KBRA revises the watch status of the senior unsecured debt and deposit ratings of ‘A+’ and the subordinated debt rating of ‘A’ for The Bank of N.T. Butterfield & Son Limited to ‘Watch Downgrade’ from ‘Watch Developing’. The short-term debt and deposit ratings of ‘K1’ are affirmed. Butterfield, which is headquartered in Hamilton, Bermuda, entered into a definitive agreement on 28 May 2026 to acquire Canadian Imperial Bank of Commerce’s 91.7 per cent interest in CIBC Caribbean Bank Limited for total consideration of about US$1.8 billion, comprising US$1.091 billion in cash and US$703 million in newly issued Butterfield common shares. Butterfield plans to issue approximately US$700 million in subordinated tier-two debt as part of the transaction financing. The transaction is expected to close in the first half of 2027, with Bermuda remaining the headquarters of the bank. On a pro forma basis, shareholder ownership will consist of 76 per cent Butterfield, 22 per cent CIBC and 2 per cent minority shareholders. Butterfield plans to commence a mandatory takeover for the remaining CIBC Caribbean shares held by minority shareholders. The combination will create a US$29 billion bank, effectively doubling the Butterfield asset base, deepening the presence in Cayman and expanding the footprint further into the Caribbean, including new territories. KBRA attributes the change in watch status principally to the scale of the transaction relative to Butterfield on a standalone basis. If completed, the deal would increase the size of the loan portfolio, materially raising risk-weighted asset density and the credit risk profile, lower capital ratios, meaningfully so for risk-based capital metrics, and modestly reduce the historically strong liquidity profile of the bank. The agency says merger benefits including the integration of the CIBC Caribbean deposit base and the realisation of cost synergies will be counterbalanced by increased interest expense tied to the planned subordinated debt issuance, amortisation expense and an accelerated adoption of income tax law changes in Bermuda. Risk-adjusted earnings will remain substantial, according to KBRA, although the contribution from non-interest income will decline and the contribution from net interest income will increase. KBRA estimates that on a pro forma basis liquid assets, comprising cash, short-term investments and the investment portfolio, will make up more than 50 per cent of pro forma assets, against about 66 per cent at Butterfield standalone as of the second quarter of 2026. The agency describes cash and short-term investments as a key consideration given the absence of central bank support and the modest deposit insurance schemes across the deposit footprint. If the acquisition closes as expected, KBRA says the long-term ratings of Butterfield will likely be lowered by one notch, with the outlook revised to ‘stable’. Upward ratings movement is unlikely over the next few years barring an exogenous event.
