An $895-million gain that CIBC recorded in the fourth-quarter of 2008 appears to be in limbo, although the bank is fairly confident that it will remain in place.
CIBC disclosed its Thursday, and there's a note in its financial statements that explains what's going on with this particular accounting gain, which is highly complex and stems from the bank's exposure to structured credit.
The bank had recorded the gain as a result of the reduction of an unfunded commitment it held on a note that had been issued by a collateralized debt obligation (CDO). That reduction came after Lehman Brothers, which was guaranteeing a credit default swap agreement with the CDO, filed for bankruptcy.
Recently, the Lehman estate has taken legal action with respect to a number of CDOs (but not the one that led to CIBC's gain). The U.S. bankruptcy court in New York has ruled that a provision in another CDO deal that should have kicked in when Lehman went under and reversed the order of who gets paid was unenforceable.
In its results, CIBC says that "that ruling, which the defendant has indicated it will appeal, does not change our belief that if contested, the trustee's actions in reducing the unfunded commitment on our [note]to zero should be upheld although there can be no certainty regarding any eventual outcome."
In other words, the bank believes its gain is justified and will remain in place but there is a chance it will have to reverse it.