Making Cents of the CIBC FirstCaribbean Deal

Early November brought news that CIBC had reached an agreement to sell a majority stake in its Caribbean operation. The buyer is GNB Financial, a subsidiary sitting under the umbrella of the Gilinski Group, the financial empire run by Colombian billionaire Jaime Gilinski Bacal. This transaction is notable for an abundance of reasons beyond the sizeable US$ 797mn the buyer will part with to obtain the 66.7% share of CIBC FirstCaribbean. Here’s what you should know about this momentous agreement.

The Key Stakeholders

Jaime Gilinski Bacal was educated in the United States. He worked in Morgan Stanley’s M&A division before building his own real estate and financial operations, and seeing the Gilinski Group firmly established as a commercial powerhouse. 

In complement to his pursuits in Colombia and around the world that have made headlines, this CIBC deal is joined by Bacal’s involvement in Panama Pacifico as a landmark venture in the region. Partnering with the British billionaire brothers Ian and Richard Livingstone, Bacal spearheaded development of the Panama Pacifico mixed-use development along the canal’s western bank in the Arraijan district that was devised to serve as a Special Economic Zone, and built upon the former site of the US Howard Air Force Base. 

Late November also brought news of Bacal’s purchase of 7.4 million shares in Metro Bank PLC, the embattled UK business that has lost close to 90% of its value since January of this year. Bacal made the purchase through a British Virgin Islands company called Spaldy Investments Ltd, delivering him a 4.3% stake in Metro Bank. The timing of this acquisition alongside FirstCaribbean has set tongues wagging in financial circles about Bacal’s ambitions for both.

CIBC also arrived at the table to this deal with its own impressive credentials, as a leading Canadian financial institution with in excess of 10 million clients. Yet, notwithstanding the track record for ambitious projects among Bacal’s operations, the purchase of CIBC’s FirstCaribbean shares has raised eyebrows in global finance owing to the nature of
the purchase.

The Agreement 

For a time in 2018 CIBC pursued a US-based IPO where it sought up to US$ 240mn, aspiring to reduce its holdings in the bank to 73%. Ultimately dropping the idea, CIBC cited market conditions as the reason for the change of mind. Although the market conditions have clearly become more favourable for CIBC with this deal, the performance of the banking unit and the nature of the regional industry as a whole mean this deal is done amidst some enduring doubt and concern among financial observers.

The low-growth nature visible in many sectors of the market means a potential buyer may be enticed away from signing off on a deal locally due to a stronger growth history (and future potential for it) demonstrated elsewhere. Conversely, some of the regional risks perceived by observers are beyond all control. The reality that a hurricane can quickly wreak havoc upon a nation is indeed harrowing, but is also a clinical economic calculus for prospective buyers when assessing the risks and liabilities of a business.

Although the Global Financial Crisis hit CIBC hard, as it did many financial houses, FirstCaribbean has displayed a solid cycle of annual profits in recent years. Nonetheless, this sale sees FirstCaribbean valued at around US$ 1.2bn, a substantial decrease from its valuation at US$ 2.8bn that was on-hand when CIBC took control over most of the business.

Does a Sale Mean Downsizing Staff? 

According to CIBC, it holds 2,700 staff across 57 branches in 16 regional markets, and news of the deal surely made hundreds, if not thousands, among this count nervous about their future. At present it appears such worries are premature, albeit as many changes are flagged going forward. 

Following news of the deal, Collete Delaney, CEO of CIBC FirstCaribbean sent an internal email to employees, reportedly saying the deal will deliver “ . . . a strong platform for the future while retaining part of our [CIBC’s] heritage” and that CIBC is “not leaving the region”. By virtue of retaining a 24.9% stake in FirstCaribbean, CIBC has skin in the game when it comes to future operations, and it will also retain a number of minority shareholder protections, including liquidity rights surrounding its current ownership holdings. 

The strong performance of FirstCaribbean in recent times, as well as indications its new owners take the helm with ambitions to build on it with stronger growth, mean existing employees have little need to worry about an overnight slice and dice of staff numbers. This said, the shift away from a CIBC provided service will also come with a rebrand of the business, and some teething issues are expected to occur as a move to other service providers goes ahead. 

Inking the Deal

In 2017 the IMF published ‘Loss of Correspondent Banking Relationships in the Caribbean: Trends, Impact, and Policy Options’, noting with concern the shifts in the sector that resulted in cuts in service and higher costs, among other afflictions. News of this deal may be cheered by many but will do little to assuage the concerns held by those who share the IMF’s view, and worry for the future accessibility and affordability of banking services within the region. 

The total consideration for this deal will be US$ 200mn, with secured financing provided by CIBC itself for the remainder. It is expected to be completed in 2020, subject to fulfilment of customary closing conditions, including confirmation of regulatory approval.

As well as this venture, via the Gilinski Group, Bacal has banking operations in Peru, Paraguay and the Cayman Islands, among other regional nations, with combined assets amounting to approximately US$ 15bn.