CASPER
THE FRIENDLY GHOST
TORONTO – Toronto-Dominion Bank is buying Chrysler Financial for $6.3 billion, the second time in a week that a Canadian lender has placed a big bet on the U.S. economic recovery.
Tuesday's cash deal, which includes about $400 million in goodwill, will make Canada's No. 2 bank one of North America's biggest bank-owned auto lenders. The bank won't issue any stock to fund its purchase from Cerberus Capital Management, a feature that helped push TD shares up nearly 4 percent.
"The TD Bank acquisition of Chrysler Financial is an example of what can happen when foreign banks are financially strong, flush with cash, and want to expand into the lucrative U.S. market," said Mark Williams, a risk-management expert at the Boston University School of Management.
"U.S. retail banks, such as Bank of America, have plenty to fear. The Canadian bankers are upon us."
This deal follows Friday's $4.1 billion purchase of Wisconsin-based Marshall & Ilsley Corp by Canada's No. 4 lender Bank of Montreal, although BMO irked the market by issuing $800 million in stock to fund its deal.
BETTING ON CARS
The TD deal reflects a growing belief that car sales will help fuel the U.S. economy as the auto sector recovers from its 2008-2009 meltdown.
The acquisition also illustrates the strength of Canada's banks, which emerged from the crisis in much better shape than their U.S. counterparts. With limited growth prospects at home, some are looking to the United States to deploy their capital.
"I think you'll see a blending of the Canadian and U.S. banking systems over the next few years. The Canadian banks can't expand in Canada anymore," said Richard Bove, bank analyst at Rochdale Securities.
Chrysler Financial was the automaker's lending arm, although last year's U.S. government-sponsored restructuring of Chrysler and General Motors reined in its operations.
Cerberus will retain about $1 billion in Chrysler Financial assets, according to a source close to the private equity fund.
The source said that means Cerberus is close to breaking even on the Chrysler transaction as a whole, which would make it the only investor involved in the U.S. auto bailouts that didn't take a loss.
TD said the auto financing business will complement its U.S. East Coast retail banking network, helping to jump-start loan growth as a fragile recovery gains traction.
Jefferson Harralson, an analyst at Keefe, Bruyette & Woods, said he expects banks to get more involved in auto lending.
"In previous recessions, you worried about credit cards and auto loans, not the mortgages. This time that's been reversed."
U.S. auto sales dropped to a 27-year low of 10.4 million vehicles in 2009, but are expected to rebound to nearly 11.5 million this year in a recovery that could run beyond 2012.
TD officials said they expect auto lending to grow to $900 billion over the next three years, from $700 billion now.
TD said the Chrysler Financial purchase should not affect 2011 earnings and will add about $100 million to adjusted 2012 earnings. It may help it exceed its goal of $1.6 billion annual earnings from its U.S. unit in three years.
TD first entered the U.S. market in 2005. It now has a network of about 1,300 branches and it owns about 46 percent of online broker TD Ameritrade.
Tuesday's cash deal, which includes about $400 million in goodwill, will make Canada's No. 2 bank one of North America's biggest bank-owned auto lenders. The bank won't issue any stock to fund its purchase from Cerberus Capital Management, a feature that helped push TD shares up nearly 4 percent.
"The TD Bank acquisition of Chrysler Financial is an example of what can happen when foreign banks are financially strong, flush with cash, and want to expand into the lucrative U.S. market," said Mark Williams, a risk-management expert at the Boston University School of Management.
"U.S. retail banks, such as Bank of America, have plenty to fear. The Canadian bankers are upon us."
This deal follows Friday's $4.1 billion purchase of Wisconsin-based Marshall & Ilsley Corp by Canada's No. 4 lender Bank of Montreal, although BMO irked the market by issuing $800 million in stock to fund its deal.
BETTING ON CARS
The TD deal reflects a growing belief that car sales will help fuel the U.S. economy as the auto sector recovers from its 2008-2009 meltdown.
The acquisition also illustrates the strength of Canada's banks, which emerged from the crisis in much better shape than their U.S. counterparts. With limited growth prospects at home, some are looking to the United States to deploy their capital.
"I think you'll see a blending of the Canadian and U.S. banking systems over the next few years. The Canadian banks can't expand in Canada anymore," said Richard Bove, bank analyst at Rochdale Securities.
Chrysler Financial was the automaker's lending arm, although last year's U.S. government-sponsored restructuring of Chrysler and General Motors reined in its operations.
Cerberus will retain about $1 billion in Chrysler Financial assets, according to a source close to the private equity fund.
The source said that means Cerberus is close to breaking even on the Chrysler transaction as a whole, which would make it the only investor involved in the U.S. auto bailouts that didn't take a loss.
TD said the auto financing business will complement its U.S. East Coast retail banking network, helping to jump-start loan growth as a fragile recovery gains traction.
Jefferson Harralson, an analyst at Keefe, Bruyette & Woods, said he expects banks to get more involved in auto lending.
"In previous recessions, you worried about credit cards and auto loans, not the mortgages. This time that's been reversed."
U.S. auto sales dropped to a 27-year low of 10.4 million vehicles in 2009, but are expected to rebound to nearly 11.5 million this year in a recovery that could run beyond 2012.
TD officials said they expect auto lending to grow to $900 billion over the next three years, from $700 billion now.
TD said the Chrysler Financial purchase should not affect 2011 earnings and will add about $100 million to adjusted 2012 earnings. It may help it exceed its goal of $1.6 billion annual earnings from its U.S. unit in three years.
TD first entered the U.S. market in 2005. It now has a network of about 1,300 branches and it owns about 46 percent of online broker TD Ameritrade.