Toronto-Dominion Bank Chief Executive Officer Edmund Clark said the bank may “surprise” investors this year with the performance of its U.S. consumer bank and the growth of auto lender Chrysler Financial Corp.
“I think we will surprise the market with how well we’ll do operationally,” Clark said yesterday in an interview at Bloomberg’s headquarters in New York.
Under Clark, Toronto-Dominion has spent more than $25 billion on U.S. acquisitions since 2004, including an agreement in December to buy Chrysler Financial from Cerberus Capital Management LP for about $6.3 billion, Bloomberg reported.
Chrysler Financial will become a top 10 auto lender in the U.S. within three to four years, increasing its assets to about $20 billion to $30 billion, from $7.5 billion when the deal closes, Clark said. Chrysler is adding about 200 dealers a week to its network, and will finance loans for buyers of all car brands, he said.
“Chrysler will be positive, and I think the U.S. market is coming back,” said Clark, 63. “There is a new mood of optimism.”
Toronto-Dominion set a profit target of $1.6 billion a year from its U.S. businesses by 2013, and told investors in December that it may surpass that. Canada’s second-biggest bank had $1 billion in U.S. profit in the fiscal year that ended Oct. 31.
Chrysler Financial will add $100 million to the bank’s earnings by 2012, and it expects new loan originations of about $1 billion a month the following year. The Chrysler transaction is scheduled to close in the fiscal second quarter, pending regulatory approvals.
Managing Demand“Our issue will be managing demand,” as the car industry recovers, said Clark. “People will give up their house but they won’t give up their car because if they give up their car they lose their job.”
Ally Financial Inc., the auto and home lender majority- owned by U.S. taxpayers, reported a fourth straight quarterly profit yesterday as the mortgage unit became profitable and car and truck financing gained.
“The risk of a car loan is higher than it would be in a secured loan of a different kind of lending, but the margin is also better,” said Robert Sedran, an analyst at CIBC World Markets in Toronto. “So I still think it’s an attractive business” for Toronto-Dominion.
The auto lending expansion will help Toronto-Dominion match its growing deposit base with more U.S. assets, narrowing an $80 billion gap between the two, Clark said.
Clark said the U.S. economy is starting to rebound, with increasing demand for mortgages, credit cards and corporate loans.
Sea Change“The big sea change has been in the commercial market,” he said.
Convinced that there were limited opportunities to expand in Canada -- where large domestic banks are blocked from merging with each other -- Clark set his sights on the U.S. in 2004. The bank’s largest purchase was in March 2008, when it bought Cherry Hill, New Jersey-based Commerce Bancorp for about C$8.5 billion.
The bank operates in 16 states from Maine to Florida, where head of U.S. operations Bharat Masrani uses a strategy called “retail-tainment” to attract and retain clients. Stores, as they are called, feature coin-counting machines, drive-through teller lanes, free pens, lollipops and piggy banks, and water bowls and treats for dogs.
Clark, who plans to retire in 2013, said he won’t be “disappointed” if the bank doesn’t make any acquisitions in 2011. The bank will open about 30 to 50 U.S. branches this year and will look at “small” purchases in the Southeast, particularly Florida.
AcquisitionsThe bank is targeting lenders with assets of as much as $20 billion.
“Right now, we’re in the $10 to $20 billion range,” Clark said in an interview with Bloomberg Television. “We don’t describe that as big relative to our overall balance sheet.”
Clark said the recent acquisitions in the U.S. give it “critical mass” to avoid the mistakes of other Canadian lenders that have been less aggressive with their U.S. expansion.
“You need to go big or stay home,” he said. “You don’t want to be stuck in this mid-sized space.”
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