CIBC to take $290M hit in U.S. subprime mess

The Canadian Imperial Bank of Commerce says it has about $1.7 billion US at risk in bets on the troubled U.S. mortgage market and will take a $290-million hit against earnings.

The Canadian Imperial Bank of Commerce says it has about $1.7 billion US at risk in bets on the troubled U.S. mortgage market —as much as $1 billion of itrelatingto subprime, or junk, mortgages.

In a statement early Monday, the bank sought to minimize the problem. It said itwill write off about $290 million of the totalin its next quarterly earnings reportand still show better profits than analysts had been predicting.

Investors seemed to like what they heard. CIBC's share price opened at $91.50, up $3.99 on the Toronto Stock Exchange.

CIBC is likely to be one of a string of Canadian banks reporting exposure to the U.S. mortgage crisis, the result of a lending binge to people who might not ordinarily have qualified for mortgages.

Many of the mortgages had teaser interest rates that are about to rise to normal levels, leaving homeowners with payments they may not be able to meet.

As mortgage defaults rise, the havoc has spread to banks and funds around the worldholding complex securities based on pools of U.S.mortgages.

CIBC owned up to its exposure in a brief statement headed, "CIBC expects strong third quarter earnings."

It will take the $290-million hit ($190 million after tax) on two types of U.S. mortgage-relatedsecurities — collateralized debt obligations (CDOs) and residential mortgage-backed securities (RMBS) — in what is called its structured credit business, it said.

"With the exception of our structured credit business, we are pleased with our performance in the third quarter,"CIBC chief executive Gerry McCaughey said in the statement.

"We had positive financial results in many areas which more than
offset the structured credit writedowns."

The bank said its third-quarter profit, to be announced Aug. 30, will be about $2.30 a share.

Analysts had been predicting about $1.92 on average. The figure a year earlier was $1.86.

"CIBC's exposure to the U.S.residential mortgage market before
writedowns is approximately $1.7 billion US (excluding exposure directly hedged with other counter-parties)," the statement said. "CIBC estimates that less than 60 per cent of this exposure relates to underlying subprime mortgages, while the remainder is mid-prime and higher grade assets."

The 60 per cent figure suggests that no more than $1 billion relates to subprime mortgages.

Some of thebets have been coveredwith offsetting bets,thestatement said.

"The exposure has been mitigated by subprime index hedges of approximately $300 million," itsaid.