CIBC halts US$797M Caribbean sale
Transaction blocked by regulators
toronto • Canadian Imperial Bank of Commerce says its plan to sell most of a Caribbean business was rejected by regulators and will not go ahead, the latest such brush major domestic lenders have had with local policy-makers as they’ve attempted to reduce exposure to the region.
CIBC announced in november 2019 that it had struck a Us$797-million deal to sell approximately twothirds of Barbados-based Firstcaribbean international Bank ltd. to GNB Financial Group ltd. and its chairman, Colombian billionaire Jaime Gilinski.
on Wednesday, however, CIBC said that the transaction did not receive approval from Firstcaribbean’s regulators and would not proceed.
“While this transaction would have supported Firstcaribbean’s long-term growth prospects, it is only one way of creating value for stakeholders,” said harry Culham, CIBC’S group head of capital markets, who also oversees Firstcaribbean, in a press release.
CIBC didn’t specify who had objected to the Firstcaribbean deal. however, the Central Bank of Barbados and the eastern Caribbean Central Bank were reportedly among those looking at the transaction.
the Firstcaribbean deal was originally supposed to be completed last year, so Wednesday’s news is not a “huge surprise,” national Bank Financial analyst Gabriel Dechaine wrote in a note to clients.
Yet CIBC and other Canadian banks have had a major presence in the Caribbean for decades, and attempts to whittle down their footprints and focus on other businesses have been scrutinized by local regulators and politicians, which may be concerned about ensuring financial-system stability.
“I think when you look at the environment, and the impact that the pandemic is having on those regions, I think the regulators are a little reluctant to allow the big Canadian banks to back away,” said Rob Colangelo, senior vice-president, global financial institutions group, at DBRS Morningstar.
There had been pre-pandemic financial trouble in some Caribbean countries, such as hurricanes and the Barbados government being forced to restructure its debt, which negatively affected CIBC’S results. An attempted initial public offering of Firstcaribbean’s shares in the United States was withdrawn in 2018 as well, due to “market conditions” at the time.
However, recent corporate filings by the bank said that the attempted stake sale had gotten bogged down in a “lengthy regulatory review process,” which was playing out as the coronavirus pandemic took a growing toll on the Caribbean economy.
As a result of this, as well as “revised expectations regarding the likelihood and timing of closing of a potential transaction,” the bank decided that “held for sale” accounting would no longer apply to Firstcaribbean’s assets and liabilities. The bank’s reassessment of the situation led it to book a $220-million goodwill impairment charge for its fiscal fourth quarter, which ended Oct. 31.
“And so I think that was on the basis that they probably were having some conversations with the regulator over the course of the year, and things weren’t looking to be going in their way,” Colangelo said.
CIBC’S regulatory rejection also follows the trouble Bank of Nova Scotia had in parting with operations in two “non-core” Caribbean markets. Divestitures in nine such markets were announced by Scotiabank in November 2018, but a sale of its business in Antigua and Barbuda was ultimately delayed and sold to a different buyer following political and regulatory concerns. Guyana’s central bank blocked the intended sale of operations there altogether.
Royal Bank of Canada also announced in December 2019 that it had reached a deal to sell all banking operations in the Eastern Caribbean to a group of local banks, subject to regulatory approval and other conditions.
The latest outcome is a “mixed bag” for CIBC, National Bank Financial’s Dechaine said. While CIBC will miss out on a boost to its capital of around $1 billion, its common equity Tier 1 ratio — a measure of financial strength — was 12.1 per cent as of the end of October, well above the regulatory minimum of nine per cent.
CIBC Firstcaribbean has approximately 2,900 employees, 64 branches and offices and US$12 billion in assets spread across more than a dozen Caribbean countries. CIBC owns 91.7 per cent of the Caribbean lender.
Firstcaribbean had also contributed around four per cent of CIBC’S earnings at its peak, National Bank Financial estimated.
“While it will likely take several years for FCIB to approach its top-of-cycle profitability, we’d argue that in a growth-starved sector, retaining this potential upside is a positive for longer-term shareholders,” Dechaine added.