Subject: TD Bank May Buy More in U.S. After Chrysler Financial (Update1)-Bloomberg (Much more than headline)
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To: "Eric Schwerin" <[email-masked]>, "Devon Archer" <[email-masked]>, "Hunter Biden" <[email-masked]>, "Curtis Hastings" <[email-masked]>, "Thad Brown" <[email-masked]>, "Chris Heinz" <[email-masked]>
Date: Wed, 22 Dec 2010 13:07:19 -0500

TD Bank May Buy More in U.S. After Chrysler Financial (Update1)
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By Sean B. Pasternak

Dec. 22 (Bloomberg) -- Toronto-Dominion Bank may continue to make  
acquisitions in the U.S. after increasing its bet there with the $6.3  
billion purchase of Chrysler Financial Corp., capping a record quarter  
for U.S. takeovers by Canadian lenders.

Toronto-Dominion’s bid for the auto-finance company “doesn’t really  
alter” the Toronto-based bank’s appetite for smaller transactions,  
Chief Executive OfficerEdmund Clark said.

“We’re not deal junkies, but we keep saying what we’re looking for,”  
Clark said yesterday in a telephone interview. “We want $10 billion  
(in assets) or less deals; tuck-ins that add to our franchise and meet  
our strategy.”

The purchase of Chrysler Financial adds to the more than C$20 billion  
($19.6 billion) that Canada’s second-largest bank spent on U.S.  
acquisitions since 2004. Toronto-Dominion’s U.S. territory spans 16  
states from Maine to Florida with 1,269 branches, the first time a  
Canadian bank has more locations south of the border than at home.

“These small transactions have ended up with us having a pretty  
significant franchise in the United States,” said Clark, 63. “We  
clearly have very strong market presence down the east coast of the  
United States; now we’ll be in the top five for bank-owned auto  
lending.”

Toronto-Dominion and Bank of Montreal are among Canadian banks that  
are taking advantage of their relative strength to add assets in the  
U.S. as troubled Europeans lenders pull back. Bank of Montreal last  
week agreed to buy Wisconsin’s biggest bank for $4.1 billion.

European Withdrawal

HSBC Holdings Plc, Britain’s biggest bank, bought U.S. subprime lender  
Household International Inc. in 2003 for $15.5 billion, in its biggest- 
ever acquisition. Following the bursting of the subprime bubble, HSBC  
closed the U.S. consumer finance division to new customers in 2009  
after more than $53 billion of loan-loss provisions in North America.  
London-based HSBC also sold a $4 billion U.S. car loan portfolio this  
year, while Allied Irish Banks Plc sold its stake in Buffalo-based M&T  
Bank Corp. for $2.1 billion.

“The European banks are not in any kind of a position to compete for  
these assets, and the Canadian banks certainly are,” said Tony  
Demarin, chief investment officer at BCV Asset Management in Winnipeg,  
Manitoba, which manages about C$250 million, including Toronto- 
Dominion shares. “This is a once-in- a-decade, once-in-a-20-year  
opportunity.”

Canada’s banking system has been ranked the world’s soundest for three  
straight years by the Geneva-based World Economic Forum. Lenders  
including Toronto-Dominion and Royal Bank of Canada withstood the  
worst financial crisis since the Great Depression without taking  
government bailouts, and recorded only a fraction of the $1.31  
trillion in writedowns taken by banks and brokers worldwide.

Bank of Montreal

Toronto-Dominion’s purchase follows the bid last week by Bank of  
Montreal to buy Milwaukee-based Marshall & Ilsley Corp., The  
acquisitions mark the biggest quarter for Canadian bank deals in the  
U.S. in at least 12 years, according to Bloomberg data.

Toronto-Dominion, which operates south of the Canadian border as TD  
Bank, began its U.S. expansion in 2004, convinced that there were  
limited opportunities once the federal government blocked Canadian  
banks from buying each other.

In August 2004, Toronto-Dominion announced it would buy 51 percent of  
Portland, Maine-based Banknorth Group Inc. for $3.5 billion. A year  
later, the bank sold TD Waterhouse to TD Ameritrade Holding Corp.,  
making it the largest shareholder in the Omaha, Nebraska-based  
brokerage.

Adds Banknorth

By 2007, Toronto-Dominion acquired the rest of Banknorth for $3.19  
billion, with Clark installing former risk officer Bharat Masrani as  
head of the U.S. operations. In March 2008, the bank bought Cherry  
Hill, New Jersey-based Commerce Bancorp for about $8.33 billion.  
Toronto-Dominion added South Financial Group Inc. this year for $191.6  
million and now has about 200 branches in the U.S. southeast.

“We obviously have an unbelievable deposit-gathering machine,” said  
Clark, who joined the bank in 2000 and became CEO in 2002. “Now we  
need to complement it with an asset- gathering machine.”

The purchase of Chrysler Financial from Cerberus Capital Management LP  
will add $100 million to Toronto-Dominion’s earnings by 2012, and the  
bank forecasts new loan originations of about $1 billion a month the  
following year. The bank expects to surpass a target of $1.6 billion a  
year in U.S.-based profit within three years, compared with $1 billion  
in earnings last fiscal year.

Loan Book

“It gives them a big book of auto-loan business you will have gone  
through with a fine-toothed comb, and TD has the ability to borrow at  
a better rate than Cerberus would,” said Terry Shaunessy, president of  
Shaunessy Investment Counsel in Calgary, which manages about C$200  
million. “TD has shown it has very good credit analysis.”

Chrysler Financial, based in Farmington Hills, Michigan, has about  
1,850 employees and will have $7.5 billion in loans when the  
transaction closes. About 90 percent of the loans are in the U.S., and  
10 percent in Canada. Chrysler Financial isn’t related to Chrysler  
Group LLC, the company that’s now controlled by managers from Fiat SpA.

“In our view, the largest risk in the transaction is that the company  
will be unable to hit its average loan balance targets for 2012 of $10  
billion,” said Brian Klock, an analyst at Keefe, Bruyette & Woods. “We  
believe this target should prove manageable.”

Citigroup Inc., JPMorgan Chase & Co., and Sandler O’Neill & Partners  
LP are advising New York-based Cerberus on the transaction. Goldman  
Sachs Group Inc. advised Toronto-Dominion.

Toronto-Dominion rose 17 cents to C$73.33 at 9:55 a.m. trading on the  
Toronto Stock Exchange, and has risen 11 percent this year.

To contact the reporter on this story: Sean B. Pasternak in Toronto [email-masked] 
.

To contact the editors responsible for this story: David Scanlan [email-masked] 
; or David Scheer at [email-masked].

Last Updated: December 22, 2010 09:57 EST