CIBC CREDIT RISK LOOMS
Counter-party Aca delisted by NYSE
Duncan Mavin, Financial Post
Published: Wednesday, December 19, 2007
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Canadian Imperial Bank of Commerce moved a step closer to billions of dollars in additional subprime writedowns yesterday, piling more pressure on the bank's senior management, including chief executive Gerry McCaughey.
The CIBC executive's woes deepened after ACA Capital Holdings Inc., the counter-party to US$3.5-billion of CIBC's subprime exposure, was delisted by the New York Stock Exchange.
CIBC has already said swaps hedged with ACA are in trouble to the tune of about US$1.7-billion because of the subprime meltdown.
Trading in ACA's shares was suspended following a warning from the NYSE last week that ACA had fallen below continued listing standards for average market capitalization and stockholders' equity.
ACA was placed on credit watch for a negative downgrade by rating agency Standard& Poor's Inc. in November.
The company has faced persistent bankruptcy rumours, and observers say if ACA fails, CIBC's protection against the US$3.5-billion exposure will not work as planned and the bank will have to assume billions in losses.
"We believe that this money is as good as gone, and should be written off as soon as possible," said BMO Capital Markets analyst Ian de Verteuil in a note before yesterday's developments at ACA.
A number of bank analysts have already said they expect between $2-billion and $3-billion in additional writedowns at CIBC.
The situation will also likely prompt serious questions of the bank's CEO, whose reputation now appears to be on the line along with the bank's subprime portfolio.
"We are flabbergasted that CIBC would hold $3.5-billion in notional counter-party risk to this company. From our reading, it appears as if CIBC had about 10% of all its hedges with ACA," Mr. de Verteuil said.
Mr. McCaughey was supposed to be the grey man of Bay Street, the steady hand that would right the listing bank.
For a year or more, Mr. McCaughey lived up to the promise, cutting hundreds of millions of dollars of expenses at a bank that had previously earned a reputation for risk-taking and wastefulness.
But at the end of 2007, CIBC finds itself far from calm waters once more, as Mr. McCaughey's bank has sailed straight into the midst of the roughest subprime mess facing any of the Canadian banks, revealing it has US$9.8-billion on the line.
If CIBC was a U.S. bank "there would be no doubt you would see a cleaning of house at the top," said a Bay Street insider.
Mr. McCaughey -- an enthusiastic amateur historian whose speech is strewn with references to military triumphs -- was forced to admit this month he has underestimated the impact of the subprime meltdown on his bank.
CIBC has already suffered subprime charges of almost $1-billion and the bank chief has acknowledged there could be further significant losses. If ACA fails, CIBC's total charges could be in line with the mammoth losses experienced in the U.S. banking sector, where senior executive heads have already rolled, including Citigroup's former CEO Charles Prince and Merrill Lynch CEO Stan O'Neal.
The bank's stock price has plummeted by about a third from its 12-month high of $106.75 in May to $72.29 yesterday. CIBC's shares now trade at about the same price as when Mr. McCaughey took over during the horrible summer of 2005 when the bank took a charge of US$2.4-billion related to its part in the Enron fiasco.
Meanwhile, Mr. McCaughey has signalled CIBC is taking a slash and burn policy to the bank's risk profile. CIBC's investment bank significantly reduced its New York operations last month and has started a similar massive pull-back in London too. Some investment bankers in Toronto have seen the signs and are jumping ship. Without a presence in New York or London, it is hard to be optimistic about the deal flow, insiders say.
No doubt Mr. McCaughey will point to a number of positives, including record annual earnings of $3.3-billion in 2007. The completion of the FirstCaribbean acquisition in early 2007 also gives the bank a possible expansion plan. The bank's credit card continues to dominate in Canada.
But the CEO is well aware he has a number of problems.
"The mark-to-market write-downs we recorded in our structured credit business were not in line with our strategic imperative of consistent and sustainable performance. Our focus in this area is on reducing existing risk," Mr. McCaughey said after the bank released its fourth-quarter earnings.
However, the dismal opinions of the bank's senior management gather on an almost daily basis.
"CIBC has again materially misstepped on the risk management front," Mr. de Verteuil said.
"It is also very disappointing that much of this (subprime) exposure appears to have occurred over the past 18 months and under current management's watch," the BMO analyst said.
The bank's underlying performance is "of scant importance," compared to its subprime exposure, Mr. de Verteuil added.
Also, both Moody's Investors Services and Standard & Poor's now say they have a negative outlook on CIBC.
"The negative outlook reflects heightened concern over potential losses in the bank's US$9.8-billion hedged book of collateralized debt obligations related to U.S. subprime mortgages," S&P said this week.
"Although the bank has ample capital to absorb sizable losses, the long-term business strategy and options could be undermined should the bank face material losses. This would also put CIBC at a competitive disadvantage vis-a-vis its Canadian peers in the near-to-medium term," the rating agency said.
Peter Routledge, Moody's senior credit officer, said the "existence of concentrated risks in [CIBC's derivatives] portfolio points to weaknesses in strategic risk decision-making at the bank and indicate that improvements in the bank's risk management discipline have not permeated the organization as fully as expected."
Meanwhile, investors might reflect on "remarkable similarities" but also differences to the period that saw Mr. McCaughey take over at CIBC, in the midst of its Enron problems, noted Mr. de Verteuil.
In 2005, the bank's market capitalization took a hit of $4-billion -- this time it's $5.7-billion.
Also, the Enron situation had closure because the charge eliminated CIBC's exposure to legal issues with Enron, but this time around CIBC still has the securities and the counter-party exposures and the issue will drag on.
Finally, noted Mr. de Verteuil, the Enron charge was followed by a significant change in senior executives at the bank.
CIBC CREDIT RISK LOOMS
Counter-party Aca delisted by NYSE
Duncan Mavin, Financial Post
Published: Wednesday, December 19, 2007
Canadian Imperial Bank of Commerce moved a step closer to billions of dollars in additional subprime writedowns yesterday, piling more pressure on the bank's senior management, including chief executive Gerry McCaughey.
The CIBC executive's woes deepenedafter ACA Capital Holdings Inc., the counter-party to US$3.5-billion of CIBC's subprime exposure, was delisted by the New York Stock Exchange.
CIBC has already said swaps hedged with ACA are in trouble to the tune of about US$1.7-billion because of the subprime meltdown.
Finally the cat is out of the bag
It was reported last Thursday
寫道:
December 13, 2007
Counterparty Risk: CIBC and ACA
From Jonathan Weil at Bloomberg: CIBC's Big Subprime Secret Might Cost Billions
CIBC last week [said some company] is insuring $3.47 billion, or about a third, of the collateralized-debt obligations it holds that are tied to U.S. subprime mortgages.
The [insurer]'s identity matters because the bank said these hedged CDOs were worth just $1.76 billion at Oct. 31, down almost half from their face amount. If the guarantor goes poof, CIBC loses its hedge on these derivative contracts. And the Toronto-based bank would have to recognize the loss, which is growing.
If ACA is the insurer, this would be bad for CIBC ... ACA Financial ... had $425.5 million of statutory capital at Sept. 30 and $1.1 billion of so-called claims-paying resources to back its guarantees -- for all its customers. That's not enough to cover the CDOs in question at CIBC. Weil is speculating that ACA is the counterparty to CIBC, but it does seem likely.
寫道:
Montreal Accord deadline extended further
Backers of the Montreal Accord have reached an agreement to extend until mid-December the deadline to restructure $40-billion of troubled asset backed commercial paper (ABCP). The accord was due to expire Monday, but people familiar with the negotiations said dozens of banks and investors backing the pact expect to announce later Monday that they have agreed to a two-month extension.
寫道:
Canada's National Bank finally reveals ABCP charge
Mon Nov 19, 2007 10:49 AM EST
By Nicole Mordant
VANCOUVER, British Columbia (Reuters) - National Bank of Canada (NA.TO: Quote) said on Monday it expects to record a fourth-quarter pre-tax charge of C$575 million ($587 million) on its holdings in non-bank asset-backed commercial paper, a higher-than-anticipated hit and the largest by a Canadian big bank for exposure to these troubled debt investments.
National Bank is the latest of Canada's lenders to reveal how much of its exposure to that corner of the ABCP market not run by the country's big banks it will write off.
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