Wednesday, May 21, 2008

CIBC faces more monoline write-offs

(Globe & Mail Streetwise) For all the brave talk that the worst is over in credit markets, CIBC still faces the potential for further writedowns on its exposure to monoline insurers.

Rating agency Moody's took an axe to CIBC counterparty CIFG on Tuesday, downgrading the monoline by a dramatic seven notches, from A1 to Ba2. Bermuda-based CIFG CEO John Pizzarelli said the company was “very disappointed by this action,” which comes as the insurer looks at “strategic alternatives” that would improve its balance sheet.

CIBC previously disclosed $628-million of notional subprime mortgage-related exposure to CIFG, and $1.5-billion of non-subprime insurance with the company. Part of this exposure may have already been written down, but Blackmont Capital analyst Brad Smith wrote Wednesday that the latest Moody's cut has not been reflected in the bank's results, “leaving scope for the additional write-off of the $617-million pre-tax in fair value exposure.”

“The downgrade of CIFG highlights the continued stress on the financial condition of major monoline insurers to which CIBC has economic exposure,” said Mr. Smith.

CIBC has total notional subprime monoline insurance exposure of $7.9-billion. To date, the banks has taken a $2.8-billion writedown on these positions. The bank is scheduled to report second quarter financial results on May 29.

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