SCA Exposure Could Lead to C$1-Billion Write-Down for CIBC

While bailout talks for the U.S. monoline insurance industry drag on, some of the monolines continue to leak bleak news, and that spells further possible write-downs for banks, such as Canadian Imperial Bank of Commerce (CM), that are exposed to them.

Blackmont Capital analyst Brad Smith points to Security Capital Assurance Ltd. (SCA), one of CIBC’s monoline counterparties, for evidence of a possible minimum writedown of C$1-billion at the Canadian bank.

Last week, SCA reported a fourth quarter loss of $18.67 per share, compared to earnings of $0.56 per share this time last year. The monoline has ceased writing new business and has canceled its dividends, though it intends to stay in business as a going concern.

CIBC’s loss on SCA could be larger based on the recent further deterioration in the subprime mortgage backed securities market, Mr. Smith said.

Blackmont has a C$62 target price for CIBC shares, which it rates a “sell.”