Canadian Imperial Bank of Commerce startled the financial markets Friday with a warning that earnings for its latest quarter would be 42% below expectations. Its stock plunged 16%.

The development highlighted anew the pitfalls faced by commercial banks moving into investment banking. Bankers Trust Corp. and NationsBank Corp. have boosted earnings with investment banking acquisitions. But others stumbled, notably Deutsche Bank and National Westminster Bank PLC.

CIBC, which bolstered its U.S. investment banking presence last year by acquiring Oppenheimer & Co., New York, blamed the shortfall mostly on "expenses associated with expansion of its U.S. operations."

The Canadian commercial bank said it would earn about 50 cents per share in the fiscal quarter that ended July 31, sharply below the 85 cents per share estimated by analysts.

Investment banking revenues "will be lower as a result of weaker capital markets in Canada and the United States," CIBC chairman and chief executive Al L. Flood said in a statement released after markets closed Thursday.

CIBC disclosed that investment banking revenues would fall about $170 million short of expectations, and attributed "about two-thirds" of the decline to falling equity market revenues at Oppenheimer.

Analysts said the earnings shortfall may indicate profound problems at CIBC, Canada's second-largest bank and one of many commercial banks to buy a U.S. investment bank in the past year.

"It appears there is a deep problem at Oppenheimer," said Thomas H. Hanley, banking analyst at Warburg Dillon Read. "In banking, you miss estimates by pennies, not dimes, let alone 40%."

Michael Ancell, banking analyst at Edward D. Jones & Co., said investment banking makes up a bigger percentage of revenues at CIBC than at other commercial banks. "Their expenses ran up and revenues dropped a bit," he said, "so ugly things happen."

Bruce Renihan, controller at CIBC, said lower trading and underwriting revenues were responsible for about 16 cents of the bank's earnings shortfall.

"The companies we deal with are not the size that trade on the New York Stock Exchange," Mr. Renihan said. "They're more like Russell 2000 companies. And that index is off 18% this year."

He attributed another 15 cents of the shortfall to recruiting costs and other expenses of building investment banking business. The company is building virtually every facet of investment banking and said it would absorb a $55 million charge to relocate its operations in New York.

"Someone like NationsBank could probably cover up costs like these," Mr. Ancell said. "CIBC, however, has made a big bet on capital markets." In the second quarter CIBC reported that 28% of its total income came from its "world markets" unit.

CIBC spent $525 million to buy Oppenheimer in July 1997. Fees from investment banking activities to date this year are $38 million, according to Securities Data Co., compared with $32.3 million a year earlier, before the Oppenheimer deal.

The company has underwritten $548 million of common stock to date this year, compared with $491 million for the same period last year.

Mr. Renihan said the earnings shortfall would not jeopardize the bank's proposed merger with Toronto-Dominion Bank, and Mr. Flood insisted in his statement that CIBC would continue its strategy of building its investment banking operations.

"We have full confidence in our U.S. strategy and will continue to invest to strengthen and grow our U.S. businesses," Mr. Flood said.

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