Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) has been on a rough ride of late, currently trading at a 13% discount from its peak.
One bright spot many investors have looked forward to is the company’s recently announced acquisition offer for U.S.-based PrivateBancorp, which would have the effect of lessening CIBC’s reliance on the domestic Canadian market, in effect making CIBC a more global bank, or at least more on par with its peers.
On Saturday, a shareholder advisory firm released a report suggesting that investors should consider nixing the recently announced acquisition of PrivateBancorp in a transaction valued at $4.9 billion due to risks of contagion relating to Canada’s bubbly housing market and the recent woes of Canadian alternative lending institutions such as Home Capital Group Inc. of late.
It appears as though financial markets around the world are watching Canada right now with respect to how the alternative lending market, and the finance industry in general, will deal with a potential downturn in housing prices which have continued to soar post-2007/2008.
Canada was able to escape the housing market crash the U.S. experienced largely due to the strength of the country’s largest banks, however in a twist of fate, it appears that the booming alternative mortgage lending market which has filled the void created by increased regulations, has the potential to cause significant damage (or at least headaches) for banks such as CIBC.
I am skeptical of this acquisition going through, and I feel as though CIBC is in a bit of a pickle right now. Either the acquisition goes through and the company overpays, or the bank is over-exposed to the Canadian market relative to its peers. Either way, not a great outcome for CIBC.
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