U.S. Markets closed

CIBC Sells 67% Stake in FirstCaribbean Bank for $797 Million

Doug Alexander

(Bloomberg) -- Canadian Imperial Bank of Commerce agreed to sell two-thirds of its Caribbean banking unit to a company run by Colombian billionaire Jaime Gilinski for $797 million, reducing its exposure to a company that has lost $1.6 billion in value since 2006.

GNB Financial Group Ltd. will buy 66.7% of CIBC FirstCaribbean shares from CIBC, leaving Canada’s fifth-largest lender with about a 25% stake in the Barbados-based bank, according to a statement Friday. The sale values FirstCaribbean at about $1.2 billion, compared with $2.8 billion when CIBC took over most of the business.

“The Caribbean is a low-growth market that presents idiosyncratic risks to the bank (e.g., hurricanes),” National Bank Financial analyst Gabriel Dechaine said in a note to clients, calling the transaction “positive” from a risk standpoint. “At the risk of being flippant, the only time we hear about the Caribbean is when there’s a problem.”

For CIBC, the sale marks a scale-back in a region it has been banking since 1920, when the Canadian lender first opened branches in Barbados and Jamaica and expanded in the region. CIBC combined the operations with Barclays Plc in 2002 to create FirstCaribbean, and four years later bought the British bank’s 44% stake for $988.7 million.

FirstCaribbean has had annual profits since 2015.

Capital Ratio

CIBC had faced woes in the Caribbean during and after the 2008 financial crisis, with a series of profit declines and losses that forced it to take impairment charges in 2014 and reorganize the operations to get it on firmer financial footing. FirstCaribbean has more than 2,700 staff at 57 branches in 16 regional markets, according to CIBC.

CIBC will record a loss of about C$135 million ($102 million) from goodwill in the fourth quarter from the sale, though will see about C$280 million in foreign-currency gains and a 40 basis point improvement in its common equity tier 1 capital ratio when the deal closes in 2020.

“FirstCaribbean is a well-performing business and we believe this transaction will support its long-term growth prospects while creating value for its stakeholders as well as those of CIBC,” Shawn Beber, who heads general counsel and corporate development at CIBC, said in the statement.

Strength, Stability

The sale gives GNB Financial expanded banking operations in the Caribbean region. GNB is wholly owned by Starmites Corporation S.ar.L, the financial holding company of the Gilinski Group, which has banking operations in Colombia, Peru, Paraguay, Panama, and Cayman Islands with approximately $15 billion in combined assets.

“I have been impressed by the strength and stability of FirstCaribbean and am excited about its prospects for the future,” Gilinski, chairman of GNB Financial Group, said in the statement.

CIBC tried unsuccessfully last year to raise as much as $240 million by selling a stake in the Barbados bank through a U.S. initial public offering, but scrapped the effort in April due to “market conditions.” At the time, CIBC was looking to reduce its stake to 73% through the share sale.

(Updates with analyst quote, details.)

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, ;Michael J. Moore at mmoore55@bloomberg.net, Jacqueline Thorpe, Steve Dickson

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.