Is CIBC Looking at More Subprime Exposure?

Canadian Imperial Bank of Commerce (CM) may be forced to raise more capital after another of the bank’s monoline counterparties ran deeper into trouble, said Blackmont Capital analyst Brad Smith.

CIBC has already taken C$6.7-billion in writedowns on structured products linked to the U.S. subprime mortgage market. It will likely take another C$1-billion hit in the third quarter of 2008 after XL Capital Assurance (XL) was downgraded by rating agency Moody’s, Mr. Smith said.

XLCA is a subsidiary of monoline SCA (SCA), with which CIBC has about C$3.3-billion in exposure. In addition, the bank has about C$25-billion in structured products that are not related to the subprime mortgage market.

Mr. Smith notes that the bank can withstand further losses on its remaining subprime exposure, and has a strong balance sheet after raising C$2.9-billion in dilutive equity earlier this year. However, additional losses in its C$25-billion book of of non-subprime investments could push the bank to go back to the market for more capital, he said.

Blackmont Capital rates CIBC stock “hold” with a 12-month target price of C$74.00.

Comments

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I agree with Brad Smith.

How can you lose with CIBC selling at below $50 and dividend of 7%?
This Canadian bank has an incredibly wide moat in a oligopolistic environment. With an unmatched retail empire CIBC will be over a $100 in 5 years and you get paid to wait.