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CIBC Ordered to Pay $848 Million to Cerberus in Contract Dispute

Canadian Imperial Bank of Commerce (CIBC) has announced its plans to appeal a New York judge's order that it pay approximately $848 million in damages to private equity firm Cerberus Capital Management.


The dispute between the two companies is tied to a complex 2008 structured note transaction in which CIBC received a $571 million loan in exchange for payments to a Cerberus entity. CIBC is expected to take a C$1.16 billion ($848 million) pretax charge in its first quarter results, reducing its ratio of capital to assets. CIBC stated that it "strongly disagrees" with the legal and factual bases of the award.

Background on the Dispute

The dispute between CIBC and Cerberus arose from a 2008 structured note transaction in which CIBC received a loan to reduce its exposure to the US residential real estate market. In exchange, CIBC agreed to make payments to a Cerberus entity.

In November 2015, Cerberus filed a lawsuit against CIBC, alleging that the bank underpaid some amounts it owed and stopped making some payments altogether after a group of credit default swaps went into default and the underlying bonds were liquidated. CIBC countered that Cerberus misread the underlying agreements and had accepted the alleged underpayments for several years.

The Outcome of the Case

After a non-jury trial, Judge Joel Cohen of a New York state court in Manhattan found CIBC liable for breach of contract and rejected the bank's counterclaims, including the claim that Cerberus acted with fraudulent intent.

Judge Cohen stated, "the evidence did not ... show that CIBC was a hapless rube led astray." In a statement, Cerberus said that "ample evidence" supported Judge Cohen's findings and expected his decisions to be "fully upheld" in an appeal. The judge has asked Cerberus and CIBC to submit a proposed judgment by January 13th.