd say that our portfolios continued to performance expected.
And in the event that oil prices continue to remain at these low levels, we would expect to see continued negative migration in the corporate space and increased losses in our retail accounts. Turning to cards on slide 17, delinquencies rose to 2.4% from 2% last quarter.
That's driven mainly by the oil provinces and seasonality. Our net credit losses were CAD92 million, up CAD4 million from a seasonal low in the last quarter and in line with the same period last year.
Our Canadian residential mortgage portfolio is highlighted on slide 18. As you can see, 61% of our portfolio is insured, with 80% of the insurance being provided by the CMHC.
The weighted average loan-to-value of our uninsured portfolio is 59% and has remained stable over the past year. Condo mortgages account for roughly 11% of our portfolio, the loan-to-value of the uninsured portion is 61%.
Lastly on slide19, you see the distribution of revenue in our trading portfolios, as compared with VAR. This quarter, our average trading VAR was CAD4.1 million, compared with CAD3.9 million last quarter.
We had positive trading days every day in the first quarter, compared with one negative trading day in the prior quarter. With that, I'll turn things back to Geoff.
Geoff Weiss
Thank you, Laura. Well, that will conclude our prepared remarks.
We'll now move onto questions, Operator? Can we have the first question on the phone, please?
Operator
[Operator Instructions]. Your first question is from John Aiken from Barclays.
Please go ahead.
John Aiken
Since I'm first up, Laura I guess, I get to ask the questions about the collective provision that came through today. You mentioned in your prepared commentary, that it was mostly related to or mostly related to the deterioration in commodities.
Can you tell us how formulaic it is, in terms of generating this provision or how much subjectivity is allowed when you're trying to put something through on the collective?
Laura Dottori-Attanasio
Sure, John. We have quite a process as it relates to how we do our collective allowance.
I would say, that a large part of it is a quantitative piece and a smaller part of it is a qualitative piece. And we have talked about this.
I know that from a Canadian bank disclosure perspective, we don't provide a lot of disclosure. I did mention to Geoff that I'd be more than happy to organize a lunch-and-learn for analysts, to walk you through how our collective actually works, in terms of how the quantitative versus qualitative works and how we actually bucket the various portfolios, if that can help, because this could take a good hour if we wanted to go through all of it.
John Aiken
We still have 35 minutes, Laura, we've had this discussion with some of the other banks. And obviously, the Canadian bank reserving on the energy portfolio is significantly lower than what we're seeing with the rising bar on the U.S.
side. But I mean, one of the arguments on the conservative side for the Canadian banks is the fact, that there is embedded in the collective allowance, portions for the energy portfolio that doesn't get reflected in some of those ratios.
Can you give us some sense, in terms of how much of the collective is actually earmarked for the energy patch?
Laura Dottori-Attanasio
Yes. And I think, John you're referring to what we saw -- there was I think a report out, as it related to how the U.S.
banks are showing their numbers relative to ours. I think in the U.S., at least from what I saw, was somewhere from 3% to 7%.
If we were to include our collective portion with our specifics -- so the portion that is attributable to oil and gas, our percentage if you will, would be somewhere between 2% to 2.5%. And the reason I think, that it would be lower than what you're seeing in the U.S., you then have to look to the credit quality of our portfolio.
What we saw with the U.S. comps seemed to indicate, that they had about 40% to 70% of their respective portfolios that were in the investment grade space, with a higher amount of services companies.
And what I saw, I think it ranged from 25% to 40%. At CIBC, as I stated earlier, 74% of our loans are to the investment grade space and only about 4% to the services sector.
So we have very high quality in our oil and gas book. And that does reflect, in terms of how much of this you would see in our collective and specific out provisions.
In addition, the U.S. banks will also tend to hold more second lien and junior ranked paper.
And I'd say at CIBC, we generally tend to hold just first lien loans.
Operator
The next question is from Steve Theriault from Bank of America Merrill Lynch. Please go ahead.
Steve Theriault
Laura, just sticking that line of questioning, maybe a quick follow-up, before I move on to something else. But appreciating it will take a long time to go through all of the ebbs and flows, but should we have typically thought of it as more of a capital item?
So when we think of maybe the rest of 2016, I presume, can I think of the collective in terms of something you're not 00 not particularly likely to drawdown on. And when we see losses through the rest of the year, they're probably still going to come through the P&L through the specific line, is that?
Maybe just help us understand how you may or may not draw down on the capital allowance and to the effect, how much should we really think of it as a capital item relative to risk-weighted assets?
Laura Dottori-Attanasio
Well, I think your comment, Steve, is right. So in a perfect world, as you have deterioration of your portfolios, that should represent itself firstly in the collective allowance and then I would say secondly, in your loan loss provisioning.
That said, you really do have to look at the makeup of your collective allowance, in that you could have a portfolio that is deteriorating, where you could have another portfolio that is actually doing much better and they can cross each other out in terms of how your collective moves. We're seeing this quarter, as you saw a lot of downgrades in the oil and gas space, an increase in delinquencies.
That has been material enough to have moved our collective to increase and our expectation would be to see increased loan loss provisions on a go forward basis. That said, there are cases -- and it can happen, where you don't necessarily see it reflect in the collective, given what I've just mentioned to you, because it depends on how all of your other portfolios are behaving, where you could just see things represent in your loan loss provisioning.
Steve Theriault
Okay and maybe sort of related. Within your stress test scenarios for oil and gas, can you give us a range of outcomes for either RWA inflation or CET1 impact?
And maybe related back to the 12 basis points we're seeing this quarter, how much of those -- I'm assuming most of those portfolio downgrades are related to oil and gas?
Laura Dottori-Attanasio
Yes, well, I can give you -- perhaps if I go back to the stress test that we did. So we ran if you'll recall, our stress test with oil being at $50, $40 and $30 and that was for a consecutive three year period.
With that we had assumed that Alberta unemployment would increase to the national average, so it would go from just below 5% to 7%. When we did that excluding event risk, that showed that our stress losses could range anywhere from CAD350 million to CAD650 million and that was over a three year period.
Now how that would translate if you will, into a potential CET1 impact would be -- call it 30 to 45 basis points impact on the CET1. And, of course, that's over a three year period.
Does that answer your question?
Steve Theriault
And David, the outlook for expenses this year or coming into the year was pretty cautious. My sense was, it was operating leverage was going to be difficult to be positive this year.
Q1 positive, pretty reasonably so. So maybe you could just update us on your outlook for expenses this year?
Has that changed over the last few months?
David Williamson
Yes, if we stand back and look at the results this quarter, I'd say the expense performance and the NIM performance is very consistent with what we discussed at Investor Day and in December. I think the difference, relative to the guidance for 2016, where I was saying that positive operating leverage might be difficult.
I think the difference is really our revenue is stronger than anticipated and frankly, very broadly-based. If you look at personal banking deposits, we look at mortgage growth, the improvement in our cards business and then Kevin, what he outlined for business banking lending growth and business banking deposit growth, all very strong on an absolute basis and very strong on a basis relative to our peers.
So I think that's a function of over the last several years, that we've introduced a lot of change. We pivoted from a product focus to a client focus.
We've invested in the business and these actions are now clearly having a positive impact. They're clearly allowing us to achieve our two objectives of accelerating profitable revenue growth and enhancing the client experience.
So Q1 did come in, in stronger than even I had expected, as far as the revenue growth side. Not expenses to your point, like they are really tracking to where we had indicated, continued investment.
But I think that continued investment, what we're seeing is those factors are going to continue to support our relative performance, irrespective of the macro environment. And we do see headwinds which will challenge the revenue growth we're showing this quarter, but now we do fully expect to have positive operating leverage in 2016, as a result of the performance we're seeing currently.
Operator
The next question is from Meny Grauman from Cormark Securities. Please go ahead.
Meny Grauman
I'm going to be original and ask a question about credit. Just Laura, you talked about the portfolio is performing as expected.
But given the overall macro outlook, it definitely seems like that's pointing to more challenges. So I'm wondering kind of how to square the circle, in terms of like are some portfolios performing better than you'd expected?
Is there some part of the book that is actually surprising you to the upside, given the conditions?
Laura Dottori-Attanasio
Meny, I would say no. When I said the portfolio is performing as expected, as you saw we did have an increase in our collective.
Our expectation is that we're going to see, as I mentioned in my prepared remarks, an increase in loan losses and continued deterioration of our oil and gas portfolios, given the low oil environment that we're in. And so, I think we've seen part of it represent in the collective and my expectation would be in the next few quarters that we're going to see loan losses in this space.
I would tell you that when we got started with this, I actually was expecting to see loan losses represent themselves more in the third quarter to fourth quarter. It feels like we're going to see more of it start in the second quarter.
Meny Grauman
And then if I could just ask a question about the margin. And there's been a lot of talk about negative interest rates and I'm wondering if you could comment just about your views on that, in terms of the impact on margins?
And more interestingly, I think just if you've done any work or thought about sort of the unintended consequences or other potential impacts on the business and things that you worry about in that kind of scenario?
Kevin Glass
So, Meny, let me start. I mean, there certainly has, it's Kevin Glass.
There has been a lot of discussion about negative interest rates and we've been making preparations, to the extent that they do go negative and really looking at it from two or three points of use. So first of all, looking at it from a contractual perspective, going through our contracts to see which of our products have contracts which floor rates at zero.
And then also, there is an infrastructure consideration to take into account, so what changes would we need to make to accommodate negative rates? And we think we have solutions for that, a bit of lead time and we can manage that well.
From an economic perspective, the pricing and decisions we'd need to make to maintain margins, I think that's trickier and harder to actually put a hard number on. But I think to the extent rates do go negative within an industry, we would work to help our clients.
But we'd also look at looking at ways to maintain our margins. But I think that it's too early at this point to give a definitive perspective on that.
Operator
The next question is from Gabriel Dechaine from Canaccord Genuity. Please go ahead.
Gabriel Dechaine
I just have a couple quick questions here. First on the numbers ones, for Laura, the credit ratings that you assign to your oil and gas loans, what's the percentage that's internal versus external?
And then in your loan book, what are the balances in the oil provinces for credit cards and for personal unsecured loans?
Laura Dottori-Attanasio
So percentage of internally rated versus externally rated portfolios, I couldn't give you the exact number, without going in and doing quite the exercise to look at it. As you know, all of our names have an internal rating which is more important I would say than the external rating, in that we need to do quite the analysis and come up with our own determination of risk profile of a company.
We do compare it to an external rating, if there is one. But rule of thumb, when I talk the percentage of our book that is investment grade and I talk about 74%, we end up at about the same place.
So likely the same amount of our book has an external rating, because pretty much all of our investment grade type names would have an external rating, if that can give you an idea?
Gabriel Dechaine
Well, is the internal rating more proactive than external agencies might be?
Laura Dottori-Attanasio
My view would be yes.
Gabriel Dechaine
Okay.
Laura Dottori-Attanasio
And as it relates to your question on the loan book and balances in cards.
Gabriel Dechaine
And personal loans secured, please?
Laura Dottori-Attanasio
And personal loans, so you're looking at what percentage of our book is there? Because it would be -- when we look at the oil provinces, they make up about 20% of our outstandings and that's more or less across all products.
Gabriel Dechaine
My last one is just more of a I guess, a regulatory question. In the U.S., we've got the Shared National Credit review and they've been looking at [indiscernible] loans over the past few years and more on the oil and gas exposures.
In Canada, what's going on, if anything? This isn't a CIBC specific question by any stretch, but is [indiscernible] taking a greater interest in this sector now?
I imagine the answer is yes, but I'd just like to hear your comments on that?
Laura Dottori-Attanasio
I would say that everyone is as interested in this as you are, that is across the board and around the world. I guess, the differences would be that the Shared National Credit in the U.S., they have perhaps a more prescriptive approach when it comes to how the banks rate their borrowers, versus what we see with our Canadian regulator.
Our Canadian regulator looked to us to ensure that we're doing a good job, in terms of how we're assessing risk ratings.
Gabriel Dechaine
So like other regulatory matters, it's a tough word to use, but maybe not as adversarial as it might be in other jurisdictions? Maybe that's a tough one to answer, actually never mind.
Laura Dottori-Attanasio
Yes, I mean I can only speak to us and I would say, that we have very good relationships with all of our regulators.
Operator
The next question is from Sumit Malhotra from Scotiabank. Please go ahead.
Sumit Malhotra
First for Kevin Glass, I just want to get a better understanding of your methodology. So having heard Laura talk for the bulk of this call, about credit downgrades in your portfolio, the migration you're expecting to see in both the corporate and consumer portfolios, why would you view the addition to the collective allowance as an item that would be adjusted out of your operating EPS?
Because it certainly seems like higher loan losses are going to be part of the equation, so just wondering on your thinking from a methodology perspective, as to why that's a non-core item?
Kevin Glass
So we've had a number of discussions on this, Sumit and it's a bit of a no-win situation. Because let me tell you, the reason we did do this is, A, because it's material.
B, because in the current environment, it's something we're certainly talking about is very topical and there may be additions over time. But generally speaking, this is an unusual irregular item.
And then finally, it's consistent for the way we've always treated our increase in the collective. And this kind of goes back to the old general, because this is, increases are relating to our non-impaired loans.
So what we've done is we try and be very consistent or we're very consistent in terms of the way we treat items of note and we're very transparent in terms of the way we do that. So, that from an investment community perspective, we give the community the tools to make your own decisions.
So this is exactly the same way as we've always dealt with it, when we went through the last cycle, when we made some changes a little while recently, relating to some of the Alberta floods. It's absolutely consistent with that.
Certainly, in the environment right now, you could debate it, but we put the number out there. And you can make the decision to what extent it gets included or excluded, but that's why we've treated it this way.
Sumit Malhotra
Okay. I get it.
I know a lot of us we'll play, on these early mornings, we'll play the beat or miss game on these banks and a lot of us will dutifully adjust. But from everything you're talking about, it certainly seems like if it wasn't in adjusted this quarter, it might be three months or six months from now.
So I don't know. You're right, I think we're going to see it treated differently across the group.
But that was just one issue I wanted to get your thoughts on.
Kevin Glass
Yes. What I would say, Sumit also is to the extent, you can go back and look at our results, if we have big releases, we treat those as items of note as well, right?
So this goes both ways. And you'll see, even in this quarter, we've got some credits going through as well.
So I think it's just important for us to be consistent, so as you know what to expect from us.
Sumit Malhotra
I hear you. I think the releases in the new world of the collective seem to be much less prevalent than they were in the past.
But let's move off this and let me ask my actual question and move on. It's for David or Laura and it relates to your view on your credit card portfolio.
When I go back to the 2009 cycle, your credit card losses at least the way I'm looking at it, the peak was over 7% in terms of charge-offs. Today, you're running at about 3%.
Obviously, there has been some changes in that business, you divested of a portion of the Aeroplan portfolio. Perhaps you had a different view on some of the card offerings that you've been running with.
When you think about your stress test scenario or your portfolio as a whole, is it better than it was in the 2009 cycle? Or has there been no major change in terms of how you're thinking about the potential loss rates on the quality of the book?
Laura Dottori-Attanasio
Sumit, it's Laura, so I'll take that and then invite David to add. So when you referenced the peak of our credit card portfolio losses of 7%, just want to clarify that was in one quarter.
And so, the peak over the period of the year which I think is more indicative, was actually just below 6%. So just saved us 1% there, y you're right, that we're more around the 3% level today.
Divesting of Aeroplan does help us somewhat. When we look at our stress today, we have that number increasing to just under 5% in the cards.
And our expectation, when you look at the overall cards portfolio, so I'm including the rest of Canada in that, not just the oil provinces. We do expect our credit card losses to increase somewhat.
When we look at the overall card portfolio or I should say not in the overall card portfolio, but just the card portfolio outside of the oil provinces on a year-over-year basis, we're up about 4%. And with that, I'm looking at the 90 day plus delinquency bucket which I think is the most indicative one to look at, in terms of loss performance.
Sumit Malhotra
And just to be clear on those numbers, that 5%, that is an aggregate portfolio loss rate or is that for the oil provinces?
Laura Dottori-Attanasio
That's for the oil provinces.
Sumit Malhotra
So lower than it was in 2009 and that's maybe your view on the changes in the quality of the book?
Laura Dottori-Attanasio
Yes. I do believe we have a better book.
We've done a lot of work from an analytics perspective. We've put in place something we call a client relationship indicator which has actually proven to be very good for us, in terms of sort of predicting performance in our portfolio.
And I think that's allowed us to tighten or decrease our loss rates. Does that answer your question?
Operator
The next question is from Peter Routledge from National Bank Financial. Please go ahead.
Peter Routledge
I was looking at your delinquency data and actually what surprised me wasn't credit card delinquencies. Personal loan delinquencies looked to be up quite significantly this quarter.
I suspect it's from Alberta, but you can confirm that if possible? And then, what does this tell us about your personal loan portfolio?
Laura Dottori-Attanasio
So our delinquencies, when I look at our personal loans in the unsecured space, so you're right, I guess, that we're up from a quarter-over quarter basis. As I said, I really look at the 90 day plus bucket.
And to take sort of seasonality out of the numbers, I personally prefer to look at this on a year-over-year basis, as I think it provides a little bit more of an indication of what's to come, what's to be expected. We're seeing an increase in that space of just under 50% in Alberta.
But when we look at the rest of Canada on a year-over-year basis, we're actually down just under 30%.
Peter Routledge
You're down 30%, but you're up 50%. Just the 90 plus day delinquencies, go from 25 to 95, right, by the numbers I'm looking at.
I mean we can talk about that offline, but it seemed to be more severe than that. And I guess--?
Laura Dottori-Attanasio
I've got some numbers that are a bit different than the ones you're referencing.
Peter Routledge
Okay, we'll take that offline. Any way you look at it, it seems to be a problem that's growing.
And last cycle in the United States, we did see some banks do blanket revocation of credit limits in areas they were worried about. And you referenced that you've already clipped some limits I think.
Would you consider being more draconian, if things deteriorate further? How will you manage the whole uncommitted or revocable commitment issue?
Laura Dottori-Attanasio
So Peter, just to ensure that I answer your question correctly, you're referring to our risk management strategies, as it relates to our retail portfolios--?
Peter Routledge
Yes.
Laura Dottori-Attanasio
In terms of originations and sort of account management?
Peter Routledge
Cutting back revocable commitments, cutting back credit card limits, cutting back personal loan, line of credit limits.
Laura Dottori-Attanasio
Yes. So we do two things as we look at the portfolio and how it's trending and all of the various buckets.
So from an origination standpoint, we will look at tightening our criteria. And I mean, I will give you examples, it can be where perhaps our cut-off was a certain level of a Beacon score that we might increase and so we aren't onboarding weaker clients, that's one of our risk management strategies that we use.
If we have clients that are already dealing with us and we see that there is beginning to be increased delinquencies or stress, we would use other account management type strategies and that could include things like decreasing actual limits, if that answers your question.
Peter Routledge
Yes, that will be account by account, not necessarily something systematic?
Laura Dottori-Attanasio
That's right. And if we were to do something if you will, that impacted a whole region, where we felt that, because we do look at that, that a whole region is looking like it is riskier, we will look to see if we should tighten -- and it's around things like I mentioned on the origination piece, where we won't be going out as broad, up to potential client base as we might normally do.
Operator
[Operator Instructions]. The next question is from Rob Sedran from CIBC.
Please go ahead.
Rob Sedran
David, you mentioned the good volume growth. A couple of quarters ago, I think you gave us a sense of how that broke down or how it came across nationally and whether some of those oil exporting or oil-sensitive provinces are underperforming or outperforming and how they are doing.
Could you give us an update in terms of where this growth is coming from? And just in terms of what you're seeing business conditions wise?
David Williamson
Yes. So if I look across it geographically, Rob, and do it by kind of segment.
So in business banking, we're seeing growth both on the liability and asset side, pretty uniformly across the country, including Alberta is still showing reasonable growth as well. And when we look at the nature of that growth, it's really about 50% new clients and 50% growth in balances with existing clients.
So it's a very kind of I'd say stable, uniform kind of growth in business banking geographically and also by nature. The mortgage growth is a little bit different.
In that space, our mortgage growth in Alberta is less than our growth rate nationally. And when we looked at market share data, the most recent market share data, we're losing market share in Alberta, as where we're not in other provinces.
So hopefully that gives you a bit of a sense of the nature of the growth.
Rob Sedran
It does, thank you. And does that mean that some of those -- the bank is becoming more risk-averse in some of those parts of the country, basically is the point?
David Williamson
Yes, I guess we're and Laura referred to, the nature of some of the adjustments we're making, given the economic environment in the oil-based provinces. I think a point that Laura made is an important one, in response to Peter and also the question about cards.
We're now looking at indicators as to the nature of the client themselves, as opposed to blanket kind of adjustments. So it could be region-based, but we're trying to recognize the importance of -- as Laura said, just that identifier, with respect to the client does make for a better credit decision.
And the credit card space, by exiting some of the single product relationships and having the deeper relationships, I'd say we have a portfolio now, that's got a different risk profile, because the correlation between credit experience and depth of relationship is a real one and a positive one. So that's that whole move we've made, from product to client.
We're trying to look at adjudication from a client perspective and look at the attributes of those clients.
Operator
The next question is from Doug Young from Desjardins. Please go ahead.
Doug Young
Just wanted to clarify one thing, Laura, something you said to a previous question. Just the CET1 impact from the stress environment that you gave, you mentioned was 30 to 45 basis points on the CET1 over three years.
And I just want to confirm, that is for the direct oil and gas loan portfolio, but would also incorporate the impact on your retail portfolio as well?
Laura Dottori-Attanasio
Yes, that's correct.
Doug Young
Okay. And I guess, the question I have is just from the collective side, when we look at the collective provision you took in the quarter, can you give us a send of how much -- and I'm looking very high level and I know that it's a lot more complicated than this but can you talk a little bit more, give any detail about how much would be refitted to the retail banking side and how much would be related to the capital market side?
Laura Dottori-Attanasio
Yes. About 60% of the move in the collective is related to oil and gas.
And of that, about two-thirds of it relates to the commercial and corporate books and the balance would relate to retail. Does that answer your question?
Doug Young
Yes. And then just on the commercial side, is that all in the capital market side or is that?
I'm just trying to think from a divisional perspective to get a sense. Or I would imagine some of that is going to be split into the business bank and some would be into the capital market side, but if you can clarify?
Laura Dottori-Attanasio
So it is all in the capital markets. We moved all of our oil and gas lending into the capital markets.
There was a time when it was split between both and I believe we did a restatement of numbers as well. Kevin, do you want to?
Kevin Glass
No, I would just say, that we sent out a restatement earlier just before quarter end and it would have reflected the move from commercial into corporate, so those numbers are being restated.
Doug Young
Okay. So 60% collective related to oil and gas, two-thirds of that in the commercial or in capital markets, with the balance in the retail side.
Okay, perfect. Thank you very much.
Operator
The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.
Sohrab Movahedi
A quick question or maybe a lengthy one I don't know. The American Century, you're going to get the proceeds, 50 basis points.
You've talked about deploying capital, trying to have a bit of a growth bias here as well. Any updates on that file as far as deployment opportunities and priorities and timing?
Victor Dodig
So any of my questions won't fill any of your spreadsheets, so I'm going to give you qualitative overview of why we did that transaction and just our philosophy around how we're managing our capital broadly speaking. So we sold our American Century stake, because it was evident that we wouldn't be able to get control of the company which is fine.
We have a great relationship coming out of it. We've earned capital for our shareholders and we've earned income during that period of time.
And we'll continue to maintain that relationship as Nomura takes on that stake, because we're managing a good chunk of money for American Century for our clients. It does deliver to a CET1 in excess of 11% on a pro forma basis.
I think the market environment that we're in today calls for having that capital buffer for a number of different reasons. One is the volatility that one experiences in their pension plan could have an impact on CET1.
Two is, the distribution of return of capital through dividends is important, as we said to you in the past and we're working our way to that 50% range. We're not there yet, but we're consistently doing that.
Deploying capital to buy back shares as we did, presents an opportunity. Every once in awhile we think we're trading below intrinsic values, so we did -- we were active on that file.
And it does provide us the capital to deploy in an -- with an opportunity with respect to M&A. So I think having that buffer is a good thing, particularly in this market environment.
And that's I think all I would say right now.
Operator
The next question is from Mario Mendonca from TD Securities. Please go ahead.
Mario Mendonca
David Williamson, if we could go back to your segment. If there's one area where CIBC has clearly differentiated itself in the last couple quarters and even in 2015 it was in your segment and we're seeing it again.
And in fact, the last two quarters double-digit growth, that's just not common, not what I would have expected in this environment. So when I drill down and try to figure out what's going on, one area that stands out is what's going on the fee side.
And Kevin you referred to that in your opening comments, you referred to higher credit related fees, I think that was the word you used. David, could you speak to what's going on the fee side?
David Williamson
By all means. There are a couple things going on.
I think on a longer trend line fees hasn't really been a driver for us. The driver has really been the investment we've put into our front line, the investment we've put into some of our sensitivity analysis for pricing and some of the efforts we've done to get to deeper relationships, the Compass system.
All those investments that have allowed us to, as Victor said, just be easier to deal with, to drive to deeper relationships and that is what we're seeing in the volume growth I believe. Now this quarter, we're seeing some help on the fee side and that's a couple of factors.
I mean, we've been very strong and still on a relative basis, strong in the mutual fund sales. So that has an impact.
We're working, as Victor talked about, with a more focused leadership of our branches. What that's effectively helped us do, is make sure we put clients in the right offer.
If you've got one leader of a branch and that means if that clients that come in, if they should be in Steve Geist's wealth management space, that's where they go. If they should be in our Imperial Service or core, that's where they go.
So we're getting clients migrating into the right offer. That's having an impact.
And then third, insurance did well this quarter. It's been softer for awhile and this quarter it was stronger.
But I think generally speaking, like as you said, when you go into the numbers and you look to see how it's doing, we've had this quarter strong double-digit bottom line growth. But it's really, it's not just on the asset side.
It's not just on the liability or deposit side. It's pretty universal.
The area where we've need to continue to work is cards. The travel card business, we've done a lot of work there, it's performing well.
Non-travel is an opportunity for us. It's turned around in the third quarter of 2014, but we're still performing -- that's one area where on a relative basis, we're performing less strongly than our peers, so an opportunity there.
So when I look at the reported results so far of our peers, so far and I'll -- pretty consistently in the other areas, we compare favorably, very broadly across all the asset classes.
Mario Mendonca
Okay. So just to wrap it up then, Kevin, what we were you referring to when you -- in your opening comments to higher credit related fees?
Kevin Glass
Sorry, Mario. If you go through on the different categories, it would have been more a financial statement categorization.
But I think from a broader business perspective, I think David's captured it.
Mario Mendonca
Sorry, I'm not sure I follow, Kevin. In the opening remarks you referred to credit related fees driving the fee income in domestic retail?
Kevin Glass
It could be in the business banking space, so that we've seen good fee income in that space. I didn't touch on that in my comments, so that could be the driver.
So sorry, you see that's up CAD7 million on a quarter-over quarter basis and I think, that is largely in business banking.
Operator
The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Darko Mihelic
I have one question. It's a bit unfair, Laura.
I'm going to put you on the spot. I think one of the things that we all struggle with is the stress test loss numbers.
And I think one of the things that we struggle with is that we're assuming low oil, but not a Canada-wide recession. So the question is, given that the probability of a Canada wide recession is rising, what if we did hit negative GDP growth in Canada, let's say 1% for a year or two, would it be fair to think of your losses as being maybe triple the number that you talk about?
And I appreciate we don't want to get into the scenario game, but I'm sure you've thought of it. So could you think about a Canada-wide recession, sparked by low oil and what that would do to your loan losses?
Laura Dottori-Attanasio
Well, Darko, it would certainly increase them, without a doubt. So we do run a stress, what we call our enterprise-wide stress, where we look to see what that could be.
And I would tell you that if we went into -- so a recessionary type environment, and I know you are always looking sort of peaks of what loan losses could be and again, this is a stress test. It's our estimate, so it's not an exact science, but we could see ourselves doubling our loan losses.
Darko Mihelic
Okay.
Laura Dottori-Attanasio
So that would take us -- call it the 50 to 60 basis point range.
Darko Mihelic
Okay. That's very helpful and sorry to put you on the spot, but I think that helps.
Thank you.
Laura Dottori-Attanasio
Okay.
Operator
Thank you. There are no further questions registered at this time.
I would now like to turn the meeting back to Mr. Glass.
Kevin Glass
Thanks very much. So that concludes our call.
But before we close, I would like to mention that this Geoff Weiss's last call before he heads off to join our retail and business banking group as head of our deposits and client solutions group. Over the last few years, Geoff has steadily expanded his whole in our finance team, but has continued to lead Investor Relations.
And I would like to thank him for his leadership and his support and its really been great, great working together. At the same time, I would also like to welcome back into finance and Investor Relations John Ferren, who will assume Geoff's role and will continue to lead our IR team as part of his wider mandate.
He will be a familiar face to many of you, as he previously led IR back from 2005 to 2011. And obviously, happy to have John back and be able to do our talent management internally that way.
Thanks again for joining us this morning. And if there are any follow-up questions, please contact our Investor Relations department and look forward to talking again next quarter.
Operator
Thank you. The conference has now ended.
Please disconnect your lines at this time and we thank you for your participation.