The Wall Street Journal reports that Canadian Imperial Bank of Commerce (CIBC) is now expected to take at least $2bn in write-downs for US subprime lending-related assets in the first quarter of 2008, after Standard & Poor's slashed the rating on one of the bank's counterparties, ACA Capital Holdings, by 12 notches to junk status.
Bloomberg reports that CIBC has around $9.9bn in hedged derivatives contracts which are tied to subprime mortgages, around a third of which are backed by ACA. A spokesperson for the bank confirmed that 'it is not known whether ACA will continue as a viable counterparty to CIBC'. In the meantime, Reuters reports that Fitch Ratings came out Wednesday and said that it was considering cutting CIBC's ratings over its significant exposure to subprime mortgages via CDOs.
Bloomberg also reports that Citi has cut 30 positions in its structured credit group this week, around 6% of the total headcount in the unit.
The Financial Times reports that Barclays Bank lodged a lawsuit against Bear Stearns in New York Wednesday, seeking the return of the $400m the bank lost as a result of the failure of one of two troubled Bear hedge funds over the summer. The action follows months of discussions between the two banks, who clearly failed to resolve their differences. Also defendants in the suit are Ralph Cioffi, the fund manager who left Bear last week (and who is said to be under investigation for allegedly withdrawing some of his personal money from one of the two funds at a time he was talking up its performance to investors), and Matthew Tannin, a senior Managing Director over at Bear Stearns Asset Management.
Bloomberg reports that the suit claims that Barclays was the victim of fraud, conspiracy and breach of fiduciary duty, and cites from a February e-mail Tannin is said to have sent the UK bank which said that the fund was 'having our best month ever' and confirmed that the 'hedges are working beautifully'. Barclays claims that it later emerged that, at the time the e-mail was sent, the fund was actually having 'severe' liquidity problems.
A spokesperson for Bear said that the suit was without merit and 'while we do not like to see investors or counterparties lose money, we believe this lawsuit is an attempt by Barclays to avoid taking responsibility for its own actions'.
The New York Post reports that, according to 'unnamed sources familiar with the situation', Bank of America is said to be in discussions with hedge fund Citadel about the sale of its prime brokerage unit - possibily another indication that, despite denials, Bank of America CEO Ken Lewis is keen to get out of the investment banking business.
Finally, some good news on global M&A. Thomson Finance says that global M&A deal volumes hit a new record high of $4.38 trillion in 2007 (up from $3.6 trillion last year). The bad news is that deal value fell away by 27% in the second half of the year (compared to the first half), as the credit crunch began to bite.