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CIBC eyes $3-billion deal for U.S. money manager

Fred Lum/The Globe and Mail

Canadian Imperial Bank of Commerce is in the final running to purchase Russell Investments, a U.S. money manager that is up for sale with a price tag of as much as $3-billion (U.S.).

CIBC is open to buying all of Seattle-based Russell, which runs about $250-billion of assets and has other businesses such as index management and pension consulting, said a person familiar with the discussions. CIBC has been looking to expand its wealth-management arm, with a goal of having the business generate 15 per cent of earnings or more for the bank.

A spokesman for the bank declined to comment.

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The Canadian bank is up against private equity funds that are also interested in Russell, Reuters reported. CVC Capital Partners and Silver Lake are looking at a joint bid, as are Warburg Pincus and TPG Capital, the news service reported, citing people familiar with the talks.

Russell is part of Northwestern Mutual Life Insurance, which confirmed in a statement in January that it was exploring a possible sale of the company.

An acquisition of Russell would be one of the biggest purchases made by CIBC chief executive officer Gerry McCaughey, who spent much of his early tenure at the bank focused on eliminating risk. In recent years, he has started to be more acquisitive. However, his deals in wealth management have so far been significantly smaller than the price tag for Russell.

Canadian banks have been circling wealth managers in the past few years because the sector has been extremely hot and a significant source of profit growth. Wealth managers have the additional advantage of chewing up little of the banks' capital, because their revenues are fee-based.

Bank of Montreal was the most recent Canadian lender to scoop up an asset manager, buying F&C Asset Management for $1.3-billion earlier this year. However, every Big Six bank has been an active buyer over the past three years.

The trouble now is that wealth managers are expensive companies to buy because they are so sought after.

"We've looked at a tremendous number of opportunities in the wealth management space in the last year or so, and the ability to execute is more challenging than the stated opportunities," Royal Bank of Canada chief executive officer Gordon Nixon said in February.

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He said sellers are demanding "extremely high valuations."

CIBC wealth management head Victor Dodig acknowledged this trend in February, and added that the bank is making it a priority to not over-extend itself.

"Prices have gone up but one thing we will always focus on is strategic fit and financial discipline over the medium-term," Mr. Dodig said.

Editor's Note: An earlier online version of this article incorrectly stated the value of Russell's assets. This has been corrected.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More


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