In order to further expand its U.S. wealth management operations, Canadian Imperial Bank of Commerce (CM) announced a deal to acquire Atlantic Trust Private Wealth Management from Invesco Ltd. (IVZ). The company will be paying $210 million, while adding nearly $20 billion in assets.
Atlantic Trust offers integrated wealth management solutions through a team of 235 employees. With this acquisition, CIBC will get exposure to the high-networth U.S. private wealth market.
The deal, still subject to regulatory approvals, is expected to close by the end of this year. Upon completion, the deal will be accretive to CIBC’s earnings in fiscal 2014. However, it is anticipated to lower the company’s Basel III tier 1 equity ratio by about 20 basis points from 12.4% as of Jan 31, 2013.
For Invesco, the divestiture of Atlantic Trust is expected to lower net revenues by about $115 million on an annualized basis, while operating expenses would decline by approximately 85 million. Hence, the overall impact on earnings per share on an annualized basis would be 5 cents. Yet, Invesco intends to use the money raised to buyback shares, thereby somewhat mitigating the dilution of earnings by 3 cents.
CIBC continues to witness a massive surge in demand for wealth management services and is striving hard to improve the performance of its private-wealth business. In the fiscal first quarter (ended Jan 31), the unit contributed roughly 7% of Wealth Management’s total revenue.
Additionally, CIBC has been augmenting its wealth management operations inorganically. In 2012, the company acquired private wealth management business of MFS McLean Budden, a subsidiary of Sun Life Financial Inc. (SLF). Further, in 2011, the company announced its decision to buy a 41% equity stake in American Century Investments, a major U.S. asset management company.
Apart from CIBC, many other Canadian banks are trying to heighten their wealth management operations. In 2012, Royal Bank of Canada (RY) announced a deal to buy the Latin American, Caribbean and African private banking business of Coutts – the wealth division of Royal Bank of Scotland Group.
We believe that CIBC’s recent acquisition will enhance revenue generation from its private-wealth business. Further, amid the gloomy global economic environment, the company will be able to stabilize its financials.
Currently, CIBC retains a Zacks Rank #4 (Sell).
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