DBRS Comments on CIBC’s Acquisition of 41% Interest in American Century Investments

DBRS has reviewed the announcement by Canadian Imperial Bank of Commerce (CIBC or the Bank) that it will acquire a 41% equity interest in American Century Investments (ACI), a Kansas City-based asset management company. The acquisition has no rating implications for CIBC at this time.

DBRS believes this transaction is consistent with CIBC’s desire to grow in businesses that are less volatile and earn a higher return on equity (ROE). ACI will provide the Bank with additional asset management capabilities, including products for institutional investors and subadvisory services for CIBC’s retail platform. CIBC will also be able to distribute products through ACI’s network. Additionally, ACI provides the Bank with a platform to benefit from long-term demographic trends in the United States and potentially internationally.

The purchase will reduce the Bank’s Basel II Tier 1 capital ratio by approximately 40 basis points (bps), which still leaves the ratio at the top end of CIBC’s Canadian peer group range. At the end of Q2 2011, the Tier 1 capital ratio was 14.7%. The pro forma Basel III common equity ratio will decrease 66 bps (7.8% at the end of Q2 2011), which keeps it above the 7% minimum.

CIBC is paying approximately US$848 million in cash and will receive an equity interest of 41% and a 10.1% voting interest as well as two of ten board seats. At June 30, 2011, assets under management were US$112 billion at ACI and $70.8 billion at CIBC.

Canadian Imperial Bank of Commerce is the fifth largest Schedule 1 bank in Canada as measured by assets ($384 billion) at the end of Q2 2011.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies applicable are the Global Methodology for Rating Banks and Banking Organisations (January 14, 2010), Rating Bank Preferred Shares and Equivalent Hybrids (June 29, 2009), and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments (February 11, 2009), which can be found on www.dbrs.com.