In 2008 in the middle of US financial meltdown, Canadian banks were also taking hit. CIBC was at the center of the focus. In short Canadian Imperial Bank of Commerce had few risky exposures south of the border.
Five years since then, it appears that the ghost still haunts Canadian banks. Recently in an announcement CIBC said that it will pay 149.5 million US to Lehman Brothers to resolve litigation over a collateralized debt obligation tied to the bankruptcy of the former Wall Street bank.
The September 15th, 2008, chapter 11 Bankruptcy filing by of Lehman Brothers made its place in the history book as the largest bankruptcy filing in US.
Under the protection of bankruptcy and through a very complicated process the wrecking of Lehman began immediately after the filling. Slowly it started to look for monies due and tried to recover those using legal route.
According to the report -
CIBC, recognized a gain of $841 million following Lehman’s bankruptcy on September 15, 2008, when it had reduced to zero its financial commitment related to a note issued by the CDO.
What is CDO?
Collateralized Debt Obligations are complex a idea to understand. They are some type of pseudo asset backed securities which are backed by the receivables on loans, bonds. According to Investopedia –
An investment-grade security backed by a pool of bonds, loans and other assets.
We shall not go deeper into these definitions but they were riskier than other securities and were hard to understand the basis of it. We do not think that there is any market for these papers any more.