CIBC sags in wake of writedowns, share issue

, the country's largest bank, said the recent string of North American bank recapitalizations, including CIBC's, were positive for the financial system overall.

"Close to home, I think that's a very good thing for the system because, amongst other things, what it shows is there is a lot of capital support out there for the major financial services companies," Royal Bank Chief Executive Gordon Nixon said.

Nixon, who spoke at a CEO conference organized by his bank's capital markets unit, said those banks will be more competitive than they would otherwise have been with weak capital ratios. But he said they will become more cautious in the marketplace as well.

CIBC, Canada's fifth-largest bank, said on Monday it would take a further $2.46 billion in pretax writedowns on its unhedged exposure to subprime mortgage securities and the falling value of counterparty protection from U.S.-based bond insurer ACA Financial Guaranty Corp.

Glenn MacNeill, vice-pr! esident of investments at Sentry Select Capital Corp in Toronto, said he was "a little anxious" about the magnitude of CIBC's share issue, which is expected to close later this month.

"The C$2.75 billion is bigger than expected," MacNeill said. "They've got to stop having these surprises, they're just not fair to shareholders."

But investors should brace for potentially more writedowns at CIBC, some analysts said. The credit ratings of U.S. bond insurers that are CIBC's counterparties in some subprime-related hedges are on watch for possible downgrades.

CIBC acknowledged that more adjustments were "possible" in its fiscal first quarter, which ends January 31.

Still, the stock offering will give the bank a "considerably higher capital cushion" to deal with its subprime exposure, and it should reassure investors that a cut to CIBC's dividend is not on the way, said Jim Bantis, financial services analyst at Credit Suisse.

Earlier on Tuesday, U! .S. bank Citigroup

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Source: http://www.globeinvestor.com/servlet/story/RO! C.20080115.2008-01-15T230725Z_01_KIM475532_RTRIDST_0_BUSINESS-CIBC-COL/GIStory/
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