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CIBC chief pitches merits of richer bid for PrivateBanCorp

The CIBC sign outside the bank’s head office in downtown Toronto.

Fred Lum/Fred Lum/The Globe and Mail

The head of Canadian Imperial Bank of Commerce made his case to shareholders Thursday for the proposed $4.9-billion (U.S.) purchase of Chicago-based PrivateBancorp Inc., a week after hiking the offer price by 20 per cent.

Chief executive officer Victor Dodig sought to reassure investors that he expects the transaction to close within months, allowing CIBC to start executing its long-awaited U.S. expansion plans. In prepared remarks at the bank's annual meeting in Ottawa, he said that, even though CIBC has had to dig deeper into its coffers in the hope of sealing the deal, there is still room for PrivateBank, as it is known, to grow.

"The PrivateBank is a good bank," Mr. Dodig told shareholders. "We believe it will be an even better bank with CIBC's credit rating, technology and financial strength."

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Last Thursday, the banks said in a joint statement that CIBC would now pay $60.92 a share to buy PrivateBancorp, up from the $47 a share the Canadian bank agreed to pony up when it initially inked the deal last June.

Since the original deal was struck, a lot has changed.

Shares of PrivateBancorp have rallied sharply and remained well above the purchase price after the election of U.S. President Donald Trump gave a jolt to the financial sector as a whole, prompting the Chicago bank to postpone a planned shareholder vote in December to mid-May.

When the amended offer was announced on March 30, shares of PrivateBancorp jumped 5 per cent to $59. The stock has since traded sideways, hovering just below $60. Since the U.S. election on Nov. 8, its shares have gained 32 per cent.

At the same time, Royal Bank of Canada CEO Dave McKay, who also spoke to shareholders at his bank's annual meeting on Thursday, signalled that these same market forces have prompted his executive team to batten down the hatches and concentrate on growing the U.S. operations it already owns for the time being.

RBC is trying to make the most of its $5.4-billion purchase of Los Angeles-based City National Bank in 2015, which Mr. McKay said has been "a great deal."

He reiterated that he would consider further tuck-in acquisitions in the U.S. – if they would get RBC into a new market or generate substantial synergies. But at the moment, the "elevated valuations" American banks have enjoyed since Mr. Trump was elected are making any potential acquisition harder to justify.

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Expectations that low interest rates will rise and that the new U.S. administration will lower corporate taxes are "already baked into the price of most banks," Mr. McKay told reporters after the RBC meeting. "And, therefore, when you're making an acquisition today, you're taking on all the risk of that happening or not happening.

"There's no certainty that they're going to happen, or there's no certainty of the timing that they're going to happen or the magnitude," he said. "So that makes it a little more difficult to consider an acquisition at this moment, right now."

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About the Authors
Capital Markets Reporter

Christina Pellegrini is a reporter at The Globe and Mail and a regular contributor to Streetwise, covering capital markets, the exchange business and market structure.She writes about the capital markets divisions of BMO, CIBC and National Bank; independent brokerages such as Canaccord Genuity; and the Canadian operations of foreign dealers including JP Morgan, Goldman Sachs, Credit Suisse and Citigroup. More

Banking Reporter

James Bradshaw is banking reporter for the Report on Business. He covered media from 2014 to 2016, and higher education from 2010 to 2014. Prior to that, he worked as a cultural reporter for Globe Arts, and has written for both the Toronto section and the editorial page. More


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