Canadian Imperial Bank of Commerce is selling its $155 million stake in Butterfield, five years after investing in the Bermuda-based banking group.
Butterfield will buy 80 million of CIBC’s 19 percent stake for $120 million. The remaining 23.4 million shares are taken over by Carlyle Group for $1.50 per share.
CIBC bought its stake in Butterfield in March 2010 for $150 million as a member of an investment group that capitalized Butterfield with $550 million, when the bank was hit by the global financial crisis and its holdings of U.S. mortgage-backed investments.
Butterfield plans to cancel the 80 million shares, which it will buy at a discount. The bank’s shares currently trade at $1.97. CIBC purchased the shares in 2010 for $1.21.
Shawn Beber, CIBC’s senior vice president, Strategy and Corporate Development, said, “We saw this as a strategic investment five years ago, and we are pleased that we are now able to monetize that investment for our shareholders.”
Brendan McDonagh, chief executive officer of Butterfield, said, “Our focus over the last five years has been on rebuilding value for shareholders through investment in our core businesses, accretive acquisitions, and carefully managing expenses and risks.
“We have been successful in that regard and, as is reinforced by the release today [Monday] of our first quarter financial results, this has returned the bank to a level of sustainable profitability that has contributed to a very strong and improving capital position.”
“In executing this transaction, we will use a portion of Butterfield’s excess capital to fund the repurchase and cancellation of shares, and enhance the ownership positions and growth potential of our continuing shareholders,” he added.
Private Equity firm Carlyle Group, which took a 22.5 percent ownership stake in Butterfield for $150 million at the same time as CIBC, said the purchase of a part of CIBC’s shareholdings confirms its commitment to the bank.
Oliver Sarkozy, managing director and head of Carlyle’s Global Financial Services Group, and a member of the Butterfield Bank board of directors, said on Monday, “We firmly believe Butterfield’s future is as full of opportunity as the past five years have been, and our participation in the transaction announced today is a validation of that belief.
“We are delighted to be able to continue to support Butterfield and its continuing investors in this important next phase in the bank’s development.”
Butterfield’s repurchase and cancellation of 80 million shares will lower the number of shares outstanding by 14.7 percent and increase the proportional ownership of all other shareholders.
The transaction is expected to dilute the bank’s tangible book value per share by 5 percent, but the bank said it expects to make up the decline in less than two-and-a-half years.
First quarter results
Butterfield also announced Monday first quarter core earnings of $29 million, a $5.8 million increase over the same period last year.
The core cash return on average tangible common equity for the first quarter improved to 16.7 percent, compared to 12.9 percent in the first quarter of 2014. Reported net income for the first quarter was $26.8 million, up $3.6 million year-on-year.
Mr. McDonagh said core business expansion in 2014 contributed to “our strong first quarter 2015 results that saw core earnings improve by 25 percent year over year.”
The acquisition last year of the Legis trust and fiduciary services business in Guernsey was the main driver of growth for the group’s trust revenues of $2.3 million.
“Our acquisition of select community banking business from HSBC Cayman late last year similarly augmented the growth in net-interest and non-interest income in the Cayman Islands totaling $2.7 million and $1.3 million, respectively, contributing to overall increases at the group level,” Mr. McDonagh noted.
“The combined effect of expansion of our revenue-generating client base through acquisitions, careful expense management and continued improvement in asset quality will continue to drive organic growth of capital.
“We will continue to deploy excess capital to enhance shareholder value through the repurchase of shares, issuance of common dividends and accretive acquisitions that bolster our core businesses.”
Butterfield’s board declared a common dividend of $0.01 per share based on the first quarter results.