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After it had signed a deal and bought a $2.1 billion credit portfolio from Citigroup’s Canadian MasterCard, the CIBC has become the largest issuer of Visa and MasterCard credit cards in Canada.
CIBC president and chief executive Gerry McCaughey made a statement of the company’s move after the stock markets closed last Monday. He believes that his merger will enable his company to revisit their strategies and allow them to improve their core Canadian operations. Thanks to the resources they command, the partnerships they have installed and their own business methods, CIBC is confident that this acquisition will enable further growth for the company.
This is the latest in a set of acquisitions that the CIBC had done over the past three months. The first was purchasing the remaining 50% of the CIT Business Credit Canada, and the second was buying a minority interest in the Bank of N.T. Butterfield & Son Ltd.
McCaughey explained that these mergers have been planned for a long time already. It is one of their victories that the transaction has been completed at a shorter period than they have expected and with the extensive linkages of Citigroup, CIBC can expect improvement in their core businesses.
This move gives the Canadian Imperial Bank of Commerce a larger hold of the credit card market, where it had emerged as leading figure and the largest dueal credit card issuer in the country. Industry estimates already show that the CIBC has roughly 18% of the consumer credit market, and it had more than $14 billion in outstanding credit card balances at the latter part of April.
According to CIBC, this deal is expected to add more to the company’s earnings during the first year after its closing. However, the terms of the deal were not disclosed.
This acquisition would also allow the bank to expand by acquiring less-risky customers who are associated with Citigroup’s consumer credit business, according to the head of CIBC’s Canadian lending operations Sonia Baxendale.
Baxendale explained that they are acquiring portions of the portfolio that meet their standards in terms of quality, and that they are not acquiring delinquent accounts, some private label accounts, or customers who do not meet their credit threshold. She also added that the bank would acquire a list of their credit card consumers with payment histories that the bank is comfortable with.
This would give the company an advantage to fare better, especially with the economic downturn and slowing down of growth in the Visa business.
