CIBC lowers U.S. risk with $1.05 billion Cerberus loan

By Ka Yan Ng and Lynne Olver

TORONTO (Reuters) - Canadian Imperial Bank of Commerce (CM.TO: Quote), which has been hurt more than its peers by the credit crisis, said on Friday that a $1.05 billion loan agreement with private equity group Cerberus Capital Management LP CBS.UL will help cut its U.S. mortgage exposure.

Under the financing deal, CIBC will still own the poorly performing U.S. mortgage securities, but could benefit from any increase in their value down the road.

A fund arranged by Cerberus agreed to invest $1.05 billion in cash in CIBC's U.S. residential portfolio, which was valued at $1.075 billion as of July 31.

The fund won a competitive bidding process to acquire amortizing senior notes that have a capped return, approximately 20 percent, payable in cash.

Recourse on the notes will be limited to CIBC's portfolio, which is made up of U.S. residential mortgage-backed securities (RMBS) and collateralized debt obligations of RMBS.

Shares of CIBC closed at C$58.50, up 1.2 percent on the Toronto Stock Exchange, after trading as high as C$61.08 in the session.

CIBC, the country's fifth-largest bank, has been hurt more than its Canadian peers by the subprime mortgage turmoil, with more than C$6.7 billion in writedowns in the last three quarters.

Rob Sedran, an analyst at National Bank Financial, noted that the bank had already booked large writedowns related to this residential mortgage portfolio, which has a notional value of more than $6 billion.