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
