Portfolio investment by Cerberus will allow CIBC to reduce downside

risk while preserving upside potential

TORONTO, Oct. 3 /CNW/ - CIBC announced today that it will be further strengthening its balance sheet by significantly reducing its remaining exposure to the U.S. residential real estate market.

Following the completion of a competitive bidding process, a fund arranged by Cerberus Capital Management, L.P., has agreed to invest US$1.050 billion in cash in CIBC's U.S. residential real estate portfolio. The fair value of the reference portfolio as of the effective date of the transaction, June 30, 2008, was US$1.186 billion. As of the end of CIBC's fiscal third quarter, July 31, 2008, the value was US$1.075 billion. The fund has agreed to acquire US$1.050 billion of amortizing senior notes, which will have a capped return, payable in cash. The recourse on the notes will be limited to the assets in the reference portfolio. In addition, CIBC will retain 100% of the potential upside on the portfolio following repayment of the notes. The reference portfolio consists of U.S. residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) of RMBS. These securities are part of CIBC's legacy structured credit runoff portfolio.

As an all-cash deal, CIBC will not be providing any of the financing to the senior notes investor and will not be providing any performance guarantee in respect of the portfolio. Interest and principal payments on the senior notes will be paid from the portfolio only if the RMBS and CDOs of RMBS perform. Following the repayment of the notes, CIBC will retain all future cash flows of the portfolio.

As a further potential enhancement to CIBC's upside, CIBC has retained the ability to call the notes at the end of three years upon payment of accrued and unpaid interest, remaining principal and a fixed redemption premium.

Under the transaction, CIBC will retain ownership of the assets. CIBC will also keep all financial guarantor insurance contracts and related rights associated with the portfolio.

"This transaction sets a floor under CIBC's exposure to the U.S. residential mortgage market," said CIBC President and CEO Gerry McCaughey. "At the same time, retaining ownership of these securities, combined with the option regarding the timing of any redemption of this note, provides us with important flexibility to benefit from a future recovery in the cash flows of these securities."

CIBC's Tier 1 capital ratio at July 31, 2008 was 9.8%. Giving effect to a US$300 million preferred share issue completed in September, CIBC's Tier 1 capital ratio at July 31st on a pro forma basis was approximately 10.1%, well above CIBC's target of 8.5%.

This transaction, at inception, is expected to have a positive impact on CIBC's Tier 1 capital ratio of 13 basis points.