Canadian Imperial (CM) Asked to Pay $848 Million to Cerberus

Canadian Imperial Bank of Commerce CM has been ordered to pay $848 million in damages to Cerberus Capital Management in relation to a contract dispute tied to the 2008 global financial crisis. Canadian Imperial plans to appeal the New York judge’s order.

Canadian Imperial mentioned that it expects to witness a C$1.16-billion pretax charge or C$850 million ($631 million) after taxes in its first-quarter results, which will reduce its ratio of capital to assets.

The dispute between Cerberus and Canadian Imperial rose from a complex 2008 structured note transaction, in which CM received a $571-million loan intended to reduce its U.S. residential real estate exposure in exchange for payments to a Cerberus entity.

In November 2015, Cerberus sued Canadian Imperial, claiming that it underpaid some amounts it owed, and stopped making some payments altogether after a group of credit default swaps went into default and the underlying bonds were liquidated.

Canadian Imperial said that Cerberus misread the underlying agreements and had been accepting the alleged underpayments for several years.

However, in December, after a non-jury trial, Justice Joel Cohen of a New York state court in Manhattan found that CM was liable for breach of contract and, hence, he rejected CM’s counterclaims, which included that Cerberus acted with fraudulent intent.

Hence, Yesterday, Cerberus said that “ample evidence” supported Cohen's findings, and it expected his decisions would be “fully upheld” in an appeal.

Over the past six months, shares of CM have lost 13.2% against an 8.1% increase recorded by the industry.


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Currently, Canadian Imperial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Financial Misconduct by U.S. Firms

Last month, Wells Fargo & Company WFC was ordered by the CFPB to pay more than $2 billion in redress to consumers and a $1.7-billion civil penalty for the widespread mismanagement of auto loans, mortgages and deposit accounts.

Per the enforcement action, Wells Fargo harmed millions of consumers for several years. The bank had systematic failures in its servicing of automobile loans that resulted in $1.3 billion in harm across more than 11 million accounts. WFC incorrectly applied borrowers’ payments, improperly charged fees and interest, and wrongfully repossessed borrowers’ vehicles.

In October, Bank of America BAC agreed to pay $1.84 billion to resolve claims by Ambac Financial, a bond insurer, regarding residential mortgage-backed securities. Ambac claimed that between 2004 and 2006, it insured certain mortgage-backed securities, backed by poorly underwritten Countrywide Financial loans. Countrywide is a lender whom BofA acquired in 2008.

Countrywide’s purchase put BofA at the center of years of litigation over who was to blame for a mortgage-market meltdown.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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