Home' Trinidad and Tobago Guardian : July 20th 2014 Contents It is impossible to walk around the central
business district of Toronto and not be
struck by the concrete and glass sky-
scrapers that house the Canadian head-
quarters of the three banks---Scotia,
CIBC and RBC---that operate in the Caribbean.
That sky-gazing triggered a line of thinking
about the sustainability of the Canadian bank-
ing presence in the region and led to an enquiry
into the fortunes of CIBC---one of the less
visible of the Canadian banks (to most Trinida-
dian eyes, anyway) as it operates one office
on Long Circular Road in Maraval that provides
wealth management and corporate and invest-
ment banking services.
in the central business district where the
Canadian capital where headquarters where
it was CIBC FirstCaribbean was established
in 2002 with the merger of the Caribbean
operations of Barclays and CIBC. London-
based Barclays and Toronto-based CIBC each
held a 43.7 per cent stake in the merged entity,
which was first called FirstCaribbean Inter-
In 2006, CIBC paid Barclays US$1.62 a
share, or a total of about US$1.08 billion, to
acquire its 43.7 per cent ownership stake in
The exit of Barclays from FirstCaribbean
International Bank left CIBC with an 87.4 per
cent stake in the Barbados-based bank, which
the Canadian company increased to about 92
per cent after making a bid for the shares it
did not own.
CIBC FirstCaribbean is the largest, region-
ally-listed bank in the English-and Dutch-
speaking Caribbean with over 3,400 staff; 69
branches, 22 banking centres, and seven offices
in 17 regional markets.
It offers a full range of financial services in
corporate banking, retail banking, wealth man-
agement, credit cards, treasury sales and trading
and investment banking.
According to its most recent quarterly report
CIBC FirstCaribbean has assets of US$11.7 bil-
In 2006, FirstCaribbean with over 1.5 billion
shares in issue had a market capitalisation of
In Barbados---where the the financial insti-
tution is headquartered, its last traded price
was Bds$1.80 (US$0.90 a share) from a June
30 transaction---its market capitalisation is
Bds$2.83 billion (which is about US$1.4 billion),
based on issued share capital of 1,577,094,570.
In T&T, based on the bank's trading on the
local stock exchange where it closed on Friday
at $5.01, FirstCaribbean has a market capi-
talisation of $7.90 billion (US$1.23 billion).
That means that in eight years, based on
trading on the T&T stock exchange, the market
capitalisation of the Caribbean franchise of
one of Canada's largest banks has almost been
The market value of CIBC FirstCaribbean
has declined because its net income has fallen
every year since 2007, the first full year of
majority ownership by CIBC. In 2007, the
bank reported net income of US$261 million,
which included a US$52 million gain on the
sale of shares in Visa. In 2013, it reported a
net loss of US$27 million.
And the financial position of CIBC First-
Caribbean is worsening with the bank declaring
a loss of US$199 million for the six months
ending April 30, 2014 and a loss of US$214
million for its second quarter.
According to CIBC's second quarter financial
results, the losses in its Caribbean operations
had a negative impact on the results of the
parent company. CIBC reported net income
for the quarter of US$306 million, compared
with US$862 million for the same quarter last
year and US$1.177 billion for the prior quar-
ter.CIBC's second quarter results were pulled
down by C$543 million in charges relating to
FirstCaribbean International Bank Limited
(CIBC FirstCaribbean). This comprised "a
goodwill impairment charge of C$420 million
(C$420 million after-tax) and loan losses of
C$123 million (C$123 million after-tax), reflect-
ing revised expectations on the extent and
timing of the anticipated economic recovery
in the Caribbean region."
The financial performance of CIBC First-
Caribbean---which was chaired for many years
by T&T citizen Michael Mansoor---means the
parent bank's Canadian shareholders have suf-
fered, largely in silence, a negative return on
their investment in the Caribbean operations
for several years.
And the statement in the parent company's
second quarter results, which reflected its
"revised expectations on the extent and timing
of the anticipated economic recovery in the
Caribbean region," and the fact that they took
a goodwill impairment charge of US$420 mil-
lion means that there is an expectation of con-
tinuing negative returns on their investment
for several years to come.
It is in this context that if CIBC were made
a half-way decent offer for its Caribbean fran-
chise that it would, I think, be prepared at
least to discuss it seriously.
The question, then, becomes what would
constitute a half-way decent offer for a com-
pany with US$11.7 billion in assets spread
across the English and Dutch Caribbean?
My own view is that such an offer would
be about US$1.1 billion, which would represent
92 per cent of CIBC FirstCaribbean's current
market capitalisation of US$1.23 billion in the
A selling price of US$1.1 billion would also
be close to the bank's book value, which has
traditionally been defined as a company's total
assets minus intangible assets and liabilities.
According to the company's quarterly results
as of April 30, 2014, CIBC FirstCaribbean's
total asset are US$11.792 billion, its intangible
assets are US$219 million and its liabilities are
US$10.703=US$1.092 billion, which is a rough
estimate of the financial institution's book
There is a recent precedent for selling a
financially distressed Caribbean banking asset
at book value.
In January, it was announced that Sagicor
Group Jamaica was acquiring RBC Royal Bank
(Jamaica) Ltd and RBTT Securities Jamaica
Ltd from Royal Bank of Canada at the then
book value of the business.
In June, RBC's completed the sale of its
Jamaica operations, which had 13 branches
and 550 employees, at an estimated loss of
C$60-million. This which means that Canada's
largest bank was willing to take a one-time
loss on the sale rather than continue losing
money in Jamaica.
If RBC was willing to sell its money-losing
Jamaican operations for its book value, is there
any reason why anyone should pay more than
book value for CIBC's money-losing Caribbean
For there to be a financial transaction, there
must be a willing buyer and a willing seller.
The question is: Would CIBC be willing to
cut its losses and sell its Caribbean operations
or is the Canadian banking giant intent on
continuing to bleed its balance sheet as it waits
for the Caribbean economies in which it oper-
ates to bounce back to economic growth?
On June 20, the Economist Intelligence Unit
in an article headlined "Canadian banks suffer
reversal of fortune in Caribbean," opined that
the outlook for the Caribbean markets in which
the Canadian banks operate remains relatively
poor. But it added: "Nonetheless, given Cana-
dian banks' generations-old relationship with
the Caribbean, they are likely, for the most
part, to ride out the economic cycles rather
than abandon the region altogether."
That analysis negates the fact that RBC has
previously sold its Caribbean operations and
that CIBC used to have a vibrant retail banking
operation in T&T---which it sold to Republic
Bank---both of which happened when the prof-
itability of those operations dipped for some
...and should First Citizens be the buyer?
There is little doubt in my mind that the
acquisition of CIBC FirstCaribbean by First
Citizens would be a good fit for the majority
state-owned Port-of-Spain financial institu-
Firstly, both banks operate in Barbados, so
there may be some competition concerns there.
But there is no doubt that First Citizens acqui-
sition of CIBC First Caribbean would be a
fairly quick and not too expensive way for the
T&T bank to expand its footprint throughout
CIBC First Caribbean operates in the fol-
lowing countries: Anguilla, Antigua, The
Bahamas, Barbados, Belize, British Virgin
Islands, Cayman Islands, Curacao, Dominica,
Grenada, Jamaica, St Eustatius, St Kitts, St
Lucia, St Maarten, St Vincent, Turks& Caicos
Secondly, at between US$1.1 and US$1.4
billion, the acquisition of CIBC FirstCaribbean
would be quite easy for First Citizens---and
its majority shareholder, the Government of
T&T---to finance either by the direct sale of
the State's remaining 80 per cent stake or by
way of a First Citizens rights issue and a US-
dollar bond issue.
What do readers think?
Should First Citizens buy if CIBC is willing
• Send your opinions to
JULY 20 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COMMENTARY | SBG3
Is CIBC ready to sell FCIB?
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