‘Increasing uncertainty’ around CIBC FirstCaribbean sale due to COVID-19

The COVID-19 pandemic has caused a delay in the sale of CIBC FirstCaribbean International Bank to Colombia’s GNB Financial Group Limited, CIBC President and Chief Executive Officer Victor G. Dodig has revealed.

In its fourth quarter and fiscal 2020 results, CIBC moved FirstCaribbean from “available for sale”, a move Dodig said was purely for accounting purposes.

Still, the CIBC executive said the deal faces challenges, noting that there is “increasing uncertainty” around the transaction.

“We have an engaged buyer with a genuine interest in the Caribbean banking sector and a proven track record in banking. Our business there, like any other well-run banking platform, is adjusting sensibly to the economic reality of the pandemic and it is good business. It’s going to recover as the economy recovers,” Dodig said during a fourth quarter earnings conference call held with international financial analysts.

“Our focus now is to continue to pursue the regulatory approval process and that’s been complicated by the COVID-19 pandemic as well. When we have an important development on that front, we will advise our investors accordingly.”

GNB reached an agreement with CIBC last year to purchase 66.73 percent of CIBC FirstCaribbean’s shares for $797 million, which is still under regulatory approval.

CIBC Senior Executive Vice-President and Chief Financial Officer Hratch Panossian said the changes were triggered primarily by COVID-related complexities.

He said despite this setback, the bank is still pursuing the deal.

“The accounting classification of held-for-sale and the assessment of recoverable value on goodwill, both of those are governed by the relevant accounting guidance under IFRS and this was really triggered by us following the guidance. So, I’m really delineating the accounting here from the deal, as Victor said. So the changes particularly with the accounting in the quarter were triggered by the increased uncertainty surrounding the deal as we have described in the disclosures and we have spoken about before: complexity of the regulatory environment, COVID-related complexities and so forth,” he said.

“And so that increased uncertainty given the technical requirements here when we considered the circumstances and the guidance, we determined it was appropriate to discontinue the held-for-sale accounting this quarter and to revert to using an estimated value based on current market circumstances for the purposes of assessing the goodwill, versus using the terms of the actual proposed deal with GNB. And so that’s what really drove that, but as Victor said we, continue to pursue the transaction.”

GNB is wholly owned by Starmites Corporation S.ar.L, which has banking operations in Colombia, Peru, Paraguay, Panama and the Cayman Islands, with approximately US$15 billion in combined assets.

CIBC will continue to hold a 24.9 percent stake of its Caribbean arm.

The transaction follows multiple moves by international banks to pull out of The Bahamas.

Earlier this year, Progressive Liberal Party (PLP) Deputy Leader Chester Cooper, who is also the shadow minister of finance, spoke out against “what appears to be the inclination of Canadian banks to diminish their presence in the Caribbean after years and years of billions in profits”.

He said regional regulators ought to unite and ensure that loyal regional players be given the first opportunity to acquire Caribbean-based banks and portfolios.

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