Canadian Imperial Bank of Commerce said on Friday it will take a fourth-quarter writedown of C$463 million ($493 million) before tax on various securities tied to the U.S. mortgage market, and analysts said they would not be surprised to see further writedowns.
CIBC, Canada's fourth-largest bank, said the pretax writedown on U.S. collateralized debt obligations (CDOs) and residential mortgage-backed securities (RMBS) was net of gains on related hedges. The after-tax writedown is C$302 million.
CDOs and RMBS are pools of loans that are packaged and resold to investors, and their values have been pummeled by rising U.S. subprime mortgage defaults and rating-agency downgrades on mortgage-related securities.
When added to its third-quarter writedown of C$290 million, CIBC will have written down C$753 million on its C$1.7 billion U.S. residential CDO/RMBS portfolio, Blackmont Capital analyst Brad Smith said in a brief research note. This is at the high end of Blackmont's and the Street's estimates, Smith stated.
We continue to see future risks to (CIBC) given its recent explosive growth in more exotic credit instruments, Smith wrote, adding that losses on the CDO portfolio could continue to emerge.
National Bank Financial analyst Rob Sedran said he would not be surprised to see another writedown if credit market conditions keep deteriorating.
But it's fair to say the worst is behind them, when they have written off 50 percent of the portfolio, Sedran said.
CIBC also said on Friday that it will record a pretax gain of C$456 million in the quarter on the previously announced completion of Visa's worldwide restructuring. Three other Canadian banks have said they will also record Visa-related gains in the quarter.
CIBC is due to release fourth-quarter and fiscal 2007 results on Dec. 6.
On a conference call earlier this week, CIBC executives said the Visa gain should offset the debt writedown, but did not provide specific figures.
The bank said on Sunday it was selling CIBC World Markets' U.S. investment banking, institutional sales, corporate syndicate lending and options trading businesses, plus others, to Oppenheimer Holdings Inc.
CIBC will get a deferred payment in five years' time, based on the performance of Oppenheimer's capital markets business.
The sale should reduce CIBC's exposure to areas that have historically brought trouble in the form of writedowns and other charges, analysts said this week.
The U.S. wholesale transaction and news of CIBC's fourth-quarter writedown came as some of the world's biggest banks were writing off billions of dollars in losses because of their exposure to the U.S. subprime mortgage market.
CIBC shares dipped 18 Canadian cents, or 0.2 percent, to C$96.15 on Friday morning on the Toronto Stock Exchange.
CIBC stock is down 2 percent this year, faring better than its larger Canadian bank rivals.
(Reporting by Lynne Olver; Editing by Peter Galloway)