Update CIBC and GBLX news release
CIBC Rises as its Investment in Global Crossing Soars (Update1)
CIBC Rises as its Investment in Global Crossing Soars (Update1) (Updates with closing share prices. Adds detail in 4th to last paragraph.)
Toronto, March 16 (Bloomberg) -- Canadian Imperial Bank of Commerce shares rose 3.7 percent on optimism the bank will earn about US$4 billion from its three-year-old investment in telecommunications firm Global Crossing Ltd.
Shares of CIBC, Canada's largest bank by assets, rose C$1.40 (US$0.92) to C$39.65 in Toronto trading of 5.59 million shares, making it the nation's most actively traded stock. Earlier, it rose to
C$40.60. It was the only Canadian bank stock to rise today.
CIBC owns 22.4 percent of Global Crossing, a rapidly growing Hamilton, Bermuda-based company that provides long-distance phone services through undersea fiber-optic networks. CIBC bought its stake in 1996 for US$0.53 a share. The shares, which trade on the Nasdaq Stock Market, have gained 128 percent this year to more than US$51 each, valuing CIBC's stake at about US$3.62 billion, said Roy Palmer, a bank analyst at TD Securities Inc. Under contract restrictions,
the bank can't realize gains from the investment until at least August. ''CIBC made an excellent investment that when realized enables them to buy back stock, or to expand or build up reserves,'' said Palmer. ''It's instrumental in driving the stock.''
The investment gains come after trading losses at CIBC Oppenheimer Corp., the bank's New York-based securities unit, and lower revenue reduced fourth-quarter earnings to C$0.01 a share.
The bank also had a string of bad investments last year, such as those in Livent Inc., Philips Services Corp. and Toronto's bankrupt retractable-roof stadium, Skydome.
CIBC stock dropped 59 percent to a low of C$24.40 in October from its April high. The shares have since rallied 61 percent. Palmer expects CIBC shares to rise to C$42.45 over the next 12 months, having raised his target from C$40.
Global Crossing was founded in March 1997 by Pacific Capital Group Inc., a Beverly Hills, California-based merchant bank run by Gary Winnick, a billionaire financier who once worked with Michael Milken at Drexel Burnham Lambert's high yield, or junk, bond group.
Global Crossing today fell 5 1/16 to 51 1/2 after touching a record high of 62 5/8 earlier. The company went public in August at $19 a share.
Palmer estimates that CIBC's holdings in Global Crossing are worth about C$14.17 per fully diluted CIBC share, or as a capital gain, about C$9.80 a share.
CIBC holds five of Global Crossing's 18 board seats. Four of the five CIBC seats are held by CIBC Oppenheimer executives, two of whom previously worked at Drexel Burnham.
CIBC is not just a shareholder. It's also lent the company money through its corporate bank and underwritten stock through its investment bank.
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