By Agency reporter

Wednesday, 22 Dec 2010

Toronto-Dominion Bank agreed to buy Chrysler Financial Corporation from Cerberus Capital Management LP for $6.3bn in cash, adding an auto-finance company in its second-largest acquisition.

The purchase includes $5.9bn in assets and about $400m in goodwill, Canada‘s second-biggest bank said on Tuesday, in a statement posted on Reuters.

Toronto-Dominion does not intend to issue stock or bonds.

Canadian lenders, ranked the soundest by the World Economic Forum, are using their excess capital to expand abroad after asset values plunged following the financial crisis. Bank of Montreal last week made its biggest acquisition, agreeing to pay $4.1bn for Marshall & Ilsley Corporation, Wisconsin‘s biggest bank.

Toronto-Dominion Bank said it expects United States earnings to top its target of $1.6bn a year, in three years, with the Chrysler Financial purchase, Chief Financial Officer, Mr. Colleen Johnston told analysts on a call.

That compares with a profit of about $1bn in the year that ended October 31. The Toronto-based lender owns a consumer bank with 1,300 branches in 16 United States states and is the largest shareholder in TD Ameritrade Holding Corporation.

”This is a really good way to put those deposits in the US to work,” said Mr. Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Incorporated in Toronto, which manages about C$4bn, including Toronto-Dominion shares. ”This is further execution of their US strategy to touch more clients.”

Toronto-Dominion rose C$2.11, or three per cent, to C$72.63 at 10:11am trading on the Toronto Stock Exchange, the biggest gain in four months.

”With this deal, we are positioned to become a top-five bank-owned North American auto lender,” Toronto-Dominion Chief Executive Officer, Edmund Clark, said in a call.

Three people with knowledge of the matter said December 7 that Toronto-Dominion was in talks to buy the auto-finance company.

Chrysler Financial, based in Farmington Hills, Michigan, has about 1,850 employees and will have about $7.5bn in loans at the closing of the transaction, according to an investor presentation Toronto-Dominion published on Tuesday.

About 90 per cent of the loans are in the US, and 10 per cent in Canada. Chrysler Financial is not related to Chrysler Group LLC, the company that is now controlled by managers from Fiat SpA.

The transaction is expected to add about $100m to Toronto-Dominion‘s earnings by 2012, and the bank forecasts new loan origination of about $1bn a month the following year. The purchase will reduce the bank‘s Tier 1 capital ratio by about 55 to 60 basis points, the lender said in the presentation.

The acquisition would be the biggest of a US lender since Wells Fargo & Company agreed to buy Wachovia Corporation in December 2008 for about $15bn.

Cerberus, led by founder Stephen Feinberg, wagered on the US auto industry with takeovers of General Motors Corporation‘s auto lender in 2006, followed by the Chrysler automaker and lender the following year. The deals preceded a decline in the US auto sales that sent both carmakers into bankruptcy.

Feinberg, 50, subsequently lost control of both GMAC and Chrysler and held on to Chrysler Financial. The lender repaid its $1.5bn in US Treasury Department bailout funds last year and in July sought to return to large-scale lending.

Toronto-Dominion Bank’s estimate of the size of the auto- lending market in the US is about $700bn, and the industry is projected to grow about $200bn over the next three years.

 

Source: Punch