November 2016

CONFIDENTIAL

Benjamin Tal

Is There Logic Behind the Madness?Is There Logic Behind the Madness?

Unemployment Rate vs. Wage Increase 1

CONFIDENTIAL

0%

2%

4%

6%

8%

10%

12%

0% 1% 2% 3% 4% 5%

Une

mpl

oym

ent

rate

Wage increase

Reality

0

0

0

1

1

1

1

08 09 10 11 12 13 14 15

Une

mpl

oym

ent

rate

Wage increase

Theory

Source: Statistics Canada, CIBC

Canada: Share of Low-Paying Jobs - Rising 2

Source: Statistics Canada, CIBC

55%

56%

57%

58%

59%

60%

61%

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Share of Below Average Wage Jobs

Canada: Job Growth by Wage Category 3

Source: Statistics Canada, CIBC

0

500

1000

1500

2000

2500

150% of avgwage

1997-2015

$'000

Canada: Wage Growth by Wage Percentile 4

Source: Statistics Canada, CIBC

2.5%

2.7%

2.9%

3.1%

3.3%

3.5%

3.7%

3.9%

P10

P20

P30

P40

P50

P60

P70

P80

P90

1997-2015Annual Average

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

P10

P20

P30

P40

P50

P60

P70

P80

P90

2010-2015Annual Average

Shale Marginal Supplier in the Medium Term 5

Source: BP, CIBC

0

20

40

60

80

100

120

20 40 60 80 100$/bbl

Production (mn bbl/d)

Middle East

Cdn Oil Sands

Global Oil Demand 2018

North American Shale

Canadian Economy: It’s Not All Oil 6

Source: Statistics Canada, ABS, CIBC

0%

5%

10%

15%

20%

25%Ir

on O

re

Coal

Prec

ious

Met

als

Crud

e O

il

Vehi

cles

Mac

hine

ry

AustraliaCanada

Proportion of Exports (Pre-Commodity Price Slump)

Canadian Exports Have Underperformed Model Prediction (L)US Has Outperformed in Capital-Intensive Manufacturing (R)

7

Source: US BEA, CIBC

95

100

105

110

115

Jan-

15

Mar

-15

May

-15

Jul-

15

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-

16

Export Volumes

Trend Expected After 20% CurrencyDepreciation

70

80

90

100

110

120

2006 2008 2010 2012 2014

Canada US

Capital Intensive Manufacturing Production

Index

Mexico Has Also Gained Market Share (L)Cdn Plants Near Full Capacity; Investment Needed to Lift Exports(R)

Source: BEA, Statistics Canada, CIBC

8

0%

5%

10%

15%

20%

25%

1980

1984

1988

1992

1996

2000

2004

2008

2012

2016

Canada

Mexico

Proportion of US Goods Imports

65

70

75

80

85

90

Mar

-00

Nov

-02

Jul-

05

Mar

-08

Nov

-10

Jul-

13

Mar

-16

Cdn Manufacturing Capacity Use (%)

Avg Last Expansion

US Inventories Trend Higher in Key Areas for Canadian Exporters 9

Source: BEA, CIBC

1.0

1.2

1.4

1.6

1.8

2.0

2.2

Jan-

00

Apr-

01

Jul-

02

Oct

-03

Jan-

05

Apr-

06

Jul-

07

Oct

-08

Jan-

10

Apr-

11

Jul-

12

Oct

-13

Jan-

15

Apr-

16

Auto, Machinery + Chemical

Other Sectors

Business Inventory-to-Shipment Ratio (Retail, Wholesale and Manf.)

Has The Bank of Canada Set the Goalposts? 10

Source: CIBC, Bloomberg

1.10

1.20

1.30

1.40

1.50

Jan-

15

Mar

-15

May

-15

Jul-

15

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-

16

Sep-

16

Nov

-16

USDCAD “The C$ has strengthened (with) higher oil prices...their net effect

will need to be assessed”

“the C$ has declined significantly… A further rapid depreciation… might influence inflation expectations.”

“exports… are weaker… in part because of…the

higher C$”

“We actively discussed the possibility of

adding more monetary stimulus”

Source: Bloomberg, CIBC

How C$ Depreciates Even as Oil Prices Rise (Change vs. Late August 2016)

26

11

-10

-8

-6

-4

-2

0

2

4

75bp Increasein US O/N

Rates vs Cda

$8/bblincrease in

WTI

Total Change

Change in C$ Expected by Year-End 2017 (cents-US)

Fiscal Stimulus Kicks Up a Gear in H2 2016, Leaving BoC On Sidelines 12

-0.2

0.0

0.2

0.4

0.6

0.8

Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18

Tax Changes Child Care Benefit

%-pt Lift to YoY HH Disposable Income Growth

Source: Department of Finance, CIBC

Liberal Additions to Infrastructure Rise in 2017/18 (L)Infrastructure Bank Multiplying Federal Dollars (R)

13

0

1

2

3

4

5

6

7

'16/17 '17/18 '18/19 '19/20 '20/21 '21/22

Social, Transit, Green & TradeInfrastructure (C$ bn)

0

5

10

15

20

25

30

35

Gov't Cda Non-public Inv Total

Infrastructure Bank CapitalC$ bn

Source: Finance Canada, CIBC

Provincial Forecast: Dealing With New Realities 14

Source: Statistics Canada, CIBC

Real GDPY/Y % Chg

2014A 2015A 2016F 2017F 2018FBC 3.3 3.3 2.6 2.1 2.2 Alta 5.0 -3.6 -2.2 1.7 1.3 Sask 2.4 -1.3 -0.7 1.8 1.4 Man 1.5 2.2 1.6 1.7 1.8 Ont 2.7 2.5 2.5 2.1 2.3 Qué 1.3 1.2 1.5 1.5 1.6 NB -0.1 2.3 0.4 0.7 1.0 NS 0.8 1.0 1.3 1.1 1.1 PEI 1.5 1.3 0.8 0.7 1.0 N&L -1.0 -2.0 0.2 -3.8 -1.7 Canada 2.5 1.1 1.2 1.7 1.9

Total Inheritance 15

Source: Statistics Canada, CIBC, CIBC Inheritance Survey, 2016 (age group 50-75, past 10 yrs, inflation adjusted)

0

100

200

300

400

500

600

700

800

2006-2015E 2016-2025P

($bn)

China: Still Overly Reliant on Capital Spending (L),Rotation to Consumer Not Yet Happening (R) 16

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

10 20 30 40 50

Capital Spending Proportion GDP vs Per-Capita GDP

Per-Capita GDP (Inter. $'s)

Capital Sp. as % GDP

China

0

5

10

15

20

25

Dec

-12

Jul-

13

Feb-

14

Sep-

14

Apr-

15

Nov

-15

Jun-

16

Business Investment

Retail Sales

% Yr/Yr

Growth in China’s Money Supply – Exploding 17

Source: Bloomberg, CIBC

New Federal Mortgage Rules 18

1. Standardized stress test for all high-ratio insured mortgages – Effective October 17, 2016 (MANDATORY)• All insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the

Bank of Canada’s conventional five-year fixed posted rate. That is, expand the existing Bank of Canada MQR to apply to all high-ratio mortgage terms, regardless of length

• Already applicable for high-ratio insured mortgages with variable rates or fixed rates with terms less than five years• Currently, ~15% of new originations are high-ratio insured mortgages

2. Changes to eligibility for portfolio insurance - Effective November 30, 2016• To be eligible for portfolio insurance, newly insured low-ratio mortgages must meet the eligibility criteria that previously only

applied to high-ratio insured mortgages: o NEW Maximum amortization of 25 yearso NEW Maximum home purchase price of $1MMo Adherence to TDSR/GDSR of 44%/39% as NEW determined by above standardized stress test to all mortgage termso NEW Loan purpose includes the purchase of a property or subsequent renewal of such a loano A minimum credit score of 600 at the time the loan is approvedo NEW Property will be owner-occupied (NB: CIBC already excludes rentals)o For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once

every five years to conform to the original amortization schedule (NB: CIBC already recalculates)3. Policy Review on shared risk loss

• The Department of Finance will lead a consultation in the Fall to discuss benefits/drawbacks on shared risk loss with lenders4. Tax exemption

• An individual who was not resident in Canada in the year the individual acquired a residence will not be able to claim the exemption for that year

Impact of Recent Mortgage Policy Changes 19

• The primary residence capital gains exemption and BC tax should have an impact, but may not deal with “satellite” activity where kids live here, parent abroad.

• Higher qualifying rates and measures on low-ratio insurance will hit pricing and volume growth from non-bank, monoline lenders.

• Broker market share—currently at 30% of originations — will go down.• Mortgage originations will slow down for the market as a whole by an estimated 5%-10%. • Growth in overall mortgage outstanding will decelerate by 2.5 percentage points (growth cut in half).

Near/sub-prime/ MICs activity will rise.

• Demand for rental units will rise—leading to increased investors’ activity in the condo market and some acceleration in purpose-built activity.

Housing: Be Careful What You Wish For 20

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Ontario BC

Housing (Real Est. + Res. Const.)Other

Real GDP (2015 % Year/Year)