Moody's: CIBC's Caribbean impairment charge negative

Canadian bank CIBC's non-goodwill impairment charge of Cdn$420mn (US$386mn) is negative on the bank's creditworthiness, according to Moody's.

The writedown was made on the "deteriorating" value of CIBC's FirstCaribbean International Bank unit.

The CIBC also announced loan losses of Cdn$123mn on its distressed Caribbean operations, suggesting the bank's bleak outlook on regional market conditions.

The amounts will be reflected in the second fiscal quarter ending April 30.

Canadian banks hold significant market share in the Caribbean and have been subject to the region's financial hardships, largely due to a drop in tourism.

Against this economic backdrop, The Royal Bank of Canada (RBC) sold its Jamaican operations to Sagicor Bank in early 2014 and left the country, ultimately costing the RBC Cdn$60mn, while CIBC's impairment charge is the second of its kind, with the first being recorded in 2011 for Cdn$203mn.

"The recurring goodwill impairment charges indicate that CIBC expects significantly lower profits from FirstCaribbean," Moody's added.

CIBC (TSX: CM, NYSE: CM) has a deposit rating of 'Aa3' and a standalone bank financial strength rating of 'C+/a2', both with a stable outlook. FirstCaribbean's banking assets are concentrated in Barbados (41%), followed by the Bahamas (33%), and the Cayman Islands (20%).