DBRS Morningstar: CIBC’s Costco Agreement In Line With Strategic Focus to Grow Canadian Consumer Franchise

DBRS Morningstar notes that its ratings for Canadian Imperial Bank of Commerce (CIBC or the Bank), including the Long-Term Issuer Rating of AA with a Stable trend, are unaffected following the announced agreement that CIBC is replacing Capital One Financial Corporation (Capital One) as the exclusive credit card provider for Costco Wholesale Corp. (Costco) in Canada. Additionally, CIBC will be purchasing Capital One’s outstanding Costco credit card portfolio with approximately $3.0 billion in outstanding balances.

On September 2, 2021, CIBC announced that it has signed a long-term agreement to become the exclusive issuer of Costco Mastercard in Canada, expected to begin in early calendar year 2022, subject to customary closing conditions. In DBRS Morningstar’s view, this acquisition is in line with CIBC’s strategic focus to grow its Canadian consumer franchise. CIBC will have the opportunity to create relationships with new clients from Costco's member base. Additionally, this acquisition helps diversify CIBC’s card portfolio away from travel-related cards. While we expect an impact to capital given the addition of higher risk-weighted credit card balances, CIBC has an excess regulatory capital cushion. The Bank reported a CET1 ratio of 12.3% as of July 31, 2021.

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577