By Stacy-Marie Ishmael in New York Sunday Dec 16 2007 14:10
CIBC, Canada's fifth-largest bank, is facing subprime-related writedowns in excess of C$2bn (US$1.97bn) next year, analysts said.
CIBC has already written down almost C$1bn of investments linked to the US mortgage market - more than any other Canadian (NYSE:BCM) bank. Analysts expect it will face more and could even have to realise losses next year.
Earlier this month, Gerry McCaughey, CIBC chief executive, said the bank had "underestimated the extent to which the subprime market might deteriorate and the degree to which that would impact securities that were structured to be very low risk".
CIBC declined to comment on the reports, including one by its own investment banking arm.
Darko Mihelic, at CIBC World Markets, said: "We estimate [it] could lose as much as C$2.4bn pre-tax in the first quarter of 2008".
Mr Mihelic, who has been covering CIBC since 2001, does not have an investment opinion on the stock.
The Toronto-based bank said it had $9.8bn in hedged derivatives contracts linked to American subprime mortgages at the end of its fourth quarter.
These contracts could face "significant'' future losses, the company said.
André-Philippe Hardy, of RBC Capital Markets, said: "CIBC's exposure to collateralised debt obligations backed by assets related to US real estate and residential mortgages is by far the largest of the Canadian banks".
Mr Hardy expected this exposure to result in C$2.3bn in pre-tax writedowns in the first quarter of next year.
Jason Bilodeau at TD Newcrest, expects writedowns of at least C$2.6bn and as much as C$7bn.
In all, the subprime crisis could prove to be a bigger headache for the bank than the collapse of Enron: in August 2005, the bank took a C$2.4bn charge to settle claims related to the failed energy trader.
But CIBC's Mr Mihelic said the bank's problems extended beyond its investments in troubled securities.
About a third of the bank's hedged securities is insured by ACA Capital, according to analysts.
ACA is a single-A rated company, compared with other bond insurers such as MBIA and Ambac, which hold triple-A ratings.
For a fee, such companies agree to repay the interest and principle on insured securities in the event of an issuer default.
In November, after ACA reported a $1bn third-quarter loss, Standard & Poor's said ACA could be downgraded. ACA has said it would not be able to meet collateral requirements if its rating falls below A minus.
If the insurer is downgraded and defaults, CIBC would have to bring all its ACA-guaranteed securities back on to its books.
Market Data 
Markets 
AI
