Security Assurance's Losses Expected to Negatively Affect CIBC

The credit crunch continues to hurt the value of mortgage-backed securities insured by companies like Security Capital Assurance Ltd. (SCA) as the bond insurer reported a net loss of $1.51 per share in the first quarter compared with net income of C$37.3 million, or C$0.58 a share, a year earlier. This was a result of a C$187.2-million write-down of asset-backed security [ABS] collateralized debt obligation [CDO] exposure.

SCA is one of CIBC’s (CM) monoline counterparties and has had cumulative write-downs of $1.5-billion in the past three quarters. But the losses remain relatively small when compared to SCA’s $45-billion CDO portfolio and $16.8-billion residential mortgage-backed security [RMBS] portfolio, Blackmont Capital analyst Brad Smith told clients.

He believes CIBC has C$2.6-billion (C$1.5-billion fair value) in subprime CDO exposure and C$2.7-billion (C$74-million) in non-subprime exposure to SCA. Given SCA’s continued losses and ratings downgrades, Mr. Smith expects further write-downs of CIBC’s fair value exposure to SCA in its second quarter results.