CIBC Will Use Capital on Preferred Shares, McCaughey Says

Canadian Imperial Bank of Commerce plans to spend any extra capital to redeem C$3.16 billion ($3.32 billion) in preferred shares that won’t count as regulatory capital under new banking rules, Chief Executive Officer Gerald McCaughey said.

“We do have an excess of Tier 1 capital today and in the future,” McCaughey, 55, said in an interview today. “A first step in terms of our usage of excess resources will be to reduce instruments that we have that are ineffective in the new environment.”

Canada’s fifth-biggest bank had a so-called Tier 1 capital ratio of 14.3 percent as of Jan. 31, second only to National Bank of Canada. The Toronto-based bank sold more than C$2.4 billion in preferred shares and other securities since August 2008 to shore up its balance sheet during the financial crisis.

Regulators globally are toughening rules that govern banks because preferred shares and hybrid notes didn’t provide a buffer for losses in the financial meltdown. Under guidelines adopted in January by the Basel Committee on Banking Supervision, most of these securities will gradually stop counting as capital over a decade starting in 2013. CIBC also has about C$1.6 billion in hybrid notes outstanding.

Canadian banks have in excess of C$70 billion of non-common capital, all of which will need to be made compliant under the new rules or be redeemed by 2023, Mark White, assistant superintendent of the Office of the Superintendent of Financial Institutions, said in February.


“We will be looking at our non-common Tier 1 instruments in the near future,” McCaughey said in Winnipeg, Manitoba, after the bank’s annual meeting. “That allows us to deploy a certain amount of excess resources in a fashion that does help earnings per share.”

Share buybacks aren’t a priority for the Toronto-based bank, McCaughey said.

“We do not expect in the near term to be deploying that capital in activities such as buybacks,” he said.

Canadian Imperial is also considering ways to use its capital to bolster banking outside Canada. The bank is renewing its commitment to real estate financing in the U.S. while focusing on business lending for Canadian companies and pension funds looking to invest outside Canada.

Caribbean Plans

“Those activities are below what we consider to be our capacity, and therefore increasing those activities to a higher level is another alternative in terms of usage of capital,” McCaughey said.

Canadian Imperial is also watching for opportunities outside Canada and the U.S., such as in the Caribbean, for potential investments. Last year, the bank made a $150 million investment for a stake in Bermuda-based Bank of N.T. Butterfield & Son Ltd.

“The offshore markets continue to be a great interest to us,” McCaughey said.

CIBC is also looking to bolster its wealth management operations, McCaughey said.

“We would also continue to look at opportunities within wealth management outside of Canada,” McCaughey said. “We have been looking at that consistently and as of yet have not found a suitable investment, but we do continue to look for wealth management opportunities.”