CIBC raising $2.75 billion by selling shares at a discount

By David Friend And David Paddon, The Canadian Press

TORONTO - Canadian Imperial Bank of Commerce (TSX: CM.TO) plans to raise $2.75 billion in an attempt to rebuild its balance sheet and clean up the wreckage from credit writedowns related to the troubled U.S. housing and mortgage industries.

The investors who have made commitments to buy a total of $1.5 billion of the shares in a private placement include Manulife Financial Corp. (TSX: MFC.TO), one of Canada's largest non-bank financial services companies.

Manulife is investing $500 million in CIBC, according to a spokeswoman for the company.

The others involved in the private placement are Hong Kong billionaire Li Ka-Shing, who was at one time the bank's largest single shareholder, the OMERS pension plan and the Caisse de Depot et Placement du Quebec.

The private placement is being done at $65.26, which is a 9.5 per cent discount to the market price of $72.07 just before the announcement, which came late in the trading session.

Another $1.25 billion of stock will be sold to a syndicate of underwriters led by the bank's CIBC World Markets brokerage arm. The shares will be sold to the syndicate at $67.05, or $1.79 per share more than the investment group is paying. The underwriters will also have the right to buy additional shares at $67.05.

"The capital rates of this offering with provide CIBC shareholders with additional comfort and certainty and will assist in enabling our management team to direct their full energy and resources on continuing to execute our strategy," said chief executive Gerry McCaughey in a conference call.

The close of both the public offering and private placement is expected around Jan. 24.

CIBC shares were halted pending the news and didn't resume before the end of the day.

CIBC, one of Canada's largest banks, is coping with its exposure to recent problems in the U.S. credit market. The bank has also been buffeted in the past few years by costly missteps, including its involvement with the Enron energy business.

On Monday, the bank confirmed its previously announced estimate that it is writing down the value of the counterparty protection it can expect from ACA Financial Guaranty Corp. ACA was supposed to share some of the risk that CIBC took on with certain investments but the American company has run into financial difficulties itself.

CIBC's net receivable from ACA is now valued at US$70 million after a writedown of US$2 billion (or US$1.3 billion after tax), in line with CIBC's announcement in late December.

The Toronto-based bank said it may also face further writedowns before the end of the current quarter, which ends Jan. 31.

McCaughey said one of the bank's priorities is to strengthen the bank's capital base to deal with contingencies that may arise.

On Jan. 7, the bank announced the rejigging of several positions which included bring in new executives. Chief financial officer Tom Woods, a 30-year CIBC veteran, was moved into the position of chief risk officer.

He was replaced as CFO by David Williamson, who has been president and CEO of warehouse freezer company Atlas Cold Storage and chief financial officer of the former Clarica Life Insurance.

Richard Nesbitt, currently chief executive of the TSX Group (TSX: X.TO), moves into the role of CEO at CIBC World Markets at the end of February.

"With these changes in our management team and the steps we have taken to refocus our World Markets business, I'm confident that our core franchise is well positioned over the long term for solid performance and growth," said McCaughey.

Earlier on Monday, Oppenheimer Holdings Inc. (NYSE: OPY) closed the previously announced acquisition of CIBC's capital markets businesses in the United States, including related Israeli investment banking and equities business.