Oppenheimer claims CIBC failed to honor an agreement to support the leveraged-finance business by making $2 billion in capital available to it. Oppenheimer incurred $176 million in losses, it said today in a state court complaint in Manhattan.
“CIBC abandoned what was now Oppenheimer’s leveraged- finance business, which as a direct result suffered catastrophic declines in committed transactions, revenues and ongoing relationships as well as lending volumes,” Oppenheimer said.
CIBC, based in Toronto, agreed in November 2007 to sell the bulk of its New York-based investment bank to Oppenheimer as part of a move by Chief Executive Officer Gerald McCaughey to “de-risk” the bank after taking writedowns tied to structured credit.
CIBC recorded more than C$10 billion ($9.81 billion) in pretax debt writedowns from 2007 to 2009, the most of any Canadian lender during the financial crisis.
“We believe this claim is completely without merit and plan to vigorously defend ourselves against this suit,” Sharon Mathers, a spokeswoman for the bank, said in an e-mail.
Under the agreement, CIBC agreed to provide financing to Oppenheimer’s investment banking clients of as much as $1.5 billion, and as much as $2 billion in some circumstances, according to the complaint.
CIBC imposed more-stringent underwriting standards on loans brought to the lender by Oppenheimer than before the sale and repeatedly refused to approve creditworthy loan applications, New York-based Oppenheimer said.
“The volume of loans closed by Oppenheimer’s leveraged finance division plummeted, as did the revenues of the investment bank,” it said.