CIBC announced today that it plans buy majority control of FirstCaribbean International Bank in a US$1.08 billion ($1.25 billion) deal with Barclays Bank Plc.

CIBC said it has signed a non-binding agreement to buy Barclays’ 43.7% stake in FirstCaribbean at US$1.62 per share. The deal would give CIBC an 87.4% stake in FirstCaribbean.

With more than US$9.6 billion in assets, FirstCaribbean is the largest regionally listed bank in the English-speaking Caribbean. The bank has more than 100 outlets and offices in 17 countries in the region.

CIBC acquired its initial 43.7% stake in FirstCaribbean when its operations in the region were merged with those of Barclays in 2002 to form FirstCaribbean.

The deal is expected to be completed by late 2006, CIBC said.

“With its established retail, wealth management, corporate and capital markets businesses, FirstCaribbean is an excellent fit for CIBC and is well-positioned for long-term success in a region that we believe has attractive growth prospects,” Gerry McCaughey, CIBC’s president and CEO, said in a release.

Dominion Bond Rating Service confirmed its ratings of CIBC following today’s announcement.

DBRS said its confirmation reflects its belief that the transaction is consistent with CIBC’s strategy to grow its retail businesses. “The integration risk is low given CIBC already has a 43.7% stake in FirstCaribbean and has been operating in the region for a long period of time,” it saod. “The majority ownership of FirstCaribbean should provide CIBC with more flexibility towards implementing strategies for future development of FirstCaribbean.” The acquisition is anticipated to be mildly dilutive to cash earnings in 2007, DBRS noted.

The rating agency saod that its ratings action also recognizes this transaction has a meaningful negative impact of reducing tangible common equity to risk-weighted assets and Tier 1 capital ratios, due to the large component of goodwill and intangibles generated on the transaction.

“Although CIBC has made improvements in capital ratios since the Enron charge, the bank remains below Canadian bank peer averages at the end of Q1 2006,” DBRS said; adding that CIBC has indicated its objective to maintain a Tier 1 capital ratio at or above 8.5% upon close of the transaction, anticipated for late 2006, which DBRS expects will be achieved. “Despite the commitment, capital ratios will be lower relative to its peer group, therefore limiting CIBC’s ability for future expansion or to absorb unforeseen events that impact capital,” it noted.

“DBRS believes meeting the Tier 1 capital ratio target will be manageable given expected internal capital generation and management of any share buyback programs until the closing of the transaction, and flexibility in paying the purchase price (US$1.08 billion) either through cash, CIBC shares, or a combination,” it explained.

Both Fitch Ratings and Standard & Poor’s also affirmed their ratings on CIBC today’s announcement.

“Once the purchase is completed, CIBC will consolidate First Caribbean in its financial reporting, thus adding approximately US$9.6 billion in assets. It is expected that the 12.5% stake currently owned by other shareholders will remain publicly traded and will be accounted for by CIBC as minority interests. This acquisition will add approximately US$590 million in goodwill,” Fitch noted.

“For CIBC, with limited expansion opportunities in its domestic market this transaction offers the ability to increase the firm’s stake in a profitable institution in a growing market which it knows quite well. CIBC has operated in the Caribbean for the better part of a decade, and has held a significant ownership stake in First Caribbean, or its predecessor firm, since 1920,” Fitch said.

“A purchase transaction of this size will clearly put pressure on capital ratios. This concern is largely mitigated by the expectation that CIBC will accumulate capital in excess of its targeted levels between now and closing, sufficient to maintain its consolidated Tier I risk based capital at or above 8.5%,” Fitch concluded.

Standard & Poor’s Ratings Services said that, “CIBC will control a larger scale business than it had historically, in a region with good growth profitability.”

S&P added that it views this development positively “as CIBC will acquire a profitable business, which will provide additional scale in an attractive marketplace. Furthermore, CIBC is pursuing disciplined growth and an opportunity to deploy capital into a low-risk venture, as FirstCaribbean’s orientation is retail and wealth management.”

“Since closing is not expected until late 2006, this could give CIBC the opportunity to opt for a cash transaction in line with its desire to maintain a minimum Tier 1 capital of 8.5%,” S&P said.