CIBC takes a hit on FirstCaribbean sale
Published:Wednesday | December 11, 2019 | 12:23 AM
Canadian Imperial Bank of Commerce, CIBC, has booked a CDN$135-million loss on the pending sale of its regional subsidiary FirstCaribbean International Bank.
“Due to the valuation implied from the expected sale of our controlling interest in CIBC FirstCaribbean, we recognised a goodwill impairment charge of $135 million in the fourth quarter of 2019, shown as an item of note,” said CIBC in its newly released annual report.
The Canadian bank explained that the cash-generating units of its FirstCaribbean assets are valued less than the historical book value.
CIBC said its annual impairment test of CIBC FirstCaribbean determined that the estimated recoverable amount of the subsidiary’s cash generating units was less than its carrying amount, based on the valuation implied by the expected sale of its controlling interest in the regional bank.
“As a result, we recognised a goodwill impairment charge of $135 million, which reduced the carrying amount of the goodwill relating to the CIBC FirstCaribbean cash-generating units to $278 million as at October 31, 2019,” CIBC stated.
As at October, the CIBC group held goodwill of CDN$5.45 billion, down from CDN$5.56 billion a year earlier.
CIBC is selling a majority stake in FirstCaribbean to GNB Financial Group, a transaction that is subject to regulatory approval and is expected to be finalised in early 2020.
GNB Financial Group, which is part of the Gilinski Group of Colombia, will pay US$797 million for the two-thirds stake in CIBC FirstCaribbean. CIBC will continue holding a quarter of the bank, while the rest will remain in the hands of minority shareholders, according to statements from CIBC.
Mandatory offer
The deal is subject to closing adjustments and regulatory approvals. The size of the acquisition will trigger takeover bid rules in Barbados and Trinidad & Tobago, where the FirstCaribbean stock trades.
GNB Financial is wholly owned by Starmites Corporation, the financial holding company of the Gilinski Group, which has banking operations in Colombia, Peru, Paraguay, Panama and Cayman Islands with approximately US$15 billion in combined assets.
GNB will pay a total consideration of US$200 million in cash for FirstCaribbean and use financing provided by CIBC to cover the rest of the transaction.
In recent years, CIBC has seen the quality of its Caribbean loans portfolio decline due to shocks and increasing impairments.
The banking group said that as at October, its gross impaired loans totalled CDN$1.87 billion, spread 65 per cent in Canada and 18 per cent in the Caribbean “of which the residential mortgages portfolio, real estate and construction sector, and personal lending portfolio accounted for the majority”. The rest related to loans in the United States.