DBRS Comment: TD Ratings Unchanged Following Acquisition of Chrysler Financial

DBRS believes the acquisition of Chrysler Financial will not have a material impact on the earnings and modest impact on the capital of The Toronto-Dominion Bank (TD). The risk profile for TD remains solid, notwithstanding the execution risk concerns of growing in the auto finance business. As such, there are no rating implications for TD at this time.

DBRS believes this transaction is consistent with TD’s desire to enhance the deposit franchise of TD Bank, America’s Most Convenient Bank (TD Bank) by growing TD Bank’s loan book. TD Bank will acquire Chrysler Financial in the United States, while TD will acquire Chrysler Financial in Canada. Following the acquisition, TD will be positioned to be the fifth-largest bank-owned auto lender in North America.

This transaction is expected to have some risk concerns given the following: (1) restarting the origination process and (2) the residual nature of auto lending credit risk (although this is somewhat mitigated as the focus of Chrysler Financial has been in the prime market). Additionally, the transaction is expected to have only a very modest impact on TD’s capital. Its Tier 1 capital ratio is expected to decline by 55 to 60 basis points on a pro forma basis. The Tier 1 capital ratio was 12.2% at Q4 2010.

TD is paying $6.3 billion cash for the transaction and will acquire a portfolio of approximately $7.5 billion in assets. Management has indicated the acquisition is expected to be neutral to earnings in 2011 and add $100 million in 2012, on an adjusted basis. The transaction is expected to close during fiscal Q2 2011, pending regulatory approvals and closing conditions.

DBRS believes one of the challenges facing TD is the extensive execution work over the next year as a result of recent acquisitions (The South Financial Group, Inc., Riverside National Bank of Florida, First Federal Bank of North Florida and AmericanFirst Bank). TD’s breadth of integration experience and a proven track record will mitigate this concern.

Based in Toronto, Canada, The Toronto-Dominion Bank has a full-service banking operation in retail and wholesale banking and wealth management in Canada, U.S. retail banking and global discount brokerage. In Canada, TD has one of the largest personal banking operations, with ten million customers.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Global Methodology for Rating Banks and Banking Organizations, which can be found on our website under Methodologies