Butterfield shareholders greenlight CIBC Caribbean deal

The Bank of N T Butterfield & Son Limited, which trades as NTB, moved one step closer to acquiring majority control of CIBC Caribbean Bank Limited as its shareholders approved the issuance of new shares in connection with the US$1.8-billion deal. Butterfield shareholders approved all four resolutions on the agenda for its virtual annual general meeting (AGM) held on Friday, clearing the way for the Bermudan bank to move forward to the next stages of the transaction. Butterfield intends to raise US$700 million in tier two subordinated debt as it looks to further capitalise on the combined banking group. Its previous disclosures noted that it had obtained commitments for this financing. The new capital raise is expected to bring Butterfield’s total capital ratio (TCR) to 19 per cent if the deal is approved. Butterfield’s TCR was 27.5 per cent as of June 30, well above the 10.5 per cent minimum requirement for Bermudan banks. “Butterfield expects to raise up to approximately $700 million in the subordinated debt financing and has obtained underwriting commitments from two investment banks for up to such amount. The subordinated debt financing is expected to occur in the fourth quarter of 2026 or the first quarter of 2027, subject to market conditions,” stated Butterfield’s proxy statement. Thereafter, Butterfield will seek regulatory approvals or non-objections from several regulatory bodies across the Caribbean. This includes Bermuda Monetary Authority (BMA), Cayman Islands Monetary Authority (CIMA), Central Bank of Barbados, Barbados Financial Services Commission and all other regulators in the jurisdictions where CIBC Caribbean has an operating subsidiary. These approvals are required since the ultimate beneficial controlling shareholder for CIBC Caribbean Bank is set to change for each of the operating subsidiaries. Both entities submitted all requisite regulatory filingss around July 15. “Butterfield and the CIBC Parties believe that the transaction does not raise significant regulatory concerns and that they will be able to obtain all requisite regulatory approvals,” Butterfield’s proxy statement noted on the deal which is expected to close in the first half of 2027. If the deal passes all stages, Butterfield will become the sole shareholder of CIBC Investments (Cayman) Limited which owns 91.7 per cent of CIBC Caribbean Bank’s ordinary shares. Butterfield would also pay the Canadian Imperial Bank of Commerce (CIBC) US$1 billion in cash consideration along with US$644.40 million in new Butterfield ordinary shares (11,577,367 units) to CIBC. CIBC would become the largest shareholder with a 22 per cent stake in the expanded Butterfield, while being entitled to nominate two directors to the Butterfield board. Butterfield plans on acquiring the remaining 8.3 per cent of CIBC Caribbean Bank ordinary shares and remaining 4.8 per cent of CIBC Caribbean Bank (Bahamas) Limited ordinary shares held by minority shareholders in takeover bid transactions. These investors would be offered the same economic offer given to CIBC which is US$0.6918 in cash and 0.008008 in new Butterfield shares for every CIBC Caribbean share held. They would also have the option to take their entire consideration in new Butterfield ordinary shares. Butterfield is projecting to spend up to US$117.5 million in cash consideration, with US$27 million for CIBC Bahamas shareholders, if only the mixed cash and shares offer is accepted. The pro-forma metrics show that Butterfield would have US$29 billion in assets, US$25 billion in deposits, US$1.7 billion in tangible common equity and US$400 million in earnings. It would also have a deposit share exceeding 50 per cent in the Cayman Islands. “We went on-site with our local management team and met with a number of the executive leaders domestically within Barbados and Bahamas, and received positive feedback, not only from our initial regulatory interactions, but also our team member interactions. We’re on point and on task to complete under our existing timeline,” said Bri Hidalgo, Butterfield chief risk officer, at the company’s July 28 earnings call. While Butterfield is looking towards the economic benefits of the acquisition, two ratings agencies have adjusted their stance on the bank based on the planned acquisition. Kroll Bond Rating Agency revised the watch status of Butterfield’s senior unsecured debt from watch developing to watch downgrade. This is based on the scale of the deal relative to Butterfield on a standalone basis. It highlighted that the completed deal would increase the size of the loan portfolio and risk weighted assets density, lower the capital ratios and impact Butterfield’s historically strong liquidity profile. “If the acquisition of CIBC Caribbean closes as expected, NTB’s long-term ratings will likely be lowered by one notch, with the Outlook revised to Stable,” the ratings agency noted while affirming the A+ rating. S&P Global Ratings revised its outlook on Butterfield from stable to negative on June 1 based on the proposed deal while affirming its BBB+ credit rating. The outlook revision is based on factors such as the capital position and liquidity metrics after the deal closes. Butterfield’s total revenue for the second quarter improved eight per cent to US$158.33 million due to higher trust and asset management fees, but consolidated net profit dipped 12 per cent to US$46.91 million due to higher professional fees connected to the CIBC deal. Core net profit was up 19 per cent to US$63.9 million. Butterfield closed Monday at US$59.15 on the New York Stock Exchange (Ticker: NTB) which left it up 9.45 per cent year-to-date with a market capitalisation of US$2.36 billion. Butterfield paused its share buyback programme following the announcement of the CIBC Caribbean deal on May 28.