FINANCIAL SERVICES REPORTER
Canadian Imperial Bank of Commerce may have lost billions of dollars from its exposure to U.S. subprime mortgage securities, but that does not mean its actions were fraudulent, an American judge has found.
A suit filed against CIBC, one of a flurry of lawsuits launched by shareholders against financial institutions in the wake of the financial crisis, illustrates how the courts are evaluating the actions that Wall Street and Bay Street took as the turmoil developed.
"CIBC, like so many other institutions, could not have been expected to anticipate the crisis with the accuracy [that the]plaintiff enjoys in hindsight," Judge William Pauley wrote in his decision to dismiss the suit, which was filed in the U.S. District Court for southern New York.
The suit was launched by the Plumbers and Steamfitters Local 773 Pension Fund, which was seeking to have it certified as a class-action on behalf of people who bought CIBC shares during the credit crunch. In addition to the bank, the suit named a number of executives, including CIBC's CEO Gerald McCaughey.
Even assuming that the executives knew a subprime credit crisis was brewing as early as May, 2007, "knowledge of a general economic trend does not equate to harbouring a mental state to deceive, manipulate, or defraud," the judge wrote.
Moreover, he said that "it is nonsensical to impute dishonest motives to the individual defendants when each of them suffered significant losses in their stock holdings and executive compensation."
Exposure to U.S. subprime mortgages, and other troubled assets, caused CIBC to post more than $10-billion in writedowns after the crisis began in 2007 and weighed on its stock price.
"CIBC is pleased with the decision to dismiss this lawsuit and the court's recognition that the allegations had no legal merit," a spokesman for the bank said yesterday.
The judge also noted that many financial institutions imploded as a result of the subprime mortgage crisis. "Looking back, a full turn of the wheel would have been appropriate," he wrote. "That CIBC chose an incremental measured response, while erroneous in hindsight, is as plausible an explanation for the losses as an inference of fraud."
CIBC (CM)
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