The Canadian Imperial Bank of Commerce said Friday that it has struck a deal to sell a majority stake in its Caribbean business to a Colombian billionaire and financial firm.
CIBC announced an agreement to sell 66.73 per cent of CIBC FirstCaribbean to GNB Financial Group Ltd. for US$797 million, valuing the company at approximately US$1.195 million, according to a press release.
The consideration to be paid is made up of approximately US$200 million in cash and the remainder in secured financing that is being provided by CIBC itself. The deal is expected to close in 2020, pending certain approvals, and when it is completed, CIBC would retain a 24.9-per-cent minority stake in FirstCaribbean.
CIBC said Friday that the deal is expected to boost its common equity tier 1 capital ratio, a measure of financial strength, by more than 40 points. However, the transaction is still expected to translate into an after-tax loss of $135-million for CIBC, which the bank says it will recognize in the fourth quarter of this year. There will also be “accumulated foreign currency translation gains relating to FirstCaribbean,” CIBC said, which are estimated to be around $280 million.
Toronto-based CIBC had previously planned to list FirstCaribbean in New York, but dropped those plans in April 2018, citing market conditions.
CIBC is not the only major Canadian banks reducing exposure to the Caribbean. The Bank of Nova Scotia announced last week that it had closed the sale of banking operations in seven Caribbean markets, although it had to hang on to two other operations after opposition from regulators and politicians.
Both banks have said cutting back on the Caribbean exposure will allow them to focus on their bigger businesses. The Caribbean region has also been hit hard by hurricanes and faced stiff economic challenges in recent years, weighing on banks with business there.
“We continue to build a relationship-oriented bank for a modern world, and this strategic transaction will sharpen our focus on our core businesses,” said Shawn Beber, senior executive vice-president, general counsel and corporate development for CIBC, in the release. “FirstCaribbean is a well-performing business and we believe this transaction will support its long-term growth prospects while creating value for its stakeholders as well as those of CIBC. As an investor in FirstCaribbean, we intend to work closely with GNB Financial Group to support continued growth for the business.”
GNB is wholly owned by the financial holding company of the Gilinski Group, which the release said has around US$15 billion in assets and banking operations in Colombia, Peru, Paraguay, Panama, and the Cayman Islands.
The Gilinski Group is led by Jaime Gilinski Bacal, a Colombian billionaire, banker and real-estate developer.
“FirstCaribbean will remain the strong entity it is today, committed to servicing its clients in the region,” Gilinski said in a release. “I have been impressed by the strength and stability of FirstCaribbean and am excited about its prospects for the future.”