CIBC flees Caribbean, tight­ens fo­cus

67% stake in busi­ness sold for US$797M; lender sets sights on pre­ferred mar­kets

Calgary Herald - - FRONT PAGE - GE­OFF ZOCHODNE

TORONTO 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.

NATHAN DENETTE/THE CANA­DIAN PRESS FILES

CIBC is pre­par­ing to sell off a sig­nif­i­cant stake in CIBC Firstcarib­bean to GNB Fi­nan­cial Group Ltd. for US$797 mil­lion. It ex­pects its com­mon eq­uity tier 1 cap­i­tal ra­tio, a key fi­nan­cial mea­sure, will be boosted by more than 40 ba­sis points from the deal.

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