July 15, 2011 / 10:19 AM / 6 years ago

UPDATE 4-CIBC expands US presence with American Century deal

* Bank will pay $848 mln for 41 pct of American Century

* CIBC expects deal to add to earnings immediately

* Deal expands products available to institutional clients

* Transaction expected to close in 90 days

* CIBC shares down 0.16 pct on TSX (Adds American Century CEO comments. In U.S. dollars unless noted)

By John McCrank

TORONTO, July 15 (Reuters) - Canadian Imperial Bank of Commerce (CM.TO) is buying a minority stake in U.S. asset manager American Century Investments for $848 million, signaling its intention to step up its presence outside its home market.

Canada’s No. 5 bank said on Friday it would acquire 41 percent of Kansas City-based American Century, with $112 billion under management. The deal is expected to close in 90 days and will immediately add to earnings.

The stake, currently owned by JPMorgan Chase & Co (JPM.N), gives Toronto-based CIBC geographic diversification and helps it expand its asset management offerings, which fall under its wealth management unit.

“The transaction, although not big in and of itself, sends an unmistakable message that CIBC’s board and senior executive team have broadened their strategic intent beyond Canada,” said Peter Routledge, an analyst at National Bank Financial.

Profits from CIBC’s U.S. operations last year contributed C$119 million ($124 million) to its overall earnings of C$2.45 billion. Its 2010 U.S. average assets were C$18.8 billion against total balance sheet average assets of C$346 billion.

MORE DEALS EXPECTED

The American Century deal is CIBC’s first move into U.S. asset management, but Routledge said he expects the bank will make more U.S. deals in the years to come.

Further, American Century said both it and CIBC are interested in expanding overseas.

“While they are gaining important exposure to the U.S. market, which was very limited to them historically, we also both want to gain additional access outside of North America,” American Century Chief Executive Jonathan Thomas said in an interview.

He said that expansion in Asia was a key priority for both companies, and growth could come through acquiring other firms and hiring sales or investment management professionals.

“They’re very supportive and, in fact, enthusiastic of that,” Thomas said.

As it stands, the deal expands the products CIBC can offer its institutional and retail customers through access to American Century’s equity and fixed-income capabilities.

CIBC Chief Executive Gerry McCaughey once ran the bank’s wealth management operations. Recently he began bulking up the segment, and made its current head, Victor Dodig, one of his direct reports.

“Demographic trends in the U.S. are positive and savings rates are on the rise,” McCaughey said in a statement. “As boomers continue to advance towards retirement age, the increased demand for personal retirement solutions makes this opportunity attractive.”

CIBC is at the top end of its peer group range for Tier 1 capital, and the cash deal is not seen putting it at risk of falling short of minimum requirements for Basel III ratios.

SOUTHERN EXPANSION

Strong regulation and a conservative mind-set helped Canada’s banks emerge from the financial crisis in better shape than many of their global peers and many of them have been active in deal making in the larger U.S. market.

Last week, Bank of Montreal (BMO.TO) completed its $4.1 billion acquisition of Marshall & Ilsley Corp, vastly expanding its retail presence in the U.S. Midwest. [ID:nN1E7641LK]

Shortly after that deal was first announced, Toronto-Dominion Bank (TD.TO) said it would buy U.S. auto lender Chrysler Financial for $6.3 billion.

Last month, Royal Bank of Canada (RY.TO) sold its money-losing U.S. retail banking arm and credit card business for $3.62 billion, with an aim of focusing on U.S. asset management. [nN1E75J16Z]

American Century Investments’ major shareholder is the Stowers Institute for Medical Research.

Its $112 billion in managed assets rank it as a mid-level player in the U.S. fund industry. It trails Fidelity Investments and Vanguard Group Inc, both closely-held, with more than $1 trillion under management each.

CIBC said it will hold 10.1 percent of American Century’s voting rights and have two seats on its 10-member board.

Shares of CIBC were down 0.16 percent at C$74.50 on Friday afternoon on the Toronto Stock Exchange opened, while JP Morgan was down 1.12 percent at $39.90 in New York.

$1=$0.96 Canadian Additional reporting by Savio D'Souza and Bhaswati Mukhopadhyay in Bangalore, and Ross Kerber in New York; Editing by Frank McGurty

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