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Canadian Imperial (CM) Signs Deals to Offload US Office Loans

Office loan exposure is problematic for banks currently. Lenders are trying to offload those, even at a discount. One such bank doing so is Canadian Imperial Bank of Commerce CM.

Per a Bloomberg report, CM has signed agreements with multiple buyers to divest U.S.-based office loans worth $316 million at a discount. These loans are backed by eight offices located in cities including San Francisco, Seattle, Phoenix and Austin.

As the process is private, the company spokesperson declined to comment on the development. CM is slated to announce second-quarter fiscal 2024 results on May 30 and might disclose details related to the sale at that time.

In the first quarter of fiscal 2024, Canadian Imperial reported a decline in earnings mainly due to a 98% surge in provision for credit losses. With the operating backdrop turning more challenging since then, the company is likely to record high provisions this time too.

Over the past year, shares of Zacks Rank #3 (Hold) company have rallied 18%, underperforming the industry’s growth of 21.2%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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At present, higher interest rates and a lack of demand for offices are worrisome. The U.S. office vacancy rates are at a record high, and these are causing financial hardship for the banks.

Hence, banks have been cutting back exposure to commercial real estate (CRE) loans and even eyeing loan sale to ease pressure on their loan portfolios. Last year, amid concerns related to CRE exposure, banking regulators were looking more closely at banks whose CRE portfolios accounted for more than triple their capital and at portfolios that grew at least 50% in the past three years.

Thus, in order to reduce their CRE exposure, several banks are looking for options. Similar to Canadian Imperial, last week, WaFd, Inc WAFD entered an agreement to sell 2,000 commercial multi-family real estate loans to Bank of America BAC for $2.9 billion. The loans have an unpaid principal balance of $3.2 billion.

WaFd and BAC will undergo due diligence through Jun 18 and if either party fails to finalize the deal, the other is entitled to 1.5% of the aggregate purchase price for each loan.


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