CIBC will sell $2.75 billion in stock to a group of investors to help it weather a multibillion-dollar writedown caused by the U.S. subprime mortgage meltdown.

The bank said a group of institutional investors will invest $1.5 billion in CIBC shares through a private placement. The investors include Manulife Financial Corp., the Caisse de dépôt et placement du Québec, a company controlled by Hong Kong billionaire Li Ka-shing, and the OMERS pension plan.

CIBC three-month trading chart

They will pay $65.26 for each of those shares — a 9.4 per cent discount to the last price of $72.07 before trading was halted on the TSX at 3:02 p.m. ET.

A syndicate of underwriters has also agreed to buy another $1.25 billion in CIBC common shares at a price of $67.05 each. That's a seven per cent discount to the last trading price. 

"As we have said before, one of our priorities is to further strengthen CIBC's capital base for contingent risk given the challenging credit market conditions and the potential impact on CIBC," said CEO Gerry McCaughey in a statement.

"Today's action provides our shareholders with greater certainty that CIBC's capital levels will remain strong even in the event that additional write-downs related to the U.S. residential real estate market become necessary."

The bank also announced that it will take $462 million US ($310 million US after tax) in writedowns for the first two months of the current fiscal year related to its exposure to the U.S. housing market.

It will also make at $2 billion US ($1.3 billion US after tax) writedown to account for the loss in the estimated current market value of the counterparty protection it could get from ACA Financial Guaranty Corp. — the troubled company that insured much of CIBC's subprime mortgage exposure.

Selling new stock counters the effect of the writedowns on the balance sheet. CIBC's Tier 1 capital ratio — a key measure of a bank's financial strength — would be 11.3 per cent, well above its 8.5 per cent target.     

The bond rating agency DBRS said the new capital "provides more flexibility should further negative events occur." But it left the bank's debt ratings "under review with negative implications."