CIBC News - ACA Related WritedownThat explains the cliff action in stock. Like I warned everybody last night this was coming. Just didn't think it was coming today.
CIBC now needs to look for equity. They need to do it ONCE! They should raise $2B as a cushion as the other "hedged" positions could go seriously bad soon as well. S&P just put on watch MBIA and AMBAC. $2B of equity will allow CM to take a $5B writedown. My best guess is still an equity issue of $65.
TORONTO, Dec. 19 /CNW/ - Following Standard and Poor's announcement today that it had reduced the credit rating of ACA Financial Guaranty Corp. from "A" to "CCC", CIBC confirmed that ACA is a hedge counterparty to CIBC in respect of approximately U.S. $3.5 billion of its U.S. subprime real estate exposure.
It is not known whether ACA will continue as a viable counterparty to CIBC. Although CIBC believes it is premature to predict the outcome, CIBC believes there is a reasonably high probability that it will incur a large charge in its financial results for the First Quarter ending January 31, 2008.
As CIBC disclosed on page 52 of its Investor Presentation dated December 6, 2007, the mark of the hedge protection from the "A-rated" counterparty (ACA) as at October 31, 2007 was U.S. $1.71 billion. As at November 30, 2007, this mark was US$2.0 billion. If the charge in the First Quarter were to be U.S. $2.0 billion (US$1.3 billion after tax) CIBC currently projects its Tier 1 capital ratio to remain in excess of 9% as at January 31, 2008.