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Rating Action:

Moody's assigns first time ratings to The PrivateBank (deposits at A1/Prime-1), recently acquired by Canadian Imperial Bank of Commerce

21 Jul 2017

New York, July 21, 2017 -- Moody's Investors Service assigned first time ratings to The PrivateBank and Trust Company, including an A1 long-term deposit rating, a Prime-1 short-term deposit rating and a Baa1 issuer rating. The PrivateBank was also assigned a baa2 standalone baseline credit assessment, an a3 adjusted baseline credit assessment and counterparty risk assessments of A2(cr)/Prime-1(cr). The outlook is stable. The PrivateBank, based in Chicago, Illinois, was acquired on June 23, 2017 by Canadian Imperial Bank of Commerce (CIBC; a3 standalone baseline credit assessment, A1 long-term deposits and senior debt).

Issuer: The PrivateBank and Trust Company

..Assignments:

.... Adjusted Baseline Credit Assessment, Assigned a3

.... Baseline Credit Assessment, Assigned baa2

.... Long Term Counterparty Risk Assessment, Assigned A2(cr)

.... Short Term Counterparty Risk Assessment, Assigned P-1(cr)

.... Issuer Rating, Assigned Baa1, Stable

.... Long Term Deposit Rating, Assigned A1, Stable

.... Short Term Deposit Rating, Assigned P-1

Outlook, Assigned at Stable

RATINGS RATIONALE

The PrivateBank and Trust Company's baa2 standalone baseline credit assessment (BCA) reflects its strong financial metrics and experienced management team, as well as its comparative lack of franchise diversification, particularly its weaker than average funding profile and concentrated loan portfolio. In Moody's view, these inherent concentration risks constrain The PrivateBank's standalone BCA, which is positioned two notches below the median regional US bank BCA.

With respect to The PrivateBank's long-term debt ratings, they incorporate two notches of uplift due to its ownership by CIBC. The uplift is based on Moody's expectation that CIBC would support The PrivateBank, if needed, in a stress scenario. This expectation is reinforced by the importance CIBC has placed on its newly-enlarged US operations as a primary means of future earnings growth and diversification.

The PrivateBank's business is heavily skewed toward banking commercial clients, a franchise that currently generates solid credit quality and profitability metrics. In particular, The PrivateBank's healthy and consistent earnings generation is a clear strength. The bank's net income to tangible assets meaningfully exceeds the median for banks with similar standalone BCAs.

Moody's expects The PrivateBank's strong profitability will continue since it is supported by good cost discipline, with an efficiency ratio close to 50%. This solid performance is a result of The PrivateBank's focus on a straightforward strategy that has been developed and implemented by a management team with significant commercial banking experience. Importantly, The PrivateBank's management team will continue to run the bank as part of CIBC.

However, Moody's believes The PrivateBank has concentration risks on both sides of its balance sheet, which partially negates the bank's robust financial metrics. On the liability side, large depositor relationships account for a significant component of total deposits. Furthermore, the bank is reliant on financial services clients, like broker-dealers, that can be more volatile funding sources. Conversely, retail deposits, which tend to be a more stable funding source, only account for a small minority of The PrivateBank's total deposit base since the bank has little market presence in the competitive Chicago-area consumer banking market.

On the asset side, commercial loans account for over 90% of The PrivateBank's total loans, which magnifies concentration risk, in Moody's view. Notably, despite diversification within The PrivateBank's commercial loan portfolio, each of its three largest industry classifications, including healthcare, manufacturing and finance and insurance, nearly equalled or exceeded its tangible common equity at March 31, 2017. Similarly, The PrivateBank's commercial real estate portfolio, including construction, was roughly 2.4 times tangible common equity at the same date, a sizable exposure.

The PrivateBank's standalone BCA also considers the pace of its growth, which has largely been organic, but at a rate that exceeds the growth of most other rated US banks. For example, the bank's loan portfolio expanded at a rate of 13% in 2016, and has grown at a 13% compound annual rate since 2014. Notwithstanding The PrivateBank's solid and experienced management team, above-average growth for an extended period has the potential to mask underlying problems, in Moody's view, particularly during benign periods in the credit cycle. In short, Moody's does not consider The PrivateBank's loan portfolio to be fully seasoned.

As part of CIBC, Moody's expects The PrivateBank's above-average growth will continue. This reflects CIBC's plans for its US operations to contribute 25% of its consolidated earnings over time, up from about 10% currently, pro forma for The PrivateBank acquisition. Moody's believes there is execution risk in this growth strategy, particularly given the competitive US commercial banking landscape.

What Could Change the Rating -- Up

With respect to The PrivateBank's standalone baseline credit assessment, a funding base that was more reliant on core retail deposits would be viewed favourably, as would more robust capital. Moderated loan growth and reduced concentration risk could also generate positive rating pressure.

What Could Change the Rating -- Down

With respect to The PrivateBank's standalone baseline credit assessment, more aggressive growth that increased concentration risk, or more reliance on wholesale funding, could lead to downward rating pressure.

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Allen Tischler
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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