CIBC mulls risk transfer transactions

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Canadian Imperial Bank of Commerce is assessing investors’ interest in a significant risk transfer transaction that would be linked to corporate loans, according to people familiar with the matter.

The potential U.S.-dollar transaction is pooling a portfolio of US$4.5 billion of loans, one of the people said. A representative for Toronto-based CIBC declined to comment.

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SRTs allow the lenders to manage regulatory capital constraints by offloading credit risk to investors while keeping the assets on balance sheets. This helps them provide new lending in an era of stringent regulations.

In SRTs, a bank would usually obtain default protection for as much as 15 per cent. In return, investors receive yields that frequently top 10 per cent.

Banks in Canada have been selling SRTs as the country remains ahead on implementing many of the Basel III reforms. In July, Canada’s financial regulator decided to give the banks more time before they’re forced to change how they calculate lending risks.

CIBC is assessing interest for its transaction just as bigger rival Toronto-Dominion Bank is also planning a SRT linked to a portfolio of about US$3 billion of corporate loans, Bloomberg reported last month.

Global issuance of SRTs was on pace to hit a record high of US$28 billion to US$30 billion this year, based on a strong second-half pipeline, according to Chorus Capital Management Ltd., estimates released in July. That compares with about US$24 billion last year.

Bloomberg.com

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