(Toronto) CIBC agreed to pay $ 125 million to settle a class action lawsuit that accused the bank of misrepresenting its exposure to US residential mortgage-backed securities before the financial crisis.
Investors launched the lawsuit in 2008, alleging that the bank had not only misled the market about the size of its exposure to the US subprime mortgage market, but also the volatility of related investments.
CIBC spokeswoman Nima Ranawana said in a statement that the bank had reached a settlement without any admission of liability or wrongdoing, and the plaintiffs’ claims had still not been proven.
“While we believed CIBC’s disclosure was appropriate and met all applicable requirements, we made a deal to avoid further legal fees and put the case behind us. ”
The bank lost an appeal to the Supreme Court of Canada in 2015, paving the way for the case to move forward, but the settlement was reached before the trial took place.
“It was an extremely long battle, until the Supreme Court, before coming back very close to a trial,” observed Joel Rochon, managing partner of the Rochon Genova cabinet, who handled the case.
The lawsuit aimed to recover nearly $ 4 billion in damages over an allegation that the bank failed to properly disclose its $ 11.5 billion exposure to the subprime mortgage market.
Mr. Rochon said that although there had been compromises on the part of both parties following intense negotiations, he was satisfied with the outcome, which provides meaningful feedback for the members of the group and is one of the most important regulations of this type in Canada.
“This helps ensure accountability to shareholders for the disclosure requirements of banks and other financial institutions. ”
The subprime mortgage market involved mortgage-backed securities that offered attractive rates of return due to higher interest rates, but lower credit quality ultimately produced massive defaults.
The collapse of the US residential mortgage-backed securities market was a key contributor to the financial crisis.
Under the settlement, investors who purchased shares of CIBC between May 31, 2007 and February 28, 2008 may be entitled to payment.
The agreement has yet to be approved by the Ontario Superior Court of Justice. A hearing has been set for January 12.