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Canadian Western Bank issuing $200M in preferred-share-plus-warrant units

Thu Feb 5, 11:24 AM

The Canadian Press Email Story IM Story Printable View

By The Canadian Press


EDMONTON - Canadian Western Bank (TSX: CWB.TO) is issuing at least $200 million worth of preferred shares which yield 7.25 per cent and come with warrants to buy common stock.


The bank said Thursday that $135 million worth of the units are going in a private placement to institutional investors including Fairfax Financial Holdings Ltd. and pension-fund clients of Alberta Investment Management Corp.


An accompanying bought-deal public issue is worth $65 million, or $74.75 million if the underwriters fully exercise their option on additional units.


Each unit in the public offering consists of a preferred share priced at $25 plus 1.78 five-year warrants to buy a common share for $14.00. The 7.25 per cent dividend rate on the preferred shares will be reset every five years at five percentage points above the prevailing yield on the Government of Canada five-year bond.


The institutional investors get a slightly better deal, with their units carrying 1.7857 warrants with the same $14.00 strike price. The bank's stock traded Thursday morning in Toronto at $10.79, off 43 cents, with a 52-week range between $29.44 and $10.50.


The preferred shares - which provide fixed payouts like bonds but qualify as regulatory capital like common shares - are expected to boost Canadian Western Bank's Tier 1 capital ratio to 11.2 per cent from 8.9 per cent.


The 36-branch bank, with $10.5 billion in assets, joins a parade of larger Canadian banks that have issued preferred stock recently to plump up their capital cushions.


The issue "will significantly augment the bank's already strong balance sheet and provides considerable flexibility to pursue accretive growth opportunities," stated Canadian Western CEO Larry Pollock.


He added a welcome to "the premier institutions" that are joining the bank's shareholder base.


Canadian Western, which will report on the November-January first quarter of the banking year on March 5, said that "while the economic environment presents challenges," it expects results "generally consistent with the bank's fiscal 2009 performance target ranges published in December."


Earnings per share are projected to be in line with the analyst consensus estimate of 39 cents per share.


The bank noted that revenue growth "continues to be constrained" by tight interest margins. But it said impaired loans at Jan. 31 "were within the historic range of acceptable levels at 1.2 per cent of total loans, or approximately $110 million, compared to 1.1 per cent, or approximately $92 million, at Oct. 31."




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Is the FFH telephone ringing off the hook, or what?


BRK and FFH (and others) are taking their low yielding cash and typically investing in 10% + yielding securities.  These are unprecedented times.  We will all likely look back on 2008 + 2009 + ? and say, "Crap, I learned a lot during those years!!"  Let's hope we can all profit during this lesson.

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To do CWB successfully you need to take the long view. Loan provisioning will be a lot more volatile, & earnings erratic, but if the province doesn`t goose the industry out of downturns they loose a lot more than CWB does. The `blue eyed sheiks` are effectively implied guarantors.


The real value will be the contacts developed out west. Canada is a small place & FFH will be pretty much obliged to make oil & gas investments as the portfolio expands. CWB will be a great place to develop the `circle of competency`.


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I disagree about FFH needing to make investments in oil and gas.  Prem and his team have demonstrated that they are completely comfortable in making large investments in non-Canadian markets.  Do not forget that they made a pile of money for us in Indian equities about 3 or 4 years ago.  Do not forget that they have made enormous investments in JNJ, Overstock, Level 3, etc.  There is NO demonstrated need to get involved in Canada's oil and gas sector.


I do agree, however, that Canadian Western Bank probably will not be allowed to fail....and they probably will make good on their preferred shares.  IMO, if push comes to shove, the Alberta Treasury Branch would step in and expand their operations by acquiring CWB.


Overall, I would anticipate that the CWB preferreds will work out very nicely.....



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The preferred shares are non-cumulative?  Not a very comfortable feeling.


Would the bank have been able to issue a cumulative preferred and pay a lower interest spread?


Or is there some tradition in bank preferreds that a non-cumulative conforms with?


Just curious.  Not knowledgable about either banks or preferred share investing.

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I believe banks and other financials can include preferred share issues as tier one capital as long as the dividends are non-cumulative.


I think this is why you rarely see a cumulative preferred from a bank or insurance company.  I believe this is true in Canada and the U.S.


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