Toronto-Dominion Bank may reach an agreement as soon as this week to acquire Chrysler Financial Corp., the auto-loan company owned by Cerberus Capital Management LP, said three people with knowledge of the matter.
Chrysler Financial may sell for almost $6 billion to $7 billion, which is the company’s book value, or assets minus liabilities, said one of the people, who declined to be identified because the matter is private. Discussions with Toronto-Dominion could still fall apart, and other potential buyers are talking with Cerberus, the people said. An agreement could also slip into next week, one person said.
Toronto-Dominion, Canada’s second-largest bank, has spent more than C$20 billion ($19.9 billion) expanding in the U.S. during the past six years. The Toronto-based lender has purchased banks including Banknorth Group of Portland, Maine, and Cherry Hill, New Jersey-based Commerce Bancorp. It has a network of 1,300 branches in 16 U.S. states from Maine to Florida -- more branches than it has in Canada.
Chief Financial Officer Colleen Johnston declined to comment on Chrysler Financial during a presentation at a conference in New York today.
“Our current interest is more in more modest-sized deals that will perhaps give us some distribution or give us asset- generation capabilities,” she said in response to a question about the auto-finance firm. “We are not looking at anything on a significant scale at the moment.”
Cerberus is likely to recoup all of its investment in Chrysler Financial and return some money to investors, according to the people. Chrysler Financial, based in Farmington Hills, Michigan, is mostly comprised of old car and truck loans that are still being paid off by consumers, along with a platform and technology that a buyer could use to start an auto-lending business, said two people. Chrysler Financial is not related to Chrysler Group LLC, the company that is now controlled by managers from Fiat SpA.
ING Groep NV, the largest Dutch financial services company, is also among buyers in talks with Cerberus, the Wall Street Journal reported.
“This is a different channel for them to tap the retail client,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto, which manages about C$4 billion including Toronto-Dominion shares. “Maybe they view it that they can bring their Aaa rating and fund these assets at a lower cost.”
Toronto-Dominion Chief Executive Officer Edmund Clark said as recently as this month that the bank is primarily interested in buying Federal Deposit Insurance Corp.-assisted transactions and “small” purchases, which he defined in February as having less than $10 billion in assets.
Wojtek Dabrowski, a Toronto-Dominion spokesman, said the bank doesn’t comment on rumor or speculation. ING doesn’t comment on market speculation, spokeswoman Victorina de Boer said in an interview. Peter Duda, a spokesman for Cerberus, wasn’t immediately available to comment.
Toronto-Dominion rose C$1.31, or 1.9 percent, to C$72.17 in 4:30 p.m. trading on the Toronto Stock Exchange.
The Chrysler Financial purchase would be the second-largest for Toronto-Dominion behind its $7.1 billion acquisition of Commerce Bancorp in 2008, according to data compiled by Bloomberg. Toronto-Dominion was formed in 1955 as a combination of two Canadian banks that trace back to the mid-1800’s.
In addition to its branch network, Toronto-Dominion is the largest investor in TD Ameritrade Holding Corp., owning about 46 percent of the Omaha, Nebraska-based brokerage.
Clark expressed an interest last month in entering automobile leasing in Canada, which domestic banks have been banned from doing since 1980. The Canadian government has been looking at changing regulations. Bank of Nova Scotia, Canada’s third-largest bank, purchased as much as $20 billion in auto loans from General Motors Co. in 2005.
Clark, 63, told reporters in Montreal Nov. 25 that Canadian banks could expand their automobile leasing business by offering loans through dealerships rather than in bank branches.
Toronto-Dominion reported last week that fourth-quarter profit dropped 1.6 percent to C$994 million, led by a decline in trading and underwriting fees. While profit from the bank’s TD Securities investment bank dropped 74 percent, earnings more than doubled at its U.S. consumer banking arm.
Clark has said he expects Toronto-Dominion to earn $1.6 billion a year from its U.S. operations within three years.
Royal Bank of Canada, the country’s largest bank, hasn’t looked at Chrysler Financial and isn’t interested in making an offer, Chief Executive Officer Gordon Nixon said today in an interview with Business News Network television.
Cerberus, led by founder Stephen Feinberg, wagered on the U.S. auto industry with takeovers of General Motors Corp.’s auto lender in 2006, followed by the Chrysler automaker and lender the following year. The deals preceded a decline in U.S. auto sales that sent both carmakers into bankruptcy.
Feinberg, 50, subsequently lost control of both GMAC and Chrysler and held on to Chrysler Financial. The lender repaid its $1.5 billion in U.S. Treasury Department bailout funds last year and in July sought to return to large-scale lending.
Ally Financial, originally called GMAC, has financed about 50 percent of Chrysler Group’s retail sales this year, according to a statement in September. At the time, the automaker was announcing an agreement with U.S. Bancorp to provide additional financing on some of Chrysler’s vehicles.
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