CIBC to buy Chicago-based PrivateBancorp in C$4.9-billion deal

After signaling for years that it was looking to increase its presence south of the border, CIBC announced Wednesday that it has entered into a deal to buy Chicago−based PrivateBancorp for C$4.9 billion.

Several analysts called the deal — which amounts to about US$3.8 billion — pricey and noted that it will likely be several years before it boosts the Canadian bank’s earnings.

"To dramatically expand their footprint in the U.S. was costly for them," says Edward Jones analyst Jim Shanahan. "It’s a long time before this company is going to be additive to earnings per share."

Shanahan says he had expected Toronto−based CIBC (TSX:CM), one of Canada’s five biggest banks, to acquire a U.S. company that is focused more squarely on the wealth management and private banking space.

"I just thought that if they were going to make a wealth management acquisition that they would be acquiring more wealth management assets, which they’re really not doing," says Shanahan.

Instead, CIBC is acquiring services such as deposit−taking and lending capabilities that will allow it to offer a full suite of services to its Canadian clients in the United States or to clients of its U.S.−based Atlantic Trust wealth management subsidiary, according to president and CEO Victor Dodig.

Dodig says there will be opportunities for PrivateBancorp, which operates as The Private Bank, to cross−sell services with Atlantic Trust, making the two companies a "very formidable" team that can provide complementary commercial banking and wealth management services in major U.S. centres.

"Commercial banking and wealth management really go hand−in−hand," Dodig told analysts during a conference call Wednesday.

"We see this in our existing business model here in the Canadian market. We see it in the business model that The Private Bank has, where they serve commercial banking clients and they’ve grown their wealth management business over time."

Dodig says CIBC was attracted to the quality of PrivateBancorp’s management team. The Chicago bank’s president and CEO, Larry Richman, will remain in those positions and take over the helm of the Canadian bank’s U.S. operations.

Richman said he looks forward to extending U.S. banking services to CIBC’s Canadian clients and to the private wealth clients at Atlantic Trust, which is part of CIBC’s current U.S. lineup.

"We believe this transaction allows us to not only continue our success but to achieve even more as our clients benefit from CIBC’s financial strength, and our employees become part of a respected North American organization that shares our values and is strategically positioned for long−term growth," Richman said in a joint statement issued by CIBC.

The deal requires various approvals, including from PrivateBancorp’s shareholders.

CIBC’s offer is about 30.8 per cent above the Tuesday closing price for PrivateBancorp’s shares.

CIBC says it’s offering a combination of cash and CIBC shares (TSX:CM) worth about US$47 per share to buy the U.S. company, which is listed on the Nasdaq stock market.

About US$1.5 billion of the purchase price would be paid in cash and the remainder with about 29.5 million common shares of CIBC.

PrivateBancorp has about 1,200 employees and a presence in 11 U.S. markets in addition to Chicago. It has about US$17.7 billion of assets under management.