TD Bank to buy Chrysler Financial

Toronto-Dominion Bank says it will buy Chrysler Financial from U.S. private equity firm Cerberus Capital Management LP for $6.3 billion US.

TD Bank says it will buy Chrysler Financial from U.S. private equity firm Cerberus Capital Management LP for $6.3 billion US.

The purchase price includes net assets worth $5.9 billion and about $400 million in goodwill.

Under terms of the agreement, TD's U.S. subsidiary, TD Bank, will acquire Chrysler Financial in the U.S., and TD will acquire Chrysler Financial in Canada. The acquisition will give TD all of Chrysler Financial's processes and technology, as well as its existing portfolio of assets.

"This transaction represents a unique opportunity to purchase a great organic growth platform at an attractive price," said TD president and CEO Ed Clark in a release.

"Chrysler Financial is a well-run business with the capacity for significantly higher returns over the next several years."

The Toronto-based bank will incorporate Chrysler Financial and its 1,850 employees into its existing vehicle leasing finance division.

The move will also help TD to expand its U.S. lending operations, which it has been trying to bolster for several years.

TD's average loan-to-deposit ratio in its U.S. segment was slightly above 50 per cent in the fourth quarter of 2010, whereas for its domestic operations, it was above 100 per cent, Barclays Capital analyst John Aiken said in a note to clients Tuesday. 

"The rationale for increasing the bank's lending in the U.S. is fairly obvious," he said.

TD now has 1,000 branches scattered across several predominantly eastern U.S. states.

The transaction will make TD the fifth-largest bank-owned auto lender in North America. Ratings agency DBRS said in a commentary on Tuesday that the acquisition will not have a material impact on the bank's earnings and only a modest impact on its capital ratio.

The bank's management says the deal will be earnings neutral in 2011 before adding $100 million to the bank's adjusted earnings in 2012.

The bank says it will not issue any new shares to pay for the purchase.