Saturday, February 5, 2011

2nd UPDATE: TD Bank Confirms $6.3B Chrysler Financial Buy -

TORONTO (Dow Jones)--Toronto-Dominion Bank (TD), Canada's second-largest bank in assets, confirmed early Tuesday it will buy Chrysler Financial Corp., the auto lender owned by Cerberus Capital Management L.P., for about $6.3 billion in cash, taking a big step toward its goal of becoming a top retail player in the U.S.

Chrysler Financial gives TD a platform for growth in the North American automotive lending market, allowing it to boost its consumer loan portfolio, TD said. The Canadian lender, the sixth-largest North American bank in assets, estimates the business could generate a return on invested capital of about 20% in three to four years.

"It's the foundation we need in the U.S.," TD Chief Executive Ed Clark said on a conference call. The acquisition "doesn't require a physical presence and local expertise" and strengthens the bank's ability to generate assets, he said.

"We needed franchises to generate assets," said Clark. "And, this is an asset class that has held up well during the cycle. We can take this platform and grow it, and grow it a lot faster than we're assuming. It will enhance our U.S. earnings."

TD said the purchase consists of net assets of $5.9 billion and about $400 million in goodwill. It doesn't plan to issue any shares to fund the acquisition.

The transaction, which is expected to close in the bank's fiscal second quarter, gives TD all of Chrysler Financial's processes and technology as well as its existing portfolio of retail assets in both Canada and the U.S. In an interview, Clark said that TD will rebrand Chrysler Financial, although the specific naming has yet to determined.

"It's not a game changer. It's just buying assets that have a higher yield than what they have on their book," says John Hadwen, vice president of portfolio management at Signature Funds, which manages C$25 billion. "It demonstrates they are in good shape to continue growing the business and putting their capital to work."

"Given that their loan demand in the U.S. is a little weak, they needed to do something to improve the asset yield, and this is a good step in that direction," Hadwen says.

In Toronto Tuesday, TD is up C$2.12, or 3%, to C$72.64 on 2.1 million shares.

TD's deal caps a year of several U.S. acquisitions made by Canadian lenders, which emerged from the financial crisis relatively unscathed and in a stronger position than its U.S. peers. Ranked the soundest by the World Economic Forum for three straight years, Canadian banks are using their excess capital to diversify and expand outside of their home market. Last week, Bank of Montreal, the country's fourth-largest lender, agreed to buy Milwaukee, Wis.-based Marshall & IIsley Corp. (MI) in a share swap valued at $4.1 billion, its biggest deal in 26 years.

Earlier this year, TD, the largest shareholder in TD Ameritrade Holding Corp. (AMTD), bought Greenville, S.C.-based South Financial Group Inc. and three troubled Florida banks from the Federal Deposit Insurance Corp. to extend its footprint down the U.S. eastern seaboard from Maine to Florida. TD, which has spent about C$20 billion over the past six years to build its U.S. consumer bank, now has more bank branches in the U.S. than in Canada.

Automobile leasing isn't a new business line for TD. The bank, which bought VFC Inc., a Canadian high-risk auto purchase financing company, in 2006, has a 15% share of the domestic auto leasing market, Clark said in an interview. TD also provides auto leasing through TD Banknorth.

Currently, Canadian banks are not allowed to offer auto leasing through their branches. Clark has been the most vocal Canadian bank CEO pushing for regulatory change. Canadian rival Bank of Nova Scotia (BNS) acquired $20 billion in auto loans from General Motors Co. in 2005.

Clark said that TD "remains cautious" on the outlook for the U.S. economy, and expects TD will continue to make "tuck-in" acquisitions to its existing U.S. franchise.

"We're not looking at big deals," he said on the call.

He said the transaction is a "bolt-on acquisition" that doesn't require a "major integration effort."

Toronto-based TD expects the purchase of Chrylser Financial to be neutral to earnings in 2011 on an adjusted basis and add about $100 million in adjusted earnings in 2012, the first full year of operations. It's also expected to have Tier 1 capital impact on closing of about 55-60 basis points on a pro forma basis.

TD said it expects the auto lender's origination potential is greater than $1 billion a month by 2013.

Farmington Hills, Mich.-based Chrysler Financial, which no longer is affiliated with the auto maker, has seen improved performance lately, as the value of its existing car and truck loans increase. The company has about 1,850 employees and will have about $7.5 billion in loans when the deal closes, TD said.

News that TD was near a deal to buy Chrysler Financial, the lender once owned by the third-biggest U.S. automaker, emerged late Monday, with people close to the deal saying it could be announced as early as Tuesday.

Unlike TD, Royal Bank of Canada (RY), the country's largest lender, has struggled in the U.S. Moody's Investors Service Inc. last week dropped RBC's triple-A credit rating a notch on concern over the potential earnings impact of the bank's growing global capital-markets business. In October, RBC acquired U.K. fixed-income money manager BlueBay Asset Management Plc for $1.53 billion, its biggest takeover in three years.

by Caroline Van Hasselt Dow Jones Newswires December 21, 2010

2nd UPDATE: TD Bank Confirms $6.3B Chrysler Financial Buy -

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