CIBC gives more detail on bond insurers, shares up
(Amounts in U.S. dollars unless noted)
VANCOUVER, British Columbia, March 26 (Reuters) - Canadian Imperial Bank of Commerce (CM.TO) revealed on Wednesday that it has $25 billion worth of hedged exposure with U.S. monoline bond insurers held in securities not linked to the troubled U.S. subprime mortgage market.
The market had been calling for more disclosure from CIBC about the credit default swap transactions it had entered into with monoline insurers, several of which have run into problems recently.
This has lead to worries the insurers won't be able to honor their obligations to provide the default protection that clients bought from them for their debt. Monolines are bond insurers that do only one type of business.
Although at least one analyst said the $25 billion figure was higher than expected, the market was generally relieved by the caliber of insurers that CIBC, Canada's fourth largest bank, is exposed to.
"For the first time in some time, the additional information is slightly positive," analyst Ian de Verteuil of BMO Capital Markets said in a note to clients.
"The largest potential exposures are to the highest quality monolines, and the existing mark-to-market positions are small," he said.
CIBC is the Canadian bank with the biggest exposure by far to the U.S. subprime mortgage crisis. In January, the bank issued C$2.9 billion ($2.8 billion) of shares to help shore up its capital after it wrote down C$3.4 billion in subprime-related losses.
Brad Smith of Blackmont Capital said the data showing CIBC is exposed to the tune of $6.5 billion to the "weaker monolines" is about $3 billion lower than expected.
"While the risk of additional losses remains elevated, which may require additional equity, the disclosed exposures were not as severe as we had expected," Smith said.
He upgraded his recommendation on CIBC shares to "hold" from "sell".
CIBC's stock bucked the weaker trend among Canadian banking shares on Wednesday. At 3.10 p.m. it was 3 Canadian cents firmer at C$66.56 on the Toronto Stock Exchange. Royal Bank of Canada (RY.TO) was down 2.4 percent at C$47.52 and Bank of Montreal (BMO.TO) was off 3.6 percent at C$45.23.
($1=$1.02 Canadian) (Reporting by Nicole Mordant; editing by Rob Wilson)
