Canadian Imperial Bank of Commerce has filed paperwork to list its Caribbean banking subsidiary on U.S. stock markets, signalling a desire to pull back from a region that has proven challenging for banks.
Canada’s fifth-largest lender filed a prospectus with the U.S. Securities and Exchange Commission on March 23, outlining plans for an initial public offering of shares in FirstCaribbean International Bank, a Barbados-based lender, on the New York Stock Exchange.
CIBC currently owns nearly 92 per cent of FirstCaribbean, which earns most of its revenue in Barbados, the Bahamas and the Cayman Islands and trades on a trio of Caribbean stock markets. But the bank is now looking to list a minority stake in the United States, aiming to raise new funds and free up capital that could be redirected to higher priorities. Last year, CIBC paid US$5-billion to acquire Chicago-based PrivateBancorp Inc. as the anchor in an ambitious plan to re-establish a U.S. foothold.
There is no guarantee that CIBC will proceed with the IPO and neither the number of shares being offered nor the price have been disclosed. Should the offering go forward, “CIBC will continue to have significant control of our business,” according to the U.S. filing.
But the documents also outline the first steps in a road map that could lead CIBC to sell its majority ownership in FirstCaribbean and retreat from the tropics, where CIBC has had interests since the early 1920s. Under the terms of the IPO, FirstCaribbean plans to enter a series of agreements with CIBC that could gradually unwind close ties linking the two banks – including a “separation agreement” and a deal to keep shared services through a transition.
“CIBC intends to divest itself of its controlling interest in us over time, subject to market conditions and other considerations,” the filing says.
A CIBC spokesperson declined to comment. But at a December investor day, chief executive officer Victor Dodig confirmed the bank was “contemplating” a U.S. listing. Prior talks to explore selling the business outright yielded only low-ball offers, prompting CIBC to take a different approach.
“Keeping [FirstCaribbean] intact is really, really important. So accessing a deep capital pool can be nothing but good for the business overall. That’s the way we look at it,” Mr. Dodig said at the time.
FirstCaribbean had about US$12.4-billion in assets as of Jan. 31, and has improved its financial performance since 2015. Gary Brown, who took over as CEO in 2016, is credited with reducing gross impaired loans and improving efficiency.
But Caribbean banks can be a tough sell to investors. Many islands have suffered from challenging economic conditions, compounded by a series of hurricanes that battered the region’s infrastructure last year, piling on fresh loan losses. And the region has often given banks reputational headaches.
More particularly, FirstCaribbean holds US$1-billion in securities that are below investment grade. That includes US$371-million in Barbadian sovereign debt rated triple-C by Standard & Poor’s, effectively junk status and at serious risk of restructuring. A loss in value could materially affect FirstCaribbean’s financial results, the filing says.