Canadian Imperial Bank of Commerce, the country’s fifth-largest bank, agreed to buy a 41 percent stake in American Century Investments from JPMorgan Chase & Co. (JPM) for $848 million to expand its asset-management business.
The cash acquisition, the third-largest purchase by the Toronto-based bank, will immediately add to earnings and contribute 15 cents a share to profit in 2012, CIBC said today in a statement.
The purchase may lead to further asset-management acquisitions following a change in corporate structure in March that placed Victor Dodig as head of the unit, the bank said.
“American Century Investments is a platform for further growth internationally,” Chief Executive Officer Gerald McCaughey told investors on a conference call.
CIBC fell 49 cents to C$74.13 at 4 p.m. in trading on the Toronto Stock Exchange. The shares have fallen 5.4 percent this year, the worst performer among Canada’s six biggest banks.
McCaughey, 55, said the transaction will have “a positive impact on our dividend increase plan,” without being more specific. The lender is expected to boost its quarterly payout by 3.4 percent to 90 cents a share in the fiscal third quarter, according to Bloomberg Dividend Forecasts. The bank’s dividend yield is 4.7 percent.
Kansas City-based American Century, founded in 1958, has $112 billion in assets under management and was named the “Best Large Mutual Fund Company” at the 2009 Lipper Fund Awards. American Century’s majority shareholder is the Stowers Institute for Medical Research.
American Century is known for its focus on growth stocks, or shares in companies whose profit is expected to grow faster than the broader market, fund industry consultant Geoff Bobroff said in a telephone interview.
The growth-oriented American Century Ultra Fund (TWCUX) was once considered the company’s flagship product, Bobroff said. Its assets have fallen from $23.8 billion in 2004 to $6.5 billion as of June 30. Ultra has returned 5.3 percent annually in the past five years, beating 64 percent of competing funds, Bloomberg data show.
“One has to puzzle over why CIBC would want a minority stake, unless it saw the opportunity to either buy more or use American Century as a platform for the entry of its own products into the U.S.,” Bobroff said.
The firm’s largest fund is the $9.25 billion Equity Income fund, which has returned an annual average of 4.2 percent over the past five years, beating 68 percent of similarly managed funds.
About two-thirds of American Century’s assets under management are weighted toward equities, CIBC said in its presentation to investors.
The investment by CIBC is surpassed only by its purchase of FirstCaribbean International Bank in 2006 and a MasterCard portfolio from Citigroup Inc. last year.
CIBC has shed most of its U.S. businesses over the past decade. In 2008, the lender sold part of its U.S. capital markets businesses to New York-based Oppenheimer Holdings Inc. It also closed an online-banking business known as Amicus in 2002.
“Admittedly, we are a little surprised that CIBC is allocating capital in the U.S.,” said John Aiken, an analyst at Barclays Capital in Toronto, in a research note. “That said, the acquisition is in asset management, which is far less risky than wholesale or even retail banking.”
To contact the reporter on this story: Sean B. Pasternak in Toronto at firstname.lastname@example.org.