Reuters, Cameron French, 13 March 2006 ($ in U.S. dollars unless noted)
Canadian Imperial Bank of Commerce said on Monday it will buy a 43.7 percent stake in FirstCaribbean International Bank from Britain's Barclays Plc for $1.08 billion.
The cash and stock purchase will give Canada's No. 5 bank an 87.4 percent stake in Barbados-based FirstCaribbean, which was formed four years ago from the merger of the Caribbean businesses of CIBC and Barclays, Britain's third-biggest bank.
The deal, which is still subject to due diligence and regulatory approval, would be the first of this magnitude in years for CIBC, which has largely focused on its domestic business after taking losses from loan writedowns and regulatory entanglements in recent years.
Last year, the bank paid $2.4 billion to settle a class-action lawsuit alleging it played a role in the 2001 collapse of U.S. energy trader Enron.
Since then, it has cut costs and focused on rebuilding its balance sheet, and said recently its capital levels had moved back up above its minimum objectives.
Brenda Lum, an analyst at Dominion Bond Rating Service, said the magnitude of the hit to capital would depend on the timing of the deal's close and also on whether CIBC pays mostly cash, or whether it finances the deal through a stock issue.
"It does limit their options if they do have to take a charge with respect to something unforeseen," she said.
Investors seemed to take a lukewarm view of the announcement, pulling the bank's shares down 45 Canadian cents to C$83.95 on the Toronto Stock Exchange, underperforming Canada's other big banks.
CIBC said it expects the deal to close late this year.
The remaining 12.6 percent of FirstCaribbean is publicly held, with the shares listed on the Barbados, Jamaica, Trinidad & Tobago and East Caribbean stock exchanges.
One Canadian equity analyst said he wasn't worried about the impact on CIBC's capital position, and said the deal reflected well on new Chief Executive Gerry McCaughey, who took over the reins of the bank last year.
"I think this basically proves he is capable of actually putting together deals for CIBC even with a limited balance sheet," the analyst said.
For Barclays, the deal will end its 80-year presence in one of its original international locations. It said now was the right time to exit and said FirstCaribbean would be best served with one controlling shareholder.
"We are happy with the business but there are other opportunities to deploy the capital at higher returns where we would be in control," a spokesman for Barclays told Reuters.
Barclays said its investment bank and wealth management businesses will retain a presence in the Caribbean, but this deal marks the end of its retail business there.
Under the terms of the letter, CIBC will have the option of paying for the stake in cash, CIBC shares or a combination of cash and shares.
Barclays said it does not intend to be a long-term holder of any CIBC shares. It said the price -- $1.62 per share -- represents 17.5 times FirstCaribbean's operating earnings for the year to Oct. 31. FirstCaribbean has assets of about $9.6 billion.
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Canadian Imperial Bank of Commerce said on Monday it will buy a 43.7 percent stake in FirstCaribbean International Bank from Britain's Barclays Plc for $1.08 billion.
The cash and stock purchase will give Canada's No. 5 bank an 87.4 percent stake in Barbados-based FirstCaribbean, which was formed four years ago from the merger of the Caribbean businesses of CIBC and Barclays, Britain's third-biggest bank.
The deal, which is still subject to due diligence and regulatory approval, would be the first of this magnitude in years for CIBC, which has largely focused on its domestic business after taking losses from loan writedowns and regulatory entanglements in recent years.
Last year, the bank paid $2.4 billion to settle a class-action lawsuit alleging it played a role in the 2001 collapse of U.S. energy trader Enron.
Since then, it has cut costs and focused on rebuilding its balance sheet, and said recently its capital levels had moved back up above its minimum objectives.
Brenda Lum, an analyst at Dominion Bond Rating Service, said the magnitude of the hit to capital would depend on the timing of the deal's close and also on whether CIBC pays mostly cash, or whether it finances the deal through a stock issue.
"It does limit their options if they do have to take a charge with respect to something unforeseen," she said.
Investors seemed to take a lukewarm view of the announcement, pulling the bank's shares down 45 Canadian cents to C$83.95 on the Toronto Stock Exchange, underperforming Canada's other big banks.
CIBC said it expects the deal to close late this year.
The remaining 12.6 percent of FirstCaribbean is publicly held, with the shares listed on the Barbados, Jamaica, Trinidad & Tobago and East Caribbean stock exchanges.
One Canadian equity analyst said he wasn't worried about the impact on CIBC's capital position, and said the deal reflected well on new Chief Executive Gerry McCaughey, who took over the reins of the bank last year.
"I think this basically proves he is capable of actually putting together deals for CIBC even with a limited balance sheet," the analyst said.
For Barclays, the deal will end its 80-year presence in one of its original international locations. It said now was the right time to exit and said FirstCaribbean would be best served with one controlling shareholder.
"We are happy with the business but there are other opportunities to deploy the capital at higher returns where we would be in control," a spokesman for Barclays told Reuters.
Barclays said its investment bank and wealth management businesses will retain a presence in the Caribbean, but this deal marks the end of its retail business there.
Under the terms of the letter, CIBC will have the option of paying for the stake in cash, CIBC shares or a combination of cash and shares.
Barclays said it does not intend to be a long-term holder of any CIBC shares. It said the price -- $1.62 per share -- represents 17.5 times FirstCaribbean's operating earnings for the year to Oct. 31. FirstCaribbean has assets of about $9.6 billion.
