CIBC Ordered to Pay $848 Million in Damages to Cerberus, Plans to Appeal – Reuters

By Jonathan Stempel

NEW YORK – The Canadian Imperial Bank of Commerce (CIBC) intends to challenge a recent ruling by a New York judge that mandates the bank to pay approximately $848 million in damages to Cerberus Capital Management. This dispute is linked to a contract issue stemming from the 2008 global financial crisis.

In a statement issued on Wednesday, CIBC, headquartered in Toronto, revealed it anticipates a pretax charge of C$1.16 billion, equating to about C$850 million ($631 million) post-tax, which will impact its capital-to-asset ratio in the upcoming first-quarter earnings report.

The bank expressed strong disagreement with the legal and factual grounds for the damages awarded to Cerberus by Justice Joel Cohen of a New York state court, who granted $491 million in damages along with an estimated $357 million in interest.

During the financial crisis, many banks struggled to manage exposure to rising defaults and declining securities as the U.S. housing market collapsed and credit became more restricted.

The conflict between Cerberus and CIBC traces back to a complicated structured note transaction from 2008. In this arrangement, CIBC received a $571 million loan intended to mitigate its exposure to U.S. residential real estate, which in return required payments to a Cerberus entity.

Cerberus filed a lawsuit against CIBC in November 2015, alleging that the bank had underpaid certain amounts owed and had ceased making payments altogether following defaults on a group of credit default swaps.

In response, CIBC contended that Cerberus had misinterpreted the agreements and had previously accepted the purported underpayments over several years.

On December 1, after a non-jury trial, Justice Cohen ruled CIBC liable for breach of contract and dismissed the bank’s counterclaims, which included allegations of fraudulent intent against Cerberus.

"The evidence did not … show that CIBC was a hapless rube led astray," noted Cohen in his ruling.

Cerberus stated on Wednesday that there was "ample evidence" supporting the findings of the judge, expressing confidence that his decisions would be upheld in any appeals.

The judge has requested that both parties submit a proposed judgment by January 13.

The case is officially recorded as Securitized Asset Funding 2011-2 Ltd v Canadian Imperial Bank of Commerce et al, in the New York State Supreme Court, New York County.