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I just warned about this early this morning.

CIBC Provides Update to Previous Disclosure on U.S. Subprime Real Estate CDO / RMBS including Likely Large Write-down in First Quarter 2008 Financial Results
Canada NewsWire via COMTEX - Wednesday, December 19, 2007; Posted: 11:40 AM

"Following Standard and Poor's announcement today that it had reduced the credit rating of ACA Financial Guaranty Corp. from "A" to "CCC", CIBC confirmed that ACA is a hedge counterparty to CIBC in respect of approximately U.S. $3.5 billion of its U.S. subprime real estate exposure."

ACA is a small player. Those guys insured by Ambac are in for a RUDE awakening. This includes several of the I banks in this article that I am commenting on. Just go through the pdf file in the Ambac analysis follow up to see who's gettin' who.

"It is not known whether ACA will continue as a viable counterparty to CIBC. Although CIBC believes it is premature to predict the outcome, CIBC believes there is a reasonably high probability that it will incur a large charge in its financial results for the First Quarter ending January 31, 2008."

The additional writedowns of the I banks and their excessive leverage puts them at risk to suspect counterparties. This was illustrated using hedgefunds (Banks, Brokers, & Bullsh1+ part 2) and monolines (A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton ). I actually used the list of Ambac clients to (succesfully) look for short candidates.

"As CIBC disclosed on page 52 of its Investor Presentation dated December 6, 2007, the mark of the hedge protection from the "A-rated" counterparty (ACA) as at October 31, 2007 was U.S. $1.71 billion. As at November 30, 2007, this mark was US$2.0 billion. If the charge in the First Quarter were to be U.S. $2.0 billion (US$1.3 billion after tax) CIBC currently projects its Tier 1 capital ratio to remain in excess of 9% as at January 31, 2008."

Expect to see a lot more of this. Moody's should be ashamed of themselves for even considering AAA status for MBIA and Ambac. Institutions who are fragile, like Morgan Stanley threaten a daisy chain effect, and it may be ignited by one of the monolines.