TORONTO — Toronto-Dominion Bank has agreed to buy Chrysler Financial, the automaker’s old lending arm, from private equity firm Cerberus Capital Management LP for $6.3 billion.
The deal announced Tuesday is the latest example of a healthy Canadian bank using its muscle to snap up U.S. institutions battered by the financial crisis.
Toronto-Dominion chief executive Ed Clark said Canada’s second-largest bank is looking to accelerate growth in the U.S. and that this deal makes the company a top-five North American auto lender.
“We’re taking advantage of a disruptive market to add on assets that in the heyday, you could never buy for these kind of prices,” Clark said.
New York-based Cerberus bought Chrysler Financial in 2007 as part of a $7.4 billion deal to take over Chrysler’s automaking business and lending business. Cerberus handed over control of Chrysler’s automaking operations to the government, when the automaker nearly ran out of cash and faced liquidation in 2008.
The car business was a drain on Cerberus, but the financial-services business could end up at least breaking even.
The private equity firm is expected to recoup its investment in Chrysler Financial, returning some money to investors who had been unhappy with Cerberus’ deal with the automaker from the start.
Cerberus hasn’t had much success with the auto-lending business. In 2006, it purchased General Motor’s financing arm, GMAC. Back then, GMAC was responsible for the bulk of GM’s profits and looked like a healthy investment. But by 2008, auto sales began to slow, collapsing in the fall.
To help save GMAC, Cerberus had to give up control in late 2008 to enable GMAC to qualify for government bailouts. GMAC is now known as Ally Financial.
The auto-lending market is in a better position these days, and the value of used cars is picking up as the economy improves.
TD wants to expand its loan business and said the Chrysler Financial deal will give it access to technology that can process more than 2 million credit applications a year. It hopes to double the number of dealerships the auto lender offers leases to in the U.S. to 5,000.
The deal is the second U.S. acquisition in a week by a Canadian bank. On Friday, the Bank of Montreal announced it is buying Milwaukee-based bank Marshall & Ilsley Corp. for $4.1 billion in stock.
