Canadian Imperial Bank of Commerce’s sale of its minority stake in American Century Investments gives the lender more capital to expand its U.S. wealth-management business through other purchases, analysts including Barclays Plc’s John Aiken said.
Nomura Holdings Inc., Japan’s biggest brokerage, agreed to pay CIBC about $1 billion for its 41 percent stake in money manager American Century, the Tokyo-based firm said Monday in a statement on its website. The purchase is expected to be completed in the first half of 2016.
Chief Executive Officer Victor Dodig has sought to expand CIBC’s U.S. wealth-management business, earmarking as much as C$4 billion ($2.87 billion) as recently as October to pursue takeovers. Monday’s deal isn’t a signal of retreat from the U.S. for CIBC, Aiken said in a note to investors, and the sale gives the Toronto-based bank “ample capital to pursue other strategic opportunities.”
“American Century was a good asset -- great performance, good history -- but CIBC had a minority interest with no path to control," Aiken said in an interview. "We don’t think this influences the attractiveness from a strategic standpoint for CIBC in U.S. wealth management."
Wealth Deals
CIBC has completed two U.S. wealth deals in the past five years: a $210 million purchase of Atlantic Trust Private Wealth Management in January 2014 and the $848 million takeover of JPMorgan Chase & Co.’s 41 percent stake of American Century in August 2011. CIBC said it decided to sell the stake after determining it wouldn’t be able to gain control of the Kansas City, Missouri-based money manager.
“Through this divestiture, we will further strengthen our strong capital position and we are moving forward with a clear set of strategic priorities to drive our long-term growth," Dodig said Monday in a statement.
CIBC said it expects to generate a gain of $170 million from the sale, which will add about 50 basis points to the lender’s common equity tier 1 capital ratio. American Century will continue providing sub-advisory services to several funds and investment portfolios managed by CIBC Asset Management.
Step Back
“This cash will likely be earmarked for a U.S. wealth- management/asset-management deal which CIBC has been on the hunt for even before today’s news," Meny Grauman, an analyst with Cormark Securities Inc. in Toronto, wrote in a note. “This then is a case of management taking one step back in order to hopefully take two forward."