CIBC sees no merit in Cerberus lawsuit
The Canadian Imperial Bank of Commerce (CIBC) has said that it sees no merit in a lawsuit filed against it by a special purpose vehicle controlled by Cerberus Capital Management.  The lawsuit relates to an October 2008 transaction, initially valued at over $1bn, in which CIBC issued a limited recourse note to Cerberus which significantly reduced its exposure to the US residential real estate market. Cerberus alleges that CIBC had defaulted on certain payments and owes it additional payments of hundreds of millions of dollars; however, CIBC says it fully performed its obligations.

CIBC said it has satisfied its obligations after making 84 monthly payments totalling more than $1.2-billion, including interest, to the New York-based private equity giant.Fernando Morales/The Globe and Mail Share

Canadian Imperial Bank of Commerce says a lawsuit filed by New York-based private equity giant Cerberus Capital Management LP, alleging that the Canadian lender has defaulted on payments and owes hundreds of millions of dollars, is without merit.

In a statement on Monday, CIBC said it will vigorously defend itself against the action. It said it has satisfied its obligations after making 84 monthly payments totalling more than $1.2-billion, including interest.

"This is wholly inconsistent with the agreement, the intent of both parties and the performance of both CIBC and Cerberus since 2008," the bank said.

Cerberus filed its lawsuit on Friday in the Federal Court in New York.

The deal between CIBC and Cerberus, initially valued at more than $1-billion (U.S.), dates back to the financial crisis in 2008, when the Canadian lender was keen to reduce risks associated with its troubled subprime mortgage portfolio after taking massive writedowns.

Through a special-purpose investment vehicle, Cerberus paid a total of $650-million to CIBC to help the Canadian lender lower its exposure to subprime assets. In return, CIBC paid an annual rate of interest of 20 per cent until paying off the loan earlier this year.

"What we've done here is we've given away a portion of the upside that is in the economic models in our assets in order to be certain that we've protected the downside," Gerald McCaughey, then CIBC's chief executive officer, said when the deal was announced.

In its lawsuit, though, Cerberus says CIBC is also obligated to make monthly payments based on the performance of certain cash and synthetic assets, which the bank has not done since ending its payments to Cerberus in July.

"CIBC's breaches have caused damage … of hundreds of millions of dollars," the lawsuit alleges.

In response, CIBC said Cerberus has "manufactured an entirely new interpretation of the deal."

Cerberus could not be reached for comment before deadline.