American Century Proceeds Seen Helping CIBC on Other Deals

  • Nomura agrees to buy 41% stake from CIBC for $1 billion
  • Canadian bank still seeking to expand U.S. wealth business

Canadian Imperial Bank of Commerce’s sale of its minority stake in American Century Investments gives the lender more capital to expand its U.S. wealth-management business through other purchases, analysts including Barclays Plc’s John Aiken said.

Nomura Holdings Inc., Japan’s biggest brokerage, agreed to pay CIBC about $1 billion for its 41 percent stake in money manager American Century, the Tokyo-based firm said Monday in a statement on its website. The purchase is expected to be completed in the first half of 2016.

Chief Executive Officer Victor Dodig has sought to expand CIBC’s U.S. wealth-management business, earmarking as much as C$4 billion ($2.87 billion) as recently as October to pursue takeovers. Monday’s deal isn’t a signal of retreat from the U.S. for CIBC, Aiken said in a note to investors, and the sale gives the Toronto-based bank “ample capital to pursue other strategic opportunities.”

“American Century was a good asset -- great performance, good history -- but CIBC had a minority interest with no path to control," Aiken said in an interview. "We don’t think this influences the attractiveness from a strategic standpoint for CIBC in U.S. wealth management."

Wealth Deals

CIBC shares rose 0.4 percent to C$92.79 at 11:20 a.m. in Toronto, while Nomura fell 1.5 percent in Tokyo.

CIBC has completed two U.S. wealth deals in the past five years: a $210 million purchase of Atlantic Trust Private Wealth Management in January 2014 and the $848 million takeover of JPMorgan Chase & Co.’s 41 percent stake of American Century in August 2011. CIBC said it decided to sell the stake after determining it wouldn’t be able to gain control of the Kansas City, Missouri-based money manager.

“Through this divestiture, we will further strengthen our strong capital position and we are moving forward with a clear set of strategic priorities to drive our long-term growth," Dodig said Monday in a statement.

CIBC said it expects to generate a gain of $170 million from the sale, which will add about 50 basis points to the lender’s common equity tier 1 capital ratio. American Century will continue providing sub-advisory services to several funds and investment portfolios managed by CIBC Asset Management.

Step Back

“This cash will likely be earmarked for a U.S. wealth-management/asset-management deal which CIBC has been on the hunt for even before today’s news," Meny Grauman, an analyst with Cormark Securities Inc. in Toronto, wrote in a note. “This then is a case of management taking one step back in order to hopefully take two forward."

Until CIBC buys something else, the sale leaves the bank with less exposure to the U.S. market than before, raising questions as to why the bank pursued the American Century deal in the first place, Grauman said.

Royal Bank of Canada analyst Darko Mihelic reduced his adjusted earnings-per-share forecast for CIBC based on the sale, down 11 cents to C$9.50 for 2016 and 22 cents to C$10.18 for the following year. For CIBC to reach its 2018 wealth-management earnings target, “an acquisition is now possibly mandatory and possibly on the larger side,” Mihelic said in a note.

Buying the stake in American Century would be Nomura’s biggest overseas investment since it acquired Instinet Inc. for $1.2 billion in 2007. The Japanese firm is seeking to expand its capabilities to sell products to pension funds and insurers, and enter private banking and retail markets in the U.S., CEO Koji Nagai said in materials for an investor presentation on Dec. 1.

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