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TORONTO — 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 announced Tuesday 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.
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 operations to the government, when the automaker nearly ran out of cash and faced liquidation in 2008.
The car business was a drain on Cerberus, but the financial services business could end up at least breaking even. The private equity firm is expected to recoup its investment in Chrysler Financial, returning some money to investors who had been unhappy with Cerberus' deal with the automaker from the start.
Cerberus hasn't had much success with the auto lending business. In 2006, it purchased General Motor's financing arm, GMAC. Back then, GMAC was responsible for the bulk of GM's profits, and looked like a healthy investment. But by 2008, auto sales began to slow down, collapsing in the fall.
To help save GMAC, Cerberus had to give up control in late 2008 to enable GMAC to qualify for government bailouts. GMAC is now known as Ally Financial.
The auto lending market is in a better position these days, and the value of used cars is picking up as the economy improves.
TD wants to expand its loan business, and said the Chrysler Financial deal will give it access to technology that can process more than 2 million credit applications per year. It hopes to double the number of dealerships the auto lender offers leases to in the U.S. to 5,000.
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.
Mark Williams, an author and teacher in the Boston University School of Management's finance department, noted that since the 2008 financial crisis, zero Canadian banks failed while over 300 have in the U.S.
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."
Williams at Boston University noted that a decade ago no Canadian bank made the North American top-10 list.
The Chrysler Financial acquisition is expected to add about $100 million in adjusted earnings to TD in 2012, the first full year of operations.
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 closed Tuesday up $2.44, or 3.5 percent, at $71.95 on the New York Stock Exchange.
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Sharon Silke Carty contributed from Detroit.
