CIBC Ordered to Pay $848M Damages to Cerberus, Will Appeal

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Canadian Imperial Bank of Commerce plans to appeal a New York judge’s order that it pay about $848 million in damages to private equity firm Cerberus Capital Management, in a contract dispute tied to the 2008 global financial crisis.

In a statement on Wednesday, the Toronto-based bank said it expects to take a C$1.16 billion pre-tax charge, or about C$850 million ($629 million) after taxes, in its first-quarter results, reducing its ratio of capital to assets.

It also said it “strongly disagrees” with the legal and factual bases underlying Tuesday’s award to Cerberus by Justice Joel Cohen of a New York state court in Manhattan of $491 million in damages plus an estimated $357 million in interest.

Lawyers for New York-based Cerberus did not immediately respond to requests for comment on Wednesday.

Banks struggled during and after the financial crisis to contain their exposure to mounting defaults and falling securities prices as the U.S. housing market collapsed and credit conditions tightened.

The dispute between Cerberus and CIBC stemmed from a complex 2008 structured note transaction in which CIBC received a $571 million loan intended to reduce its U.S. residential real estate exposure, in exchange for payments to a Cerberus entity.

Cerberus sued CIBC in November 2015, claiming that the bank underpaid some amounts it owed, and stopped making some payments altogether after a group of credit default swaps went into default and the underlying bonds were liquidated.

CIBC countered that Cerberus misread the underlying agreements, and had been accepting the alleged underpayments for several years.

On Dec. 1, after a non-jury trial, Cohen found CIBC liable for breach of contract and rejected the bank’s counterclaims, which included that Cerberus acted with fraudulent intent.

“The evidence did not … show that CIBC was a hapless rube led astray,” Cohen wrote.

Tuesday’s damages award followed subsequent oral arguments. Cohen asked Cerberus and CIBC to submit a proposed judgment by Jan. 13.

The case is Securitized Asset Funding 2011-2 Ltd v Canadian Imperial Bank of Commerce et al, New York State Supreme Court, New York County, No. 653911/2015.