Moody’s is taking a dim view of CIBC’s investment in Bank of N.T. Butterfield & Son, saying it views the credit implications of the deal as “negative.”
Canadian Imperial Bank of Commerce announced earlier this week it would inject US$150-million into Butterfield, a leading Bermuda based bank, which was hammered by investments linked to U.S. subprime mortgages. The transaction is part of a US$550-million recapitalization of the 152-year old bank expected to leave CIBC with a 22.5% equity stake. CIBC also agreed to provide a line of credit of as much as US$500-million.
In a statement Thursday, Moody’s pointed out that the Commerce’s investment will account for about 6% of its tangible common equity, “which is quite a substantial amount for a single entity, particularly one with relatively weak stand-alone financial strength.”
Following a “sizeable” loss in the fourth quarter of last year, an anticipated loss in the first quarter along with sizeable loan loss provisions, Butterfield would have been “critically weakened” without the recapitalization, Moody’s said, adding that it is maintaining its negative outlook on the bank.
Fitch also warned about ongoing concerns, saying that the capital infusion provide “only a modest cushion should BNTB experience any credit deterioration in its core loan portfolio.”