Canada's CIBC to pay $3.8 billion for PrivateBancorp, expand in U.S.

Wed Jun 29, 2016 11:21am EDT
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By Matt Scuffham and John Tilak

TORONTO (Reuters) - Canadian Imperial Bank of Commerce said it will buy Chicago-based PrivateBancorp Inc 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.   Continued...

A Canadian Imperial Bank of Commerce (CIBC) sign is seen outside of a branch in Ottawa, Ontario, Canada, May 26, 2016. REUTERS/Chris Wattie