Good morning, ladies and gentlemen. Welcome to the CIBC Quarterly Results Conference Call. Please be advised that this conference call is being recorded. I would now like to turn the meeting over to Mr. Geoff Weiss, Vice President, Investor Relations. Please go ahead, Mr. Weiss.

Thank you. Good morning, and thank you for joining us. This morning CIBC senior executives will review CIBC's Q1 results that were released earlier this morning. Documents referenced on this call, including CIBC's Q1 news release, investor presentation and financial supplement, as well as CIBC's Q1 report to shareholders can all be found on our website at www.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 from Gerry McCaughey, CIBC's President and Chief Executive Officer; David Williamson, our Head of Retail and Business Banking will follow with a business update; Kevin Glass, our Chief Financial Officer, will provide a financial review; and Tom Woods, our Chief Risk Officer will close the formal remarks with a risk management update. After the presentation, there will be a question-and-answer period that will conclude by 9 a.m. Also with us for the question-and-answer period are CIBC's business leaders Victor Dodig and Richard Nesbitt, 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 Gerry.

Thank you, Geoff, and good morning, everyone. Before I begin, let me remind you that my comments may contain forward-looking statements. Today, CIBC reported net income for the first quarter of $835 million and earnings per share of $1.93. Return on equity for the quarter was 22.4%. Adjusting for items of note, earnings were $1.97. We finished the quarter with a Basel III pro forma common equity ratio estimated at 8.3%. As previously announced, we completed the redemption of 450 million of preferred shares on January 31, and we announced this morning our intention to redeem a further 300 million of preferred shares on April 30. Together, these redemptions are approximately $0.06 accretive to earnings on an annualized basis. We also announced this morning the commencing with the dividends to be paid on July 27, 2012, shares issued under our dividend reinvestment program will no longer be issued with a discount for market prices. We introduced the discount in late 2009, and it has been generating approximately $100 million of common equity per quarter. Given our strong capital position, we believe that this additional share issuance is no longer required. Now turning to our business results in the first quarter. Retail and Business Banking reported net income of $567 million for the first quarter, up 5% from Q1 of last year. Revenue for the quarter was $2 billion, up 1% from a year ago. Credit quality in our retail portfolios also continues to be strong. Revenue headwinds continue to prevail in retail however, and we are also starting to see some new ones emerge. Continued low interest rates are negatively impacting spreads and will continue to do so for the balance of the year. In terms of consumer debt levels, we are continuing to see growth, albeit at a slower…

Thank you, Gerry. Good morning, everyone. Before I begin, let me remind you that my comments may contain forward-looking statements. As Gerry mentioned, we're pleased with the start to the year in Retail and Business Banking. As we have previously discussed, CIBC Retail and Business Banking strategy is focused on 2 objectives. They are: To enhance the client experience and to accelerate profitable revenue growth. We will achieve these 2 objectives for a fundamental shift to a focus on the client from our previous more product-oriented focus. There, going forward, our decisions, processes and initiatives are all viewed from a client perspective. We have 3 priorities that we are executing on to facilitate this shift: First, building deeper relationships with our clients; second, enhancing our sales and service capabilities; and third, acquiring and retaining clients consistent with our objectives. I'll briefly touch on these priorities. Our first objective, building deeper relationships with our clients and recognition of several significant potential benefits. Deeper client relationships result in less velocity in our client base due to lower rates of attrition, are positively correlated to higher client satisfaction, higher NIMs, result in the ability to derive more revenue from an existing base of clients and more fully engaged both at sides of the balance sheet. The second priority is to serve our clients better by improving our sales and service capabilities. This priority will involve an emphasis on continuous process improvement to derive a better and more consistent client experience. We anticipate that our efforts to streamline our processes will also provide increased revenue or lower cost structures as a byproduct over time. Our third priority is to acquire and retain clients that are aligned to our strategic objectives. Our existing client base is relatively large, it does not show in the appropriate…

Thank you, David. I'm going to refer to the slides that are posted on our website, starting with Slide 6, which is a summary of results for the quarter. As a reminder, the 2011 results that are discussed today have been restated on an IFRS basis. Details of the restatement exercise were released on January 27 this year. The first quarter of 2012 provided a strong start to the year. On a reported basis, net income after tax was $835 million and adjusted net income after tax was $833 million. This translates into reported earnings per share of $1.93 and adjusted earnings per share of $1.97. Details of our items of note are included in the appendix to this presentation. Key business drivers in the quarter included, first of all, a low interest rate environment which continues to put pressure on spreads in Retail and Business Banking. However, we have managed to offset this by generating solid year-over-year volume growth driven by our CIBC branded products. Modest TSX volumes and new equity issue activity reduced revenue in our retail brokerage business within Wealth Management. The Asset Management business helped offset these challenges while continuing to show strong fundamentals in mutual funds, including strong long-term net sales. The uncertain economic outlook has reduced activity in certain Wholesale Banking businesses but provided opportunities in others. We continue to execute our client-focused strategy, and our Capital Markets businesses successfully increased revenues in the quarter as our clients increased their trading and hedging activities. We had strong expense performance, with a reported efficiency ratio of 56.7%, 55.3% on an adjusted basis. We continued to have a strong capital position as evidenced by our Tier 1 capital ratio of 14.3%, the highest among our peers. In addition, our Basel III common equity ratio was 8.3%.…

Good morning, everybody. My comments will also include forward-looking statements, actual results could vary materially. On slide 19, total reported loan losses under IFRS in Q1 were $338 million versus an IFRS equivalent of $306 million in Q4. Q1 loan losses excluding the IFRS equivalent of the general loan loss provision under Canadian GAAP is shown on the slide at $341 million. The comparable Q4 number was $307 million, excluding the $25 million reserve we took on our European runoff portfolio last quarter. Loan losses were up in Q1, mainly for 3 reasons. First, $24 million higher loan losses in our U.S. real estate portfolio. Second, $13 million higher losses in our Cards business, mainly due to seasonality. Third, $4 million higher losses in FirstCaribbean due to a methodology change in the way we report interest earned on impaired loans. Looking ahead for the rest of the year, and subject to the usual caveats on forward-looking statements, the first 2 items I just mentioned, that is, U.S. Real Estate and our Cards business, should run slightly lower. The third item, the methodology change, should run at about the same level. In other words, we currently see our loan loss rate for the rest of the year being down from the Q1 number. Complete reconciliation of our Q1 loan losses under IFRS, versus our Q4 loan losses under both IFRS and Canadian GAAP, appears on Slide 28. Slide 20, our Cards portfolio net loss rate in Q1 was 5.0% versus 4.5% last quarter. Losses were up $13 million from the seasonal low in Q4. Cards delinquency rate was stable quarter-over-quarter. With respect to our Canadian Residential Mortgage portfolio on Slide 21, we've insured 79% of our Canadian mortgage book, with over 90% of this insurance being provided by CMHC. The average…

Thank you, Tom. That concludes our prepared course. We'll now move the questions. [Operator Instructions] Operator, can we please have the first question on the phone.

Our first question is from Steve Theriault from Bank of America Merrill Lynch.

For David, to start, please. To get a better sense of the potential near-term impact, can you give us a sense of how much FirstLine is adding to pretax earnings? Is that a material number? And if you end up retaining FirstLine, how much do you think you can take out just in terms of expenses? And then, in terms of a related question. In terms of retention, do you have a goal in mind, a preliminary goal at least or target retention percentage, as the broker mortgages come up for renewal? And is there any advantage to ultimately retaining FirstLine? Is there any advantage in terms of the ability to increase the likelihood of retaining the business?

Okay. Steve, yes, let me start in on that. So the best way to approach it, I think, is to rather than giving kind of channel profitability, just speak to your question, which is what's the financial impact of the sale of FirstLine. So if using Q4 of 2011, and current growth rates as a jumping off point, this is what we'd expect over the next 3 years if we were to sell FirstLine: First, we expect a slight decline in the total mortgage balance, and so that's as FirstLine runs off. It's largely offset, not completely, largely offset by the above market growth that we're currently experiencing in our CIBC branded mortgages, supported by renewals from FirstLine into the CIBC brand. So that's what we would expect on balances. Regarding second thing is higher NIMs. The higher NIMs are due to a mixed shift towards CIBC branded mortgages, which have higher NIMs, and you've got the opportunity for deep relationships for higher cross-sell. And then the third point, when you touched on, which is lower expenses as we consolidate 2 mortgage platforms onto 1. So the result of all that, if you project it out, is a total NIAT growth from our Mortgage business, we'd expect, with all those factors combined, to be in the mid-single-digit range over the next 3-year period. I'll add, this is a -- it's a strategic choice we're making, we believe it's aligned with our goal, our corporate goal of being a lower risk bank and it will make for more efficient use of our balance sheet. As you can see, the numeric impact is not significant due to that higher NIMs, but the offset of better-than-market growth rates in our CIBC branded channels, offsetting the runoff of FirstLine and the sale, and then that lower expense, which is an important factor as well. Now you had a follow-on question regarding targeted retention of renewals. So currently about 80% of renewals -- so about 1/2 of the mortgages end up renewing or refinancing, but 1/2 runoff. That wouldn't change under any scenario, that's just customer behavior. Of that, about 80% of it renews in the FirstLine. We're assuming that it'd be quite a bit less than that into our channels. We're assuming, let's say 50%, of the renewals end up in the CIBC brand. So that would be about 1/4 of the book would end up over in the CIBC brand, that's the assumptions we're working off of.

1/4 of the existing FirstLine book?

That's exactly right.

The next question is from Gabriel Dechaine from Credit Suisse.

Can you give me a sense of the capital that's backing FirstLine? I imagine it's pretty small, because mostly insured mortgages. But if I look at a 3% leverage ratio on -- they excel, so say 3/4 of that $50 billion balance or so. Is 3% of that kind of the appropriate number to think of in terms of capital or book value?

Gabriel, it's Gerry here. The capital is not a major factor. It actually would almost fall below materiality threshold because of the, first off, the risk-weighted asset element of mortgages is low under all circumstances. Secondly, we, as Tom mentioned earlier on, insure as much of our book as we can, so if you use sort of that 80% number, that takes the actual assets that are subject to the RWA calculation down to a very small number. And we weren't going to disclose the individual number around FirstLine, because there's a variety of ways of looking at it. We think the benefits of this, from a viewpoint of all elements of capital operational and operational risk, are actually higher than a credit capital calculation would throw off. But the number is not big, so this isn't going to throw off a large capital benefit and that's not what this is about.

All right. I was more wondering about the -- I didn't think that the RWA was high at all. It's more of the leverage approach to kind of determine the capital consumption if that's appropriate.

Yes, okay. The first thing that I would want to emphasize is that, leverage, we always look at as a gating restriction as opposed to an absolute restriction. And here's what I mean by that, most of our activities, we start off with risk capital as the way of looking at our opportunity for growth in the future. And if you look at CIBC's net capital generation after dividend, and under Basel III, then multiply out by the inverse of the 3%, we actually have the opportunity, from a leverage viewpoint, to grow our balance sheet each year by a significant amount. More than I think we would actually necessarily need to. So it is very useful from a viewpoint of leverage ratios, because you can get gated. But our primary area of interest in the bank is to make sure that we have an efficient balance sheet. One factor on efficiencies is the potential gating that comes up from leverage ratios. But the most important factor for us is profit impact per dollar of assets. And this activity is very geared towards the fact that the brokered channel had limitations in terms of the efficiency that you could get in relation to the NIMs because of lack of cross-sell capability. And the strategy of the bank is to focus on areas where we can have the deep client relationships. But I can tell you that, from a leverage viewpoint, it does provide us with a lot of extra room in terms of what we might do with the balance sheet.

Okay. My second question is on expenses. And very positive performance here, particularly in Canadian retail, down year-over-year, I think that was the best we saw this quarter. But it seems to be, for me at least, a double-edged sword. So what do you say to someone thinks that CIBC has under-invested in the past, has some infrastructure or investments to make to reinvigorate the franchise. And David, you touched upon a few there during your comments. Those investments really are strategically important for CIBC over the long term, I think. So how do you balance the 2? And is it appropriate to think of CIBC as a cost-cutting story? Because I think, for some people, that might not be something that's viewed, necessarily, in a positive way.

Well, we have as much, as possible, where we are improving our mix, as much as possible we're trying to achieve that through activities such as what we just talked about with FirstLine. In the event that there is a sale and we consolidate those assets onto one platform, that provides efficiencies and a positive mix impact. That's the way that we would like to target expense improvement, through reengineering and paradigm shifts. In terms of our core operations and investment, we are seeking to up investment there. And David just mentioned that, that will have an impact on our expenses and that's what his investment portion of his comments was about. It was our way of talking about that phenomena that you just mentioned that we don't want to end up in that position. And that's what David's comments were about and he highlighted 3 major projects. The good news on these projects is that 2 of the 3 are filling gaps, and although, one would prefer to be at the forefront of the industry in everything, when you invest in dollars to fill a gap, it's tried and true and you have a pretty good idea, with a high degree of certainty of what the impact will be because you could observe it in your competitors. So the discussion, and the strategic discussion, of our overall investment posture, what David has brought forward is on gap-filling exercises, the spreading out of the investment over a number of years when we can accelerate it. Because sometimes there's only so much you can get done from a technology development. Spreading out of it, in the end, is not positive for the franchise and, therefore, we are accelerating those expenditures. On the third one, we actually believe that other than one competitor, that the implementation of it, and he described it, would put us at the forefront of the industry. And we decided to move ahead on that, also, because we don't want to be only in catch-up mode. We want to address where we have gaps and we also want to make sure -- what is the forefront of the industry will be a gap tomorrow so we might as well get on with it. And David has mentioned that, that will have an expense impact in future quarters over and above our current run rate and the acceleration of those investments and expenses is about exactly what you're talking about.

Our next question is from Peter Routledge from National Bank Financial.

Just a question for David. David, I understand the strategic rationale behind this shift in how you're going to originate mortgages going forward, makes sense. But there is a transition and there's risk. Those 2 related questions on that. One, you're shifting, apparently, away from the brokerage channel at a time when mortgage growth is only 5% to 7%, let's say, looking ahead. Whereas several years ago, when one of your peers did it, mortgage growth was at 10% to 12%. So I guess the first question would be, isn't it more risky now and don't you have more revenue risk, just given the external market conditions? And the second, just picking up on your comment on renewals. If I heard right, renewals right now in the home line channel are 20% of the CIBC brand and you're shifting to 50%. That seems like a big leap, so if you could talk sort of about those 2 risks?

Certainly. I will, Peter. So first off, just a point I'd make is we've been kind of preparing for this move for a while. So first comment I'd make, what you referred to, one of our competitors, we're sort of jumping off from a different spot since that right now our growth in mortgages, in the channel we're emphasizing, our CIBC branded channel, is running at 10%. That compares to an industry current growth rate of 7%. We're jumping into this from a pretty good starting point, which is our CIBC branded channels are really working right now, they've got momentum and they're growing at a faster rate than our peer group. So we're coming in to this, I think, from and a very different position than the situation you referred to as a comparator. The other thing I mentioned is we're -- also been preparing as far as, say an operational perspective. Our mortgage adviser channel, it's new-ish, but it's been built up a fair amount. It's smaller than our peer group. So there's more room for us. But it's in place, it's been expanded and it's ready to go. We've just hired a new executive to lead this mobile mortgage channel. He starts in the middle of the month. We've been making investments in our branch channel, we've been doing that for a few years to get that ready to go, and we've recently expanded our outbound call capacity, too, which is part of the renewal process. So jumping off from good growth in the channel we're emphasizing, taking some strategic steps that'll last for a while, make sure that when we do this, we are well placed to get the renewals and to continue to show above market growth in the CIBC branded channels. The other point you mentioned about renewals, let's just go through the numbers on that again. What I was saying was, about 50% of a mortgage book ends up renewing or refi-ing. The other 50% pays it off, pays early, does whatever. You're left, from our experience, just industry-wide, about 1/2 the book renews the refis. Currently, in FirstLine, at the end of the period, when it comes to renewal, we got about 80% of that renewing in the FirstLine. What we're saying is, given that we're trying to get them into a different brand, maybe it won't be that high. Let's assume it's not 80%, let's assume it's 50%. Right? So rather than currently were getting 80% of half the balance renewing in the FirstLine, we're saying let's assume we're only getting 50% of the 1/2 that renews. So we are assuming something more conservative and then we've taken the steps I outlined to, hopefully, achieve that level.

50% would renew into the CIBC brand?

Yes. So if $100, $50 of it will get around to a refi or a renewal at the end of the period. The other $50 pays down, goes way over the course. That's not going to change. That's just client activity. It's what a client does on a normal course based on our experience. And of that, how much of that are you going to keep? In FirstLine, we currently keep 80% of it. What we're saying is, let's assume it's not that good, let's assume it's only 50%. So under that assumption, it would be 50% of $50 would end up in our brand.

Okay. It's a brand shift for the client, they'll perceive themselves going from FirstLine to CIBC?

That's right. So we're configured to make that happen, we think it's a better offering and we think we can offer them more. But you're right, it's a change. So rather than saying it will be at 80%, we've knocked it down to 50%. And we've been getting ready with getting our mobile adviser team expanded, new leadership of it, our branch is bigger, our outbound call capacity is bigger. So we're ready to go. And we're growing better than market now in that channel, even irrespective of that, we say let's not assume 80%, let's knock it down to 50% and see how we do.

You'll have some pricing flexibility if that particular group of folks are more cost conscious?

Yes, we would. Yes, we would. Just in a normal course as opposed to anything -- yes.

Our next question is from Robert Sedran from CIBC.

I don't want to get too carried away with funds transfer pricing. But when I'm thinking of the profitability of the mortgage broker channel, one assumes that it is benefiting, in some way, from cheaper funding, from whether it's covered bonds or the CMB program and all of that won't go away. I guess what I'm asking is will the P&L and NIM impact of a runoff in this business be mitigated by the fact that you should be able to reduce more expensive marginal funding or am I getting carried away with something that's not too material here?

It is material. And you are accurate, there is a -- all of the -- or I have seen no calculations that say that our CMB allocation changes at all. Our covered bond total wouldn't change other than the calculus of total balance sheet size and all that sort of thing. So you've identified something that, on the margin, if you were to go to a static model, and the reason why I'm saying a static model is because the dynamic model, you do max out on CMB allocations, covered bonds and all of the areas that are the cheaper funding. And once you've maxed out, then the utility of that block of funding, it's -- all other things are equal, and therefore, it's not a measurable improvement, FirstLine or to CIBC branded. So on a dynamic model, if you take the next mortgage issue, the disadvantage is something that is a little bit illusory. But on a static model where you look at a block of mortgages, if you were to just run off and presume that you looked at both books and the dollars that you would lose as you ran down in FirstLine, the funding costs that are the very advantageous funding costs through the securitization of mortgages, all are retained by CIBC and therefore the profitability of that is retained within the branch channel. Furthermore, there are elements to the block mortgage book that have limitations as to liquidity that you presume around your stamped MBSs and that, also, is limited and stays entirely with the branch channel. When you add all of that up, it's actually a significant NIM advantage when you translate out the funding that was retained by the bank. And when we've done our calculus of the risks around this channel, we've done the calculation on targeted allocation of if we keep the funding regardless of what we do with the channel, and let's recalculate the profitability of the channel, assigning to it the most expensive funding because it is the last dollar in. When you do that, it is a significant risk mitigation on activities such as this, and if you start to allocate other costs into those channels, such as if you were gated on leverage and other elements, you find that the risk of this type of activity is significantly mitigated by the fact that we do retain almost all the benefit that I just described. You're bang on.

Well, that's nice for a change, I guess. David, just a follow-up on one question on your expense spend. Is there going to be any attempt to offset any of those higher costs with savings elsewhere or are you comfortable that run rate expenses are about the right level and so these investments will be added to the expense line?

Yes, Rob, we -- more the latter, right? So we've continued to work on -- or discipline our expenses. We had good quarter in that respect and actually a good run over the last while. So we'll maintain our expense discipline. But what we're saying here is we do see opportunities to invest in the Retail and Business Banking franchise. And Gabriel mentioned as well, opportunities to build the foundation and to invest in a way that accelerates profitable revenue growth. So we'll be disciplined, but I think we see opportunity for appropriate additive spend.

Our next question is from Brad Smith from Stonecap Securities.

I had 2 quick questions. First, I was wondering if, David, maybe you could comment on the deposit falloff in the average balances in your Retail segment disclosure. Looks like it's down about $12 billion, 5.5%. Just wondering what was going on there, because I note that the total deposits for the bank actually didn't fall by more than about 1.5%. Then also, I was wondering if we could just get some sort of reconciliation on the net interest margin falloff in the Retail of 1 basis point, because I'm looking here and I'm seeing net interest income down 3.5%, average loans up 1.5%, and I'm not sure how that reconciles with the 1 basis point only decline in NIM.

Okay, no trouble. So on the first one, deposits, yes, you're right. Because our deposits, all in all, right now, are growing quite well and we're happy with our momentum. So what that is just a Treasury allocation of Treasury assets into that number. The core Retail and Business Banking is as you expected, it's growing along quite well in the deposit front.

Could you just explain that to me a little bit, the Treasury allocation on deposits? I mean, is that a wholesale deposit being taken back into Treasury out of the Retail division?

Well, just maybe if I could hand over to my colleagues in Treasury, on that front.

It's Andrew Kriegler. We have a fair number of wholesale deposits. Obviously, the bank is active in the wholesale markets. But over periods of time, the levels of wholesale deposits fluctuate a fair bit. You've seen that from time to time in the past. And so, in this particular case, you saw a decline in some of the wholesale deposits which took the averages for the whole bank down.

But so, given that loan averages didn't fall, are we really saying that the retail division operated under a much higher leverage during the quarter?

I'm sorry, could you say that again, please?

I'm just saying that, given that the average loans, didn't change, deposits went down substantially. I mean, like where did the difference get made up?

I believe the difference is effectively in the tender of the securities that are being funded by the wholesale deposit.

Right. And then, can we talk a little bit about why net interest income declined when deposits and the, obviously, the cost of the deposits would've gone down?

It's the matching of the assets that are being funded by those shorter-term wholesale deposits. So if you're twisting the level of short-term securities you're holding, then the net interest margin that's going to be generated by them is also going to reduce.

Okay. So just getting back to the net interest margin reconciliation, the 1 basis point decline.

Yes. So on that front, well I just look at the Retail and Business Banking activity. That's our best NIM decline over the past 4 quarters. And it really is just reflective of the phenomena we've spoken of before, which is to this lower rate environment, and the impact on the retail deposit. On the asset side, we're not -- that area is stabilized, both in the mortgages and in our residential and business lending where we're seeing some business spreads continue to behave well. So on the asset side, spreads are behaving well. And that 1 basis point is more reflective of the interest rate environment on what's going on in Retail and Business Banking.

Our next question is from John Reucassel from BMO Capital Markets.

Just, David, back to you. I just want to go back to the original comments on improving client depth and reducing attrition. Can you give us a sense of where CIBC is on some of those metrics today and where you'd like to be 3 to 5 years from now? Just give us an idea what your targets are.

Sure. I'll do as best as I can. Now I don't have rate data on how we compare, because it's not just generally available. Our intuition, given our focus in products before, with sometimes more of a mono-line kind of mindset, is that on client depth, we would be behind where we’d like to be. And I think our net client base hasn't shown historic level of growth that we would've liked as well, and I think that's also something that Gerry touched on just as far as growth rates in the past and gaps to peer groups.

David, does that mean products per customer? What does client depth mean. I'm just trying to understand what your parameter is.

Yes, okay. So let me be clear. So it is products per customer. So you ask what would I be tracking, what will we be tracking. Obviously our aspiration is revenue growth, NIAT growth, but I think what you're getting to are what are the subset metrics. And there's 3 key ones, I'd say. The first is just the size of the client base. We just like to have a deeper pool of clients. Two, what you're asking about is the product use count for these clients. So how many clients do we have and how much business are we doing with those clients, that's the second metric, and that's really a product use count and some reasons we're tending to look at our new clients that we bring on and the product use count there. Just because that's going to be a little bit more indicative of progress on that front than looking at our existing client base. And then so I and our team is looking at the product use count for new clients. And then the third metric is just how happy our clients are with us. So how many clients do we have, how much business are we doing with those clients, that's the product use count. And third, how happy are those clients and that's the client stat figures.

Okay. Maybe I'll circle back. And then just for Gerry, just want to make sure I understand your point on the securitization and the covered bonds. The fact that you have slower mortgage growth, your loan book is not growing as fast but you retain access to that funding, reduces the risk on this transition. Is that what you're saying? Because the costs are so low?

Yes, because the broker mortgage channel -- in fact, when you look, our retain securitized funding capability has our highest cost of funding, our highest variable cost because of the cost of the channel, both from a viewpoint of the actual broker costs, and then there's an extra platform with extra cost. And so when you add all that up, if you were going to put at risk a portion of our assets in mortgages, the risk of the transition, this is where you want to do it. Because if -- every mortgage you lose -- number one , there's no cross sell with it, so there's no other client relationship involved, which is another area of NIM issues. Number two, it has been funded with the most expensive funding that the bank has. And number three, it has the highest costs from a viewpoint of the variable costs of the incremental efforts that go on by the broker for their selling efforts. And there's a platform cost that exists because it's a completely separate business. So if we don't roll those into the branch channel, the reality of it is that it's the opportunity cost that is important to us, just retaining those mortgages to our branch channel for our deposit [ph] reasons that I just described, is something that -- I think is the way you should look at the risk.

Okay. And then, David, one last lesson to clarify on the cost. The operating leverage in this quarter, do you expect 2012 to have positive operating leverage with kind of the things you're discussing today?

Well, certainly, positive operating leverage is what we're targeting and we're going to continue to be disciplined on the controllable expenses. And we've had pretty a good run on that front. What we've been highlighting is just a couple of -- there's the low interest rate headwind, and that's going to continue. Now what we signal here is, if you take that $50 million that we spoke of, of incremental investment relative to last year. If you take the expense portion of that $50 million and run it over the next 3 quarters, that's about 1 percentage point of operating leverage kind of knocked off the perch just in doing that. So we're targeting positive operating leverage, but you are hearing a message that we are going to increase our investment here in Retail and Business Banking. No mistake that we'll maintain our expense discipline through the piece [ph].

The next question is from Andre Hardy from RBC Capital Markets.

Sorry to come back on FirstLine before a question on the Wholesale. But can you clarify what it is that you're selling? Are you only selling the distribution or also the manufacturing and the loans?

Yes, so we're not selling the block of business. So that intent was we'd retain that and it would runoff over 4 to 5 years. You're absolutely right, what we're selling is the platform to originate. The brand name, the incentives, the points program, the whole machinery that originates mortgages in that channel.

And that's why I presume -- Gerry earlier said, we shouldn't expect a big capital impact at the time of the sale.

That's right. I mean, the assets will be retained.

Okay. On wholesale, the commentary on Page 7 of the report to shareholders is fairly constructive on the outlook for Wholesale Banking, for the remainder of the year. But in your prepared remarks, Gerry, you mentioned that Q2 is not looking as good as Q1. Can you please be a little bit more specific on what you see in Q2 that's different from Q1 given the commentary that's in the report to shareholders?

I'm going to let Richard Nesbitt talk about what he sees in the business trends. My comment was something that existed entirely in the past, meaning I was telling you that the back end of Q1 was softer than the balance of Q1. And was not intending to make a broad-based statement about the rest of the year or the strategy of the business. It was based on seen levels of business and revenues. However, in terms of the business strategy and the outlook for that, I'd like to turn it over to Richard Nesbitt.

Thanks, Gerry. So if you look at the first quarter, the experience we had was very much our Capital Markets creating areas were consistent with expectations and the corporate lending and real estate finance were consistent with expectations, but very slow in the equity area. Volumes in the secondary market are down 40% year-over-year. And the new issue pace was only about 1/2 of what it was in the previous year. And now I think things have picked up, certainly, in February in the equity markets. Although, I'd still say there's some lag happening in the M&A market. There's some interesting good signs coming, hopefully for Q3, Q4. But I think that given the mix of the business, certainly, is different than it was last year. And I think what Gerry's comments were just to say that we can't predict what this mix is going to be for the balance of Q2 and Q3 and Q4. But we have to be cautious on that. We don't know whether this equity market improvement is going to continue, and we don't know what the M&A calendar is going to actually deliver us. Having said that, we have a lot of initiatives on the go in both our capital market side and in our corporate credit product side and Real Estate Finance. And those are going to also start to kick in, in Q3 and Q4, as well. So it's a balance picture and we'll see what the market delivers to us.

Our next question is from Mario Mendonca from Canaccord Genuity.

One quick question about the consolidated margin. It looked solid in the quarter and I suspect it relates to what we're seeing on Page 3 of your supplements. So if you can just take a quick look at Page 3 of the supplement, where you look at your interest expense and you see that secured borrowings. The cost there down fairly substantially. I couldn't really connect that to any significant decline on the liability side. So could you help me understand that decline?

It's Andrew Kriegler here. So, yes. What you saw happening over the course of the quarter was that, in comparison to previous quarters, we had a decline in asset balances in treasury and Wholesale Banking somewhat. As you'll recall, we talked previously that the market conditions in previous quarters had provided an opportunity to take some short-term funding at fairly advantageous rates, which we did pursue and put into liquid assets. Those liquid assets themselves, by definition, are relatively low yielding. So as that came off, you saw a decrease in the size of the balance sheet for that segment, and as a result, pushed the margins up there.

That's helpful. So where would I see the actual decline in the liability side of the balance sheet?

What you'll see -- give me one second. If...

Because I don't see them it a spot basis or on an average basis.

Okay. Why don't I -- it's going to take you a bit to walk you through this. Why don't we take it off-line and I'll take you of the side.

Sure. A second question, then, real quickly. Is there a limitation right now in terms of covered bonds? Are you at your limit right now?

We are relatively close to our limit. It's, as you recall, it's 4% of total assets that's measured on the capital report to the regulator. But with the transaction that we did late last calendar year, December, we pushed up to fairly close to that limit. We have approximately $1 billion worth of room at this stage of the game.

I suppose that's one of the reasons why this potential sale of FirstLine makes a fair bit of sense if you're essentially there anyway.

Well, as Gerry mentioned, the secured funding that we have, be it CMB, be it covered bonds or just outright MBS, is something that is sort of a franchise value that isn't allocated to the FirstLine channel, per se. So that's retained by the organization. Even notwithstanding the limitations on the covered bond issuance capacity though, I would highlight that we do have the ability to stamp additional MBS and create liquid assets in that way.

Our next question is from Sumit Malhotra from Macquarie Capital Markets.

For David Williamson, on your disclosure for Retail and Business Banking loans. Last couple of quarters, likely in advance of your commentary on FirstLine this morning, you've been breaking out the mortgage balances, the CIBC brand and the other. Is there anything that FirstLine is doing in regards to the lines you call personal lending or cards or is that all CIBC product and nothing through that channel? And if the answer to that is it's all the CIBC channel, which I think it is, can you comment a little bit about your growth trends in those portfolios?

Certainly, Sumit. So, yes. You're actually right. The answer to the question is, no. That's one of the issues with FirstLine is they haven't had an impact on growth in lending or cards or other product areas. So that's part of the issue on the cross-sell front. So what is happening then in our CIBC branded growth space? So you're right, we are separately identifying kind of our brand from broker, both -- and in mortgage space for example, we're running 10% in brand and a negative in broker. And that gives our aggregate mortgage growth rate of about 5%. The lending. Looking to accelerate that in the personal side. On the business side, we jumped on that one earlier. Right? So that one we got going on. A couple of years ago, new team, new focus, restructured our sales team, how that's set up.

Yes, it's more Personal Lending and cards, Dave, more so than the business?

Yes. So on Personal, we're behind that process. Hopefully, we'll start to build up some kind of the momentum that we got on business, but were not there yet. So that's an area of focus. The cards, it's interesting. Overall volumes of purchases are good and at a level that's higher than inflation. But the balance of carried mortgage balances, the overall volume that people are carrying on the cards is down. Now what I think what's relevant is our market share in that space, the balance of our cards, assets, market share is up. So that would indicate this overall level of cards balances being down as an industry phenomenon. And it's interesting, because that either indicates the consumer is de-levering, still the volume of purchases is but they're just not carrying the balances. So either they're de-levering or rebalancing into lower cost forms of debt. We think it's the latter, there's a rebalancing and other forms of debt as opposed to a de-levering of the Canadian consumer. That's still a story being written, so that's kind of the current view on that. Hopefully, that helps, somewhat, as to where we are on our personal growth rates.

It does. Lastly, for Gerry. Gerry, some comments on Capital Markets still showing some volatility, expenses likely to move a little higher than we saw this quarter. Was that the reason that we didn't see a dividend increase despite the fact the payout ratio seemed to be right at the midpoint of the range? And then just maybe a quick comment from you on what you're seeing on potential acquisition opportunities in the Global Wealth Management space?

Sure. The dividend, I wouldn't read anything into our non-raising. The major factor there was we raised in Q3, And we hadn't particularly thought of raising every second quarter. We are on more gradual cycle than that. You're quite correct, we have a 40% to 50% target. We're a little bit above the mid-end of the range, so that's something that, in subsequent quarters, we will be reviewing on an ongoing basis. But it really wasn't something that came up into our review cycle this quarter because we did raise in Q3. And I would note that the other -- actually [ph] raised this quarter, one of them raised in Q3, but the others had [ph] raised in Q1 of last year. So again, it was an annual -- I don't know what their cycle was, but it was a year since their last raise. And for ourselves its' been 2 quarters and we didn't really spend a lot of time on looking at another raise. The reason for that is that, this quarter and leading up to this quarter, we've been very focused on the non-dividend components of capital. And I would say that it is relatively important, because we've been quite instructive in this space and we just review a little bit. July 31, we redeemed -- excuse me, July 31, last year, series 30, 400 million prefs; Jan. 31, Series 31, 450 million; and Series 32, 300 million coming April 30. And that was well telegraphed, but we've been taking first opportunity to redeem these. That's now 15 billion prefs that have been redeemed. And up until now, as we redeemed prefs, we were allowing our drip program to continue. While that strengthens your common equity ratio, which is very important for capital -- excuse me, Basel…

Thanks, Gerry. Sumit, a couple of things, I'd be remiss if I didn't mention the organic growth at home and the opportunity to grow our Wealth Management business in Canada. This is very much in line with the strategy that David articulated around deepening client relationships. And if you look at our asset management flows in the long-term space in particular, we're seeing very strong flows from our branch network. Our core client base and our higher-value client base within the Imperial Service. And asset management product was just clearly in line with the strategy that David articulated earlier. In terms of our partnership with American Century, we're very pleased with our investment. We're very pleased with their fund performance and their fund flows. Last year, they had booked $5 billion in net long-term flows. They've had 12 consecutive quarters of positive long-term flows. They ranked #4 in the industry amongst 25 largest fund complexes, having 65% of their assets in 4- and 5-star rated Morningstar funds. And importantly, we've added them to our platform. We've added them to our core mutual fund and RAP platforms, so our retail clients can now benefit from that strong performance in American Century. We've also launched them into our institutional pulls in Canada. As we go forward and seek out organic/nonorganic growth opportunities, our goal is to strengthen our investment in American Century and build on that. Our goal is to seek out asset management capabilities that we don't currently have, because we know that our clients are looking for them. And to continue to diversify into distribution oriented fee-based businesses. We're very pleased with the organic momentum we have at home, very pleased with our investment and we are engaged, although nothing imminent, as Gerry mentioned earlier on, and looking to grow our Wealth Management business to be about 15% of net income after tax over the medium term.

Our next question is from Brian Klock from KBW.

Just a quick question. On Page 18 of the sub pack, it shows the geographic breakout of loans and acceptances. And the United States portion, although it's still pretty small, it's starting to accelerate from a growth perspective, becoming a bigger part of the total net growth, especially with the Canadian growth slowing. So maybe you can talk about it. It looks like some of that is coming from the U.S. Real Estate Finance book. So not sure if Tom or Richard can comment on the outlook for growth, and are you taking that opportunity? Are taking the market share away from global competitors, from a wholesale banking business that have problems or maybe you could just talk about how you seeing that growth in that loan portfolio?

Okay, it's Richard. We've talked about this strategy for probably 18 months now since we restarted lending. We stopped lending for about 2.5 years. We started again late 2010. Really, what you see that's going on since the credit crisis is, obviously, a substantial adjustment in values of these properties, gone down 30%, 40%. And you've also seen, of course, the removal of the CMBS alternative. So there is quite an attractive market to lend into commercial real estate for high-quality properties at very good prices, at very good lending spreads. We're seeing 55% to 65% loan-to-value on the new loans that we're doing, at written down asset values. And we're getting more attractive spreads on those than we can from lending, say to the equivalent risk corporations. And you have it secured by a high-quality building. Focusing that lending on a very strict and prescriptive portfolio characteristics that we'd like to generate, which designates the type of property, the region, the type of borrower, loan-to-value, obviously, and overall quality of sponsor. And where is this business coming from? Well, coming from a number of places. CMBS market doesn't exist anymore. Somebody's got to lend to these properties. And secondly, there are no European banks that want to do business in the United States anymore. And so as they gradually leave, that's less competition for a bank like CIBC.

And I guess the spreads are something that's actually helping the total bank level manage its margin as well, looking at the kind of pricing you can get on these...

Yes. For the quality of the loan, in the wholesale market and in lending corporations, I would say that this is one of the most attractive areas right now.

Our next question is from Darko Mihelic from Cormark Securities.

The first question, David, real quickly. The $50 million of investment that way you quoted it. I just want to make sure. Are we thinking really about $50 million of extra noninterest expenses for your business over a year? And then my second question is, with respect to you mentioning the NAIT mid-single digit growth is what you sort of projecting. That wouldn't jive with the $3 billion target you have for earnings out of Retail. So are we quietly abandoning the target or should we actually think about this actually having an impact? And thirdly, real quickly, doesn't sound like President's Choice Financial is in the future either. Will that also be a non-numeric impact if you decide to exit that channel?

Darko. So first off, on the NIAT growth and the $3 billion target. So when we talk about the 5%, that's just isolating the mortgage growth. So I would say that probably is consistent. We're seeing that mortgage book, with all the things we've talked about, would be growing along at 5% CAGR over the next 3 years. The other point you raised, PCF. Yes, PCF isn't in any way impacted by the discussions we're having here today. And with the PCF customers, we do get a broader range of products. FirstLine is really a single-product mortgage, irrespective of our efforts. I don't believe any of our peers has been able to had deeper relationships, pretty much in any way, after broker mortgage channel. And President's Choice Financial, it is a different -- there is a suite of products that are provided to customers through that channel. And then I think you had a third point, Darko. You'll have to remind me.

Just the $50 million of expenses or investment. Is that just expenses out and on? When should we expect to see that and if you could just provide better color on that.

Yes, by all means. So the $50 million, that's total spend. So about $30 million or more-ish is the expense component of that. That is talking about '12 relative to '11. So, yes. That would run through the course of this year. That's why I made the comment that if you take that spend and run it over the next 3 quarters, that's where I'm saying you could -- pretty much amounts to 1 percentage point on the operating leverage. So the $50 million, if you strip that down to what part is expense versus capitalized, run it over the next 3 quarters and that's the impact of that. As far as looking forward. I'm not in a position, at this point, to talk about what our spend would be next year, as we map out our course forward. But I think what you've been hearing is we do see some opportunities to invest in the foundation of Retail and Business Banking and for some opportunities to support accelerated revenue growth.

So to be clear. I thought I heard you say that your NIAT expectations were for mid-single-digit growth?

That is in the mortgage business. So what I was trying to do there is say is look at mortgages and then -- just because we got a lot of moving pieces there, so isolating that space in particular.

Darko, it's Gerry here. On the $3 billion, last September I updated the market on that. And at the time what I said that, similar to what I did say today, I said that low interest rates, consumer rebalancing and other environmental headwinds were stronger than they were when we originally announced the target. At that time, I said that we expected that the mix of that target would shift and that, given that we were talking about the long-term objective of Wealth Management, which was always part of that component, that the target was to reach 15% of net income after tax of the bank over the medium term. I said that we expected that the headwinds would reduce the retail component of the $3 billion and increase the requirement for Wealth Management to fulfill the larger part of it. Part of that has happened because of the acquisition of American Century. But at this time, I'd like to reiterate what I said then is that while the $3 billion is intact, it is with a different mix and under more difficult conditions. And I would stress the conditions are more difficult than they were when we first announced the $3 billion. And the mix has shifted and is dependent on further acquisitions by Wealth Management. So while we have, I think, a well-organized plan and strategy around this, I would indicate that the components of it have changed and if you would take a messaging from what I'm saying here that the $3 billion is somewhat stressed, you would be accurate.

There are no further questions registered. I'd like to turn the meeting back over to Mr. Weiss.

Well, thank you for joining us and staying with us a little longer than we had planned. Please contact Investor Relations with any follow-up questions and have a great day.

Thank you. The conference is [Audio Gap]