CIBC selling Caribbean division for US$1.6 billion as it refocuses efforts on North American market

CIBC reported earnings on Thursday. Photo by Annie Sakkab/Bloomberg

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Canadian Imperial Bank of Commerce is selling its Caribbean division for US$1.6-billion in a move that will allow it to “reallocate significant capital” toward growing its North American business, the bank’s chief executive said Thursday.

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The Bank of N.T. Butterfield & Son Ltd. will buy CIBC’s 92 per cent interest in CIBC Caribbean for US$1 billion in cash and 52.1 million common shares, currently valued at US$645 million. Through the deal, CIBC will own a 22 per cent stake in Bermuda-based Butterfield. 

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“The transaction brings together two complementary banks with deep roots and established relationships across the region,” CIBC chief executive Harry Culham told analysts during the bank’s second-quarter earnings call. 

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CIBC beat analysts’ estimates for the quarter as it posted growth across all divisions. Net income was nearly $2.5 billion for the three months ended April 30, up 23 per cent from the same period a year earlier. Net earnings per share were $2.53. 

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Adjusted net income, which excludes non-recurring items, also increased 23 per cent to just shy of $2.5 billion. Adjusted earnings per share came in at $2.54, up from $2.05 a year earlier and above the $2.45 forecast by analysts. 

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CIBC declared a dividend of $1.07 per share, unchanged from the previous quarter and up from $0.97 cents a year earlier. The bank also announced that it is renewing its share buyback program and will repurchase up to 30 million common shares, representing 3.3 per cent of outstanding shares of April 30. 

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While the bank’s overall results were strong, and included a 40 per cent surge in net income in capital markets, analysts pointed to weaker-than-expected growth in other divisions as potential areas of concern for investors.

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“Although CIBC came in ahead of expectations, the earnings mix may not be what the market prefers to see,” Jefferies Inc. analyst John Aiken said in a note. “Capital markets far exceeded expectations, but this was met with misses in domestic retail and U.S. commercial.”   

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CIBC shares were down more than 4.9 per cent to $151.70 in midday trading in Toronto.

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Provisions for credit loss (PCLs), the money banks set aside to cover potential loan defaults, were $605 million, unchanged from a year ago and up from $568 million in the first quarter. 

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Chief risk officer Frank Guse said “elevated unemployment and heightened geopolitical tensions” contributed to the bank increasing its PCLs on impaired loans by $28 million from the previous quarter to $548 million, mainly in its Canadian personal and business banking portfolios. 

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“While we are not currently seeing material credit concerns, we continue to monitor the portfolio closely, given the evolving economic environment,” said Guse. “We remain confident in the quality of our credit portfolio and the prudence of our reserves, which positions us well to manage the current debt environment.”