(The following statement was released by the rating agency)
NEW YORK, July 07 (Fitch) Fitch Ratings views the recent announcement that
Canadian Imperial Bank of Commerce (CIBC) intends to acquire PrivateBancorp
(PVTB) and its primary subsidiary PrivateBank as neutral to CIBC's 'AA-' Issuer
Default Rating (IDR). The transaction is expected to close by the end of
calendar 1Q17.
PVTB, a Chicago based commercial bank, reported $17.7 billion assets at 1Q16. On
a pro forma basis, this acquisition represents less than 5% of CIBC's assets,
and CIBC's projected Common Equity Tier 1 ratio to remain above 10%, both of
which are considered manageable in the context of CIBC's credit profile.
Given its relatively small size and CIBC's previously stated intention to make
acquisitions in the U.S., this transaction is consistent with the company's
stated strategy. Fitch does not anticipate that it will have any impact on
CIBC's ratings. Nonetheless, Fitch expects CIBC to successfully execute on the
integration of PVTB and projected figures for the transaction to materialize,
including estimated profitability measures and capital position in line with its
forecasts.
On June 29, 2016, CIBC announced that it will acquire all of PVTB's assets
including 35 commercial offices, 24 branches, $9.6 billion in assets under
administration (AUA) and $14.5 of deposits for $3.8 billion (24% premium of over
PVTB's implied stock price). CIBC will pay 2.2x PVTB's tangible book value in a
transaction that will be financed with roughly 60% stock and 40% cash.
In Fitch's view the deal is in line with CIBC's strategic plans and interest in
entering the U.S. market, although larger than CIBC's targeted range of CAD$2
billion - CAD$4 billion. The acquisition gives CIBC entry to the Chicago market,
which has attractive demographics and creates good prospects for loan growth.
CIBC's U.S. corporate loan book totals $10.6 billion while PVTB total loan book
totals $13.5 billion. Additionally, the acquisition potentially complements
CIBC's Atlantic Trust ($27.5 billion in AUA) business, giving clients access to
banking capabilities in the U.S.
Fitch views the deal price as high considering that the PVTB franchise is
in-line with other similarly sized institutions in the highly competitive and
fragmented Chicago market. Further the transaction has limited cost-save
opportunities given that there is no material overlap in footprint.
Additionally, the relatively longer earn-back period may present challenges due
to uncertainty around macro factors such as future interest rates and economic
growth.
As with any merger or acquisition, there are operational and execution-related
risks, particularly for CIBC that has a limited record of bank acquisitions.
Nonetheless, Fitch believes related risks will be managed well within CIBC's
risk management infrastructure. Further, PVTB's balance sheet is modest in
complexity and therefore should minimize disruptions.
Fitch affirmed CIBC's ratings at 'AA-/F1+' on Jan. 25, 2016 as part of its
periodic review of Canadian banks. The affirmation is supported by the company's
solid franchise in Canada, sound capital levels, strong asset quality, continued
earnings stability, strong funding and liquidity position and favorable metrics
relative to international peers. Incorporated in the affirmation was the
likelihood that CIBC would continue to evaluate acquisition opportunities,
particularly in the U.S. Nonetheless, Fitch has noted for all Canadian banks
that risk profiles may be changing over time as they continue to look for growth
abroad given domestic growth challenges in Canada.
Contact:
Primary Analyst
Doriana Gamboa
Senior Director
+1-212-908-0865
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
Secondary Analyst
Justin Fuller
Senior Director
+1-312-368-2057
Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email:
hannah.james@fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
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