CIBC ordered to pay $848 million in damages to Cerberus; Plan profession


Canadian Imperial Bank of Commerce CM.TO plans to appeal a New York judge’s order to pay approximately $848 million in damages to private equity firm Cerberus Capital Management, in a contract dispute related to the 2008 global financial crisis.

In a statement on Wednesday, the Toronto-based bank said it expects to take a charge of C$1.16 billion pre-tax, or approximately C$850 million ($631 million) after-tax, in its first-quarter results. lowering the ratio of capital to assets.

It also said it “strongly disagrees” with the legal and factual basis underlying Tuesday’s award to Cerberus by New York state court judge Joel Cohen in Manhattan of $491 million in punitive damages plus an estimated $357 million to interest.

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Banks struggled to contain their exposure to rising defaults and falling asset prices during and after the financial crisis as the US housing market collapsed and credit conditions tightened.

The dispute between Cerberus and CIBC stemmed from a complex 2008 structured note transaction in which CIBC received a $571 million loan designed to reduce its exposure to residential real estate in the U.S., in exchange for payments to a Cerberus entity.

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Cerberus took CIBC to court in November 2015, alleging that the bank underpaid some amounts owed and stopped making some payments altogether after a group of credit default swaps defaulted and the underlying bonds were liquidated.

CIBC countered that New York-based Cerberus had misread the underlying agreements and had accepted the alleged underpayments for several years.

On December 1, after a trial without a jury, Cohen had found CIBC liable for breach of contract and dismissed the bank’s counterclaims, including that Cerberus acted with fraudulent intent.

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“The evidence did not show that CIBC was an unfortunate misguided rube,” Cohen wrote.

In a statement on Wednesday, Cerberus said “sufficient evidence” supported Cohen’s findings and that he expected his decisions to be “fully upheld” on appeal.

The judge asked Cerberus and CIBC to file a proposed verdict by Jan. 13.

The case is Securitized Asset Funding 2011-2 Ltd v Canadian Imperial Bank of Commerce et al, Supreme Court of the State of New York, New York County, No. 653911/2015.

($1 = 1,348 Canadian dollars)