CIBC to Buy Wealth Management Unit - Analyst Blog

By Zacks | August 08, 2012 AAA

In order to further expand its wealth management operations, Canadian Imperial Bank of Commerce (CM) announced a deal to acquire private wealth management business of MFS McLean Budden, a subsidiary of Sun Life Financial Inc. (SLF). The agreement would substantially improve CIBC's market share in the wealth management sector.

Currently, MFS McLean's private wealth management unit manages assets valued at approximately C$1.4 billion (US$1.4 billion) for high net-worth investors. Though the financial terms of the deal were not disclosed, CIBC stated that the acquired unit would be integrated with its Wealth Management division's private-wealth business. Moreover, the agreement, which is still subject to regulatory approval, is expected to close by the end of October.

The private wealth management unit that CIBC is acquiring was part of the investment-management firm, McLean Budden, which Sun Life acquired in 2011. Additionally, Sun Life integrated this firm with its mutual-fund unit, MFS Investment Management and renamed it MFS McLean Budden.

CIBC is witnessing a massive surge in demand for wealth management services and is striving hard to improve the performance of its private-wealth business that comprises of private investment counsel, private banking and trust operations. The unit has been recording nearly flat revenues for the last several quarters. Moreover, in the fiscal second quarter (ended April 30), the unit contributed roughly 6% of Wealth Management's total revenue.

Additionally, CIBC has been augmenting its wealth management operations inorganically. In July 2011, the company announced its decision to buy a 41% equity stake in American Century Investments, a major U.S. asset management company, for US$848 million. This deal enabled the company to diversify its footprints and provided access to American Century's asset management capabilities.

Apart from CIBC, many other Canadian banks are trying to ramp their wealth management operations. Earlier this year, Royal Bank of Canada (RY) announced a deal to buy the Latin American, Caribbean and African private banking business of Coutts - the wealth division of Royal Bank of Scotland Group (RBS).

We believe that CIBC's recent acquisition will enhance revenue generation from its private-wealth business. Further, amid the gloomy global economic environment, the company will be able to stabilize its financials.

CIBC currently retain a Zacks #2 Rank, which translates into a short-term Buy rating.

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