* Canadian banks look outside of Canada for growth
* Talks over deal took place over 6-8 months
* CIBC says core capital to remain over 10 percent
* CIBC shares down 3 percent, Private Bancorp up 22 percent
(New throughout, adds comments from CEO, analyst, shareholders)
By Matt Scuffham and John Tilak
TORONTO June 29 (Reuters) - Canadian Imperial Bank of
Commerce CM.TO said it will buy Chicago-based PrivateBancorp
Inc PVTB.O in a $3.8 billion cash-and-share deal, its biggest
ever acquisition and a long-awaited expansion in U.S wealth
management.
CIBC has been in talks with potential U.S. targets for some
time as it looked to expand its wealth management business. The
bank sees the sector as a growth area that could help offset
sluggish domestic growth and a low-interest-rate environment.
Some investors are also keen for Canadian banks to lessen
their dependence on a domestic market that has been hurt by the
prolonged slump in oil prices.
"What we're trying to achieve for our shareholders and for
our clients is to have a business with a more diversified
earnings stream than just relying largely on the Canadian
market," CIBC Chief Executive Officer Victor Dodig said on a
conference call.
Dodig said the combination with PrivateBancorp will enable
CIBC's U.S. banking business to contribute more than 10 percent
of the bank's net income over time, double the 5 percent the
U.S. market now contributes.
Chief Financial Officer Kevin Glass said the deal would not
reduce the bank's investment in Canada or its target to maintain
its dividend payout at the top end of a target range of between
40 to 50 percent of earnings.
He also said that, after closing the deal, CIBC's core tier
1 capital ratio, a key measure of its financial strength, would
remain above 10 percent.
CIBC's stock was down 3.1 percent in early trade, while
shares in PrivateBancorp were up 22.4 percent to $43.99, below
the $47 dollar value of the deal based on Monday's closing CIBC
share price. This reflected the market's expectation that the
price of CIBC shares would fall following the deal, given the
strain it puts on CIBC's capital strength and earnings in the
short term.
"The acquisition is sizeable but the bank has been quite
clear with its intentions and despite being somewhat pricey and
likely near-term dilutive to earnings it should not be shocking
to the market," Barclays (LON:BARC) analyst John Aiken wrote in a research
note.
David Neuhauser, managing director at Livermore Partners,
which owns shares of PrivateBancorp, said it was a good deal for
the U.S. bank.
"PrivateBancorp was reaching an inflection point where it
was going to be harder for them to continue to grow their assets
in the U.S. unless they were on the acquisition trail. It was
ripe for consolidation," he said.
Barry Schwartz, portfolio manager at Baskin Financial
Services, said Canadian banks need to reduce exposure to the
Canadian economy and may have had to pay a full price to do
that.
"CIBC had no choice. They are looking for growth and growth
doesn't come cheap," he said.
Dodig said he had been working on the deal with his
counterpart at PrivateBancorp, Larry Richman, for six to eight
months. Richman will remain CEO of PrivateBancorp and become
head of CIBC's U.S. operations.