CIBC latest Canadian bank to jump ship from Caribbean in pursuit of scale, focus
67% stake in business sold for US $797M; lender sets sights on preferred markets
Some of Canada’s biggest banks have a long history of doing business across the Caribbean, but lately, they have been pulling up stakes in search of scale and a sharper focus.
Case in point: The Canadian Bank of Commerce began operating in the Caribbean in 1920. Nearly a century later, its descendant, the Canadian Imperial Bank of Commerce, is preparing to sell off a significant stake in its Caribbean business.
CIBC announced Friday that it had reached an agreement to sell 66.73 per cent of CIBC Firstcaribbean to GNB Financial Group Ltd. for US$797 million.
The consideration to be paid is made up of about US$200 million in cash and the remainder in secured financing provided by CIBC itself. The deal is expected to close in 2020, pending certain approvals; when completed, CIBC would retain a 24.9-per-cent stake in Firstcaribbean.
Firstcaribbean International Bank was formed in 2002, when CIBC and Barclays combined their respective retail, corporate and offshore operations in the region. CIBC then bought Barclays’s stake in 2006, becoming the majority shareholder, with the bank renamed CIBC Firstcaribbean. The lender is the biggest regionally listed bank in the English and Dutch-speaking Caribbean, with more than 2,700 staff, 57 branches and seven offices across 16 markets.
While the transaction is expected to translate into an after-tax loss of $135 million for CIBC — the bank says it will recognize it in the fourth quarter of this year — the bank also expects its common equity tier 1 capital ratio, a key financial measure, will be boosted by more than 40 basis points. Upon closing, there will also be related “accumulated foreign currency translation gains” of about $280 million.
“The transaction has clear puts and takes,” wrote Eight Capital analyst Steve Theriault. “CIBC is looking for an exit from the Caribbean and, upon completion, this transaction goes a long way to getting them there while also freeing up +40 bps of capital.”
CIBC is also not the only major Canadian bank narrowing its exposure to the Caribbean after decades in the region. The Bank of Nova Scotia announced last week it had closed the sale of banking operations in seven Caribbean markets, although it had to hang on to its operations in Antigua and
Guyana after opposition from regulators and politicians.
CIBC is set to face similar scrutiny. Sir Ronald Sanders, high commissioner to Canada for Antigua and Barbuda, said Friday the law requires a “vesting ” order from the government, which first needs to do its own due diligence.
“At no point did any government in the Caribbean, including my own, urge Bank of Nova Scotia, CIBC, or anybody else to leave our shores,” Sanders told the Financial Post. “But if they wish to go, then they must at least follow the law.”
Furthermore, Sanders said the government’s policy is that they believe any such sale must include a right of first refusal for local financial institutions and correspondent banking ties with the buyer.
“And the reason for that is we are faced with a de-risking process that is going on around the world, but the Caribbean is most affected by it,” said Sanders.
There have been other Caribbean exits. Scotiabank announced in June that it was selling its operations in Puerto Rico after doing business on the island since 1910. The other Canadian bank with an outsized Caribbean presence, Royal Bank of Canada, sold businesses in Jamaica in 2014 and in Suriname in 2015.
The banks have said cutting back would allow them to focus on their preferred businesses and markets. The Caribbean has also been hit hard by hurricanes and faced stiff economic challenges in recent years, weighing on banks with business there.
BMO Capital Markets analyst Sohrab Movahedi wrote in a note on Friday that more recently, the Caribbean business “has been viewed as more of an investment as opposed to strategically important” for CIBC (or CM, according to its stock-ticker symbol).
“Today’s announcement follows a challenging five or so years for CM’S investment in FCIB (91.7% owned by CM), which included a major goodwill impairment charge, significant loan loss reserve builds, losses associated with Government of Barbados debt restructuring, and an ultimately failed attempt of a U.S. IPO of FCIB last year,” Movahedi said.
CIBC’S buyer, GNB, is wholly owned by the financial holding company of the Gilinski Group, which the release said has banking operations in Colombia, Peru, Paraguay, Panama, and the Cayman Islands with US$15 billion in assets. GNB’S chairman is Jaime Gilinski, a Colombian billionaire.
“We continue to build a relationship-oriented bank for a modern world, and this strategic transaction will sharpen our focus on our core businesses,” said Shawn Beber, senior executive vice-president, general counsel and corporate development for CIBC, in a press release.