Is CIBC Merging with Manulife?

While it's generally assumed that Manulife Financial Inc.'s (MFC) C$500-million bailout investment in Canadian Imperial Bank of Commerce (CM) will be treated by the lifeco in the same way as its other equity investments. BMO Financial analyst John Reucassel reminded clients that only a couple of years back, CIBC and Manulife were believed to have proposed a cross-pillar merger to the federal government, only to be turned down flat.

In fact, the analyst went one step further, suggesting "should conditions in the banking sector become much more severe, Manulife is well-positioned to capitalize on any cross-pillar opportunity."

But while the MFC investment in CIBC may reignite the cross-pillar debate, Mr. Reucassel ultimately believes a merger is a long shot at the moment.

"At this stage we believe that the probability of any cross-pillar merger remains very remote," he wrote in a research note.

He reasoned that a minority government is unlikely to wade into the debate unless significant financial strain is view as a threat to a bank or life-insurer and secondly, he says it remains unclear whether Manulife shareholders are even interested in an investment on Canadian soil.

One of the most attractive features of Manulife is its U.S. and Asian platform. While securing CIBC would have strategic merit for Manulife, including significant domestic wealth management (where Manulife is relatively under-sized), it has not hampered Manulife's ability to effectively compete in the domestic market.

The analyst also added that Manulife, as a lifeco has a more favorable regulatory environment to work with when compared to rules governing Canadian banks. Whether more stringent rules would follow a merger with a bank like CIBC, remains unknown, he said.

Mr. Reucassel maintained his "market perform" rating for Manulife, and left his C$46.50 price target unchanged.