Toronto-Dominion Bank (TD) said it will buy Chrysler Financial Corp for 6.3 billion dollars in cash, part of a major expansion of Canadian banking behemoths into the United States. The deal comes just days after the Bank of Montreal (BMO) doubled its stake in the US banking market with the purchase of Marshall & Ilsley for 4.1 billion in stock.
TD Bank is already one of the 10 largest banks operating in the United States, with some 6.5 million customers and 1,250 branches in 15 states and the District of Columbia. The Chrysler Financial deal - combined with TD's current platforms in Canada and the United States - positions the company among the top five bank-owned auto lenders in North America.
"This transaction represents a unique opportunity to purchase a great organic growth platform at an attractive price," said Ed Clark, group president and chief executive officer of TD. "Chrysler Financial is a well-run business with the capacity for significantly higher returns over the next several years. "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," he added.
Chrysler Financial's dealer clients serve approximately one million customers in the United States and Canada and TD said the deal will give it access to "a North American platform, top talent and systems, and technology capable of processing over two million credit applications per year."
Clark added: "Because we're well-capitalised and a leading deposit franchise, we've been looking for opportunities to accelerate the growth of our loan book. "This acquisition gives us that opportunity and also diversifies our lending portfolio." TD said the transaction is expected to be "neutral" on 2011 earnings, add approximately 100 million dollars in adjusted earnings in 2012 - the first full year of operations - and then generate a return on invested capital of approximately 20 percent in three to four years. Chrysler Financial chief executive officer Tom Gilman will retain his position in the new company, which will be based in Toronto.
"Joining forces with TD will benefit both our customers and our dealer network," Gilman said. "Under Cerberus's ownership, Chrysler Financial has preserved its technology platform, retained top talent and maintained key capabilities.
"This transaction positions us for future growth with the financial strength of TD, one of the soundest, best capitalised and best managed banks in the world." Chrysler Financial's current owner, Cerberus Capital Management, spent 7.4 billion dollars on an 80-percent stake in Chrysler in 2007 following its failed marriage to Germany's Daimler.
The private equity group relinquished ownership of the automaker as part of a 2009 government-financed restructuring under bankruptcy protection which saw Italy's Fiat take control of Chrysler in exchange for sharing technology and its respected chief executive officer, Sergio Marchionne. However, Cerberus was able to retain its stake in the automaker's former financial arm, which has recently seen improved performance.
"This transaction with TD is the right next step for the future of these businesses, their employees and customers," said Mark Neporent, chief operating officer of Cerberus. "It ensures that the acquired businesses will be part of a strong and well-capitalised financial institution, which will help create sustainable jobs." Company officials said that the acquisition, which was subject to regulatory approval, is expected to close in the second quarter of TD's fiscal 2011.