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Canadian Imperial Bank of Commerce has agreed to pay US$770-million after it was found liable for losses incurred by a New York hedge fund in debt deals related to the 2008 U.S. housing crisis.

A New York State court said early January that the bank must pay US$491-million in damages before prejudgment interest in a lawsuit that Cerberus Capital Management LP first brought to court in 2015. At the time, CIBC said it was appealing the decision.

The settlement, announced Friday evening, is less than the US$1.1-billion that Cerberus sought when it first brought the bank to court in 2015.

After the January court decision, CIBC recorded a pretax provision of $1.17-billion – representing US$855-million including prejudgment interest – in its earnings for its fiscal first quarter, which ends Jan. 31. The bank will release results on Feb. 24.

With the settlement clocking in at less than the amount CIBC had earmarked, the US$85-million difference will be reflected in the bank’s second-quarter financial results, the lender said.

“Both parties have agreed to arrange for the immediate dismissal, with prejudice, of all claims, counterclaims and appeals relating to the litigation,” CIBC said in a press release. “The settlement also eliminates the uncertainty, distraction and expense of continued litigation between the parties.”

Cerberus had alleged CIBC defaulted on payments on a limited recourse note the bank issued in 2008, and on a related transaction in 2011. Limited recourse notes are a type of debt instrument that combines elements of preferred shares and corporate bonds to provide fixed-income investors with higher yields.

CIBC has said in its public filings that the two transactions with Cerberus reduced the bank’s exposure to the U.S. residential real estate market.

The court initially found CIBC liable for damages in an early December decision, but it had yet to decide how much the bank would have to pay. At the time, CIBC said in a release that it had not set aside any money for a potential loss because it believed it was “more likely than not to prevail at trial.”

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