TORONTO (AP) — Toronto-Dominion Bank has agreed to buy Chrysler Financial, the automaker’s old lending arm, from private equity firm Cerberus Capital Management LP for $6.3 billion.
The deal is the latest example of a healthy Canadian bank using their muscle to snap up U.S. institutions battered by the financial crisis.
Toronto-Dominion CEO Ed Clark said Canada’s second-largest bank is looking to accelerate growth in the U.S and this deal makes them a top five North American auto lender.
“We’re taking advantage of a disruptive market to add on assets that in the heydey you could never buy for these kind of prices,” Clark said in an interview with The Associated Press. “We’re already a top 10 player in the U.S. We’re getting even bigger.”
New York-based Cerberus bought Chrysler Financial in 2007 as part of the $7.4 billion deal to take over Chrysler’s automaking business and lending business. Cerberus handed over control of Chrysler’s automaking operatings to the government when Chrysler nearly ran out of cash and faced liquidation in 2008. The carmaker received a government bailout, went through a speedy bankruptcy court process, and then became owned by Italy’s Fiat SpA.
Cerberus kept ownership of Chrysler Financial, and could end up making money on the lending arm when the Toronto Dominion deal goes through.
TD wants to expand its loan business, and said the deal will give it access to technology that can process more than 2 million credit applications per year. The auto lending market hasn’t taken as much of a hit as other kinds of consumer loans over the last several years. And the value of used cars is picking up as the economy improves.
The deal is the second U.S. acquisition in a week by a Canadian bank. Last Friday the Bank of Montreal announced it is buying Milwaukee-based bank Marshall & Ilsley Corp. for $4.1 billion in stock.
Canadian banks are investing in the U.S. from a position of strength, as they weathered the economic crisis far better than their counterparts in other countries. In a concentrated banking system dominated by five major players, Canadian banks have been looking across the border to find growth opportunities.
Toronto-Dominion Bank has expanded its U.S. presence in recent years with the purchase of New Jersey-based Commerce Bancorp in what has been its largest acquisition. TD also bought smaller, troubled banks in the Carolinas and Florida such as South Carolina-based South Financial Group. Earlier this year, TD agreed to buy the risky assets of three insolvent Florida banks worth $3.8 billion. TD didn’t have a presence in U.S. six years ago, but now has about 1,300 branches in the U.S. compared to about 1,100 in Canada.
TD also holds a 45 percent stake in Omaha, Neb.-based online brokerage TD Ameritrade Holding Corp.
“We’re not in any hurry to do anything more but we’ll keep our eyes out, as long as they are small. I define that as $10 billion in assets or less,” Clark told The AP. “We said when we went into the United States that we would go big or go home and then we did a series of small deals, but those small deals have now put us in the top 10 in terms of deposits.”
Mark Williams, an author and teacher in the Boston University School of Management’s Finance Department, said a decade ago no Canadian bank made the North American top-10 list.
“Canadian banks are flush with cash and are using their stronger financial position to look outside of their home market. Since the 2008 financial crisis, zero Canadian banks failed while over 300 have in the U.S.,” Williams said.
TD Bank expects to rebrand Chrysler Financial under the TD name by spring 2011. The acquisition is expected to add about $100 million in adjusted earnings to TD in 2012, the first full year of operations.
The deal should close in TD’s fiscal 2011 second quarter, the companies predict, pending regulatory approvals and other conditions. Chrysler Financial will keep its top executive, CEO Tom Gilman, after the deal closes. TD hopes to double the number of dealerships the auto lender offers leases to in the U.S. to 5,000.
A TD spokesman said the purchase is comprised of net assets of US$5.9 billion and approximately US$400 million in goodwill. TD does not intend to issue common equity in connection with the deal.
Shares of TD rose $1.92, or 2.7 percent, to $71.43 in midday trading on the New York Stock Exchange.
Samantha Bomkamp contributed from New York.