March 13 (Bloomberg) -- Canadian Imperial Bank of Commerce, Canada's fifth-biggest lender, agreed to pay Barclays Bank Plc $1.08 billion for a controlling stake in FirstCaribbean International Bank.
CIBC said today that it will pay $1.62 for each share of the Barbados-based bank and its operations in 17 Caribbean nations. Combined with its existing 43.7 percent stake, the proposed deal would double Toronto-based CIBC's ownership of FirstCaribbean to 87.4 percent.
An increase in CIBC's capital reserves since July has enabled it to look at ways to spend excess cash on existing businesses, Chief Executive Officer Gerald McCaughey said in a March 2 interview.
``They have limited opportunities to grow in Canada because of the ban on bank mergers, so this is a good acquisition,' said Zaheer Khan, vice president of corporate investments at Baker Gilmore & Associates Inc. in Montreal, which manages the equivalent of $3.4 billion in assets and owns CIBC bonds. ``They know the Caribbean already. The integration risk is very low.'
Canadian banks, which have said mergers would help them compete with global rivals and counter slowing domestic revenue growth, have sought clarity on merger rules since the government barred two proposed transactions in 1998.
Government Concerns
Potential branch closings and a loss of jobs in certain communities fueled government concern about mergers. New rules, initially slated for June 2004 release, have been repeatedly postponed because of changes in Canada's political leadership.
The political environment in Canada isn't likely to lead to bank mergers soon, said Juliette John, who helps manage the equivalent of about $15 billion at Bissett Investment Management in Calgary, including CIBC shares.
``It's no use to sit and wait for potential consolidation in Canada,' John said. ``They have to continue to find opportunities wherever they can.'
CIBC is in a better position to expand outside Canada now that its capital has increased. Its so-called ratio for Tier 1 capital, the amount it sets aside for regulatory purposes, fell as low as 7.5 percent in July after it had to pay $2.4 billion to settle claims related to the collapse of Enron Corp. Since then, the ratio has risen to 9 percent as of the end of January.
If completed, the FirstCaribbean acquisition would be the biggest purchase by a Canadian bank so far in 2006. Bank of Nova Scotia agreed last month to buy the mortgage business of Maple Financial Group Inc. for C$233 million ($200 million). The same month, Toronto-Dominion Bank agreed to buy auto lender VFC Inc. for C$326 million. Last week, Scotiabank also completed the purchase of two Peruvian banks for C$390 million.
Late 2006
CIBC said it expects the purchase of FirstCaribbean, conditional upon due diligence and regulatory approvals, to be completed late this year.
While Barclays spokesman Alistair Smith declined to say how the firm would use the sale's proceeds, he did say that the bank announced last month that it plans to increase its capital ratio to 7.25 percent from the 7 percent it had at the end of 2005.
CIBC, which has run branches in the Caribbean since 1920, inherited its current stake in St. Michael-based FirstCaribbean when it combined its operations in the region with those of London-based Barclays in 2002.
FirstCaribbean is the biggest regionally listed bank in the English-speaking Caribbean with assets of more than $9.6 billion and a market capitalization of about $3.3 billion, CIBC said.
Taking Control
FirstCaribbean has over 3,400 employees, 780,000 active accounts and more than 100 branches and other locations, CIBC said. It has offices in Anguilla, Antigua, The Bahamas, Barbados, Belize, The British Virgin Islands, The Cayman Islands, Curacao, Dominica, Grenada, Jamaica, St. Kitts & Nevis, St. Lucia, St. Maarten, St. Vincent and the Grenadines, Trinidad & Tobago and The Turks & Caicos Islands.
By taking control of FirstCaribbean, CIBC will benefit from ``increased opportunities for synergies, both revenue and expense,' Michael Goldberg, an analyst at Montreal-based Desjardins Securities, wrote today in a note to investors.
FirstCaribbean is listed on the Barbados, Jamaica, Trinidad and Tobago and Eastern Caribbean Stock Exchanges.
CIBC shares dropped 40 cents to C$84.00 at 1:43 p.m. in Toronto Stock Exchange trading. The stock has gained about 18 percent in the past 12 months.
