CIBC, Barclays planning Caribbean joint venture

Canadian Imperial Bank of Commerce and British banking giant Barclays PLC want to join forces in the Caribbean to go head to head with Bank of Nova Scotia, the region's biggest bank.

The two companies said yesterday that they are in "advanced discussions" to combine their retail, corporate and offshore banking operations in the Caribbean in a new joint venture to be called FirstCaribbean International Bank.

However, Barclays's private banking and CIBC's wealth management operations in the region will not be included in any deal.

The talks, conducted under the code name "Carnival," have been under way for about a year, and Mike Pedersen, CIBC's senior executive vice-president of retail and small-business banking, said he initiated them.

"We want to capitalize on a growing market that we know well," he said.

The merger would give CIBC a share of an organization that is either No. 1 or No. 2 in the Caribbean, depending on how you measure it, he said.

That compares with its current ranking of No. 4 or No. 5, he said.

"Scotia is No. 1 across the region, and we'll now be able to give them a run for their money," he added.

FirstCaribbean would have about $10-billion (U.S.) in assets and a total stock market capitalization of about $1.5-billion, Mr. Pedersen said.

The two banks still need to reach a final agreement and to receive regulatory approval for their proposed deal, but Mr. Pedersen said they hope to have it wrapped up by the end of this year.

CIBC operates in the region through CIBC West Indies Holdings Ltd., of which it currently owns 77 per cent and which is publicly traded on exchanges in Barbados, Jamaica and Trindidad and Tobago.

Both the Canadian bank and Barclays would initially control 45 per cent of FirstCaribbean, with the balance of 10 per cent publicly held, although the aim is to increase the float to 20 per cent down the road, Mr. Pedersen said.

But CIBC will be satisfied with a smaller chunk of the new entity. "It's going to be 2½ times bigger with a much better presence in the region -- from the Bahamas to Belize," he said.

"By virtue of the fact that there is no international majority or controlling shareholder, it will truly be a Caribbean regional bank, which really hasn't existed before. We think this will be a competitive advantage."

Barclays has operated in the Caribbean since 1837 and CIBC since 1920, and each bank has 45 branches or offices in the region.

CIBC West Indies has about 1,600 staff and about 350,000 retail and commercial clients in eight Caribbean nations, and reported a profit of $59-million last year, when it had assets of $3.7-billion.

Barclays Caribbean, meanwhile, operates in 14 Caribbean countries, employs about 1,500 people and has about 400,000 customers. It reported pretax profit of £74-million ($105.04-million U.S.) last year.

Because of overlap, some branches would be combined and some employees would lose their jobs if a deal is consummated, Mr. Pedersen said. However, he added that because neither bank is "paying a large premium to acquire the other side," there is less need to "squeeze out costs" than there typically has been in other mergers.

Scotiabank played down the challenge from FirstCaribbean.

"We would still be more than twice the size of this proposed new entity," spokeswoman Pam Agnew said. Including Central America, she said, Scotiabank has 250 Caribbean-region branches and offices and more than 6,000 employees in 25 countries.

What's more, Ms. Agnew contended that the deal would actually give Scotiabank an opportunity to boost its market share as newly named FirstCaribbean sought to establish a brand identity in the region. "In the local communities, we are seen as the bank, the brand."

One analyst said the CIBC-Barclays joint venture plan "looks like a good little structure." Neither bank is "going anywhere" on their own in the region, but "together it gives them some critical mass."

Local banking in the region can be very profitable, he said. "Bank of Nova Scotia makes a truckload of money in the Caribbean doing this kind of stuff. I'm not saying any of these countries [individually]are ever going to make you rich, but if you've got a good share in six or seven of them, it actually is a real business."

The analyst said the planned Caribbean deal may also be strategically significant for CIBC's overall future at home. CIBC has the smallest market capitalization among the five biggest Canadian banks and is regarded as a takeover candidate in a round of consolidation expected to be triggered by the recent passage of new financial services legislation.

However, Mr. Pedersen denied this has played a role in CIBC's thinking. "I can categorically tell you that we're not doing this for the purpose of sale," he said. "In fact, we're going to be injecting more capital into this entity than we have now."