Attention Business Editors:

Rejection of Wall Street bailout may lead to systemic damage in world financial systems: CIBC World Markets report

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                      Until financial pain felt on Main Street, Americans unlikely to support
                      bailout
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                      TORONTO, Sept. 30 /CNW/ - CIBC (CM: TSX; NYSE) - Public support for a
                  bailout of Wall Street will likely only come after the average American
                  directly feels the pain from the banking crisis - and by then the world's
                  financial system may have suffered systemic damage, finds a new report from
                  CIBC World Markets.
                      "In acquiescing to a sceptical Main Street, Congress voted thumbs down on
                  the Wall Street bailout package, leaving the country's, if not the world's
                  financial system exposed to further price declines in the U.S. housing
                  market," says Jeff Rubin, chief economist at CIBC World Markets.
                      Mr. Rubin says that the rejection by Congress of the package reflects the
                  huge and growing chasm that still exists between Wall Street and Main Street.
                  "Notwithstanding the growing list of banking casualties in the U.S., and
                  ballooning credit spreads, particularly for financial institutions themselves,
                  Wall Street's crisis is yet to make a big splash on Main Street."
                      He notes that while floating-rate mortgages in the U.S. are up almost a
                  full percentage point, car loans are getting harder to come by and leases for
                  fuel pigs like SUVs are virtually unobtainable, minimal payroll and industrial
                  production losses to date means that the average American has yet to feel much
                  pain from the crisis gripping the financial markets.
                      "It is the very benign nature of today's downturn on Main Street that
                  could pose the greatest danger tomorrow," says Mr. Rubin. "Without a material
                  worsening in the unemployment rate or GDP growth, Main Street could well
                  remain unimpressed with Wall Street's balance sheet ills. And it could still
                  take a quarter of two before average Americans feel the full impact of what is
                  happening to their financial institutions.
                      "Until they do, they are unlikely to become any more tolerant of a
                  bailout package. For once, a much weaker economy may be needed, if only to put
                  Main Street and Wall Street on the same page."
                      Mr. Rubin is concerned that "the financial system may not be able to
                  tread water long enough before Main Street suffers sufficiently to get on
                  board with a package. That's why it is so pivotal that a package come now,
                  before systemic damage is sustained."
                      While neither the Canadian economy nor the Canadian housing market are as
                  exposed to the U.S. financial crisis as their American counterparts, the
                  roller coaster rides on the TSX recently shows that it is far more leveraged
                  to the crisis than either the Dow or the S&P 500.
                      "Fears of a financial market meltdown do not bode well for investor
                  sentiment towards commodities," finds Mr. Rubin. "The recent wild ride in oil
                  prices underscores how concern over toxic balance sheets on Wall Street can
                  spill over into other markets, even where there is little to fundamentally
                  connect them."
                      He notes that global demand for oil has shown little sign of decline with
                  automobile sales globally poised to set a record for the seventh consecutive
                  year. Demand for automobiles - and the oil to fuel them - is still booming in
                  Brazil, Russia, India, China (BRIC). Sales in these nations are up more than
                  20 per cent in the second quarter of 2008. In fact, total annual automobile
                  sales in the BRIC countries are expected to overtake the U.S. for the first
                  time ever next year.
                      The CIBC World Markets report also notes that while housing prices in
                  Canada are cooling, there is little worry of a U.S.-like meltdown in prices.
                  U.S. housing prices have been falling for two years with a cumulative decline
                  of 18 per cent to date-on their way to an eventual correction of 25 per cent.
                      The study finds that by almost any measure, American households entered
                  the current housing crisis from a more vulnerable position relative to their
                  Canadian counterparts-carrying a heavier debt load and a much lighter net
                  worth position.
                      At the peak of the cycle, subprime and Alt-A mortgages accounted for no
                  less than 33 per cent of originations in the U.S. market. At the peak,
                  non-conforming mortgages reached 5.4 per cent of originations in Canada.
                      The report concludes that the existence of such a high ratio of subprime
                  mortgages led to the large drop in U.S. housing prices - a situation that does
                  not exist in Canada.
                      The complete CIBC World Markets report is available at:
                      http://research.cibcwm.com/economic_public/download/ssep08.pdf.
                  
                      CIBC World Markets is the wholesale and corporate banking arm of CIBC,
                  providing a range of integrated credit and capital markets products,
                  investment banking, and merchant banking to clients in key financial markets
                  in North America and around the world. We provide innovative capital solutions
                  and advisory expertise across a wide range of industries as well as top-ranked
                  research for our corporate, government and institutional clients.
                  
                  
                  
                  

For further information: Jeff Rubin, Chief Economist and Chief
                  Strategist, CIBC World Markets at (416) 594-7357, jeff.rubin@cibc.ca or Kevin
                  Dove, Communications and Public Affairs at (416) 980-8835,
                  kevin.dove@cibc.ca.