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UPDATE 1-CIBC scraps Caribbean sale as Canadian banks face hurdles selling overseas assets

(Recasts with divestment challenges across the banking sector; adds investor, analyst comments)

Feb 3 (Reuters) - Canadian Imperial Bank of Commerce (CIBC) became the latest Canadian bank to face hurdles in exiting disappointing acquisitions, joining rivals still holding overseas assets they have sought to sell even as they look to deploy record levels of capital.

Canada’s fifth-largest lender said on Wednesday it had scrapped the $797 million sale of a 66.7% stake in its FirstCaribbean business to GNB Financial after failing to get regulatory approval.

CIBC’s inability to exit challenging Caribbean markets reflects the hurdles Canadian banks have faced in making an M&A strategy work. The problem is especially acute now with the banks sitting on combined excess capital of C$70 billion ($55 billion), due to a pandemic moratorium by regulators on share buy backs and increasing dividends.

“There have been many instances where the banks have bought something (overseas) and then had to divest because it didn’t pan out from a strategic standpoint,” said Anthony Visano, managing director of Kingwest & Company, which holds some Canadian banks.

CIBC’s challenge “is a pretty good proxy for the broader experience,” he added.

Bank of Nova Scotia faced similar regulatory opposition when it tried to divest its operations in Antigua and Guyana in 2019, and still owns the latter. Royal Bank of Canada , which announced the sale of its Eastern Caribbean operations in December 2019, has yet to finalize the deal. reut.rs/36yVZMb

CIBC’s failed sale is a negative as the region faces challenges, Barclay’s equity analyst John Aiken said in a research note.

While it will likely take several years for FirstCaribbean to return to its peak contribution of 4% to CIBC’s earnings, “in a growth-starved sector, retaining this potential upside is a positive for longer-term shareholders,” National Bank Financial analyst Gabriel Dechaine wrote in a note.

CIBC shares rose 1.1% to C$111.53 in morning trading, compared with a 0.1% gain in the Toronto stock benchmark . ($1 = 1.2777 Canadian dollars) (Reporting by Nichola Saminather in Toronto; Additional reporting by Sohini Podder in Bengaluru; Editing by Shailesh Kuber and Chris Reese)

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