So TD Bank is going to buy Chrysler Financial.
The US is on sale, and Canada is buying it.
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TD Bank Group is expanding in the U.S. auto finance sector with the $6.3-billion acquisition of Chrysler Financial, becoming the second major Canadian lender in two weeks to announce a multibillion-dollar purchase south of the border.
TD is buying Chrysler from private-equity firm Cerberus Capital Management in cash. The deal will give a significant boost to the Toronto-based bank?s auto financing arm, gaining technology and platforms capable of processing more than two million credit applications a year, it said.
"This transaction represents a unique opportunity to purchase a great organic growth platform at an attractive price," said Ed Clark, TD president and chief executive. ?This acquisition will allow us to leverage our lending expertise and financial strength to expand our presence in a large North American market with tremendous potential upside."
Canada?s banks, seen as among the soundest in the world, are taking advantage of their position of relative strength and cheap asset prices to go on a global buying spree. BMO last week said it was doubling its position in the U.S. with the acquisition of Marshall & Ilsley for about $4.1 billion in stock, while Scotiabank has been snapping up smaller lenders, mainly in South America.
?The U.S. is definitely ripe with opportunities for Canadian banks,? said Louis Gagnon, a finance professor at Queen?s School of Business. ?Much of the dust following the credit market meltdown has settled so it is now much more easy, although not all together easy, to separate the wheat from the chaff in the U.S. banking sector.?
TD says the Chrysler acquisition will allow it to significantly expand its consumer loan portfolio south of the border. It forecasts the business will generate a return on invested capital of about 20% over the next three to four years.
The bank said the purchase will have no impact on its earnings in 2011 and should add about $100 million in 2012. It will hit Tier 1 capital by about 55 to 60 basis points.
TD said it?s ?comfortable? with the credit risk of the existing loan portfolio and that any new lending will be focused on prime borrowers.
?The car loan business is not dead,? Gagnon said. ?Based on TD's recent record of deals in the U.S., I have confidence that Ed Clark and his team will do wonders with this asset if the deal goes through.?
Chrysler Financial is one of North America?s largest auto financing firms, with more than 1,850 employees in Canada and the U.S.
Auto financing is one of the biggest sources of lending outside of mortgages and credit cards in the U.S., with about $650 - $700 billion in outstanding loans.
The acquisition is expected to close in the second quarter of fiscal
2011, pending regulatory and other approvals.The new business will be headquartered in Toronto and will be rebranded as part of the TD stable by spring 2011, TD said.