Toronto-Dominion Bank said it will consider buying assets similar to its purchase of Chrysler Financial Corp. to bolster U.S. operations amid signs of a "modest" turnaround in the world's largest economy.
The $6.3 billion purchase of auto loans from Cerberus Capital Management LP last year is "a great example of an asset class that we really like," Chief Financial Officer Colleen Johnston said yesterday in an interview at Bloomberg's New York headquarters. "We're continuing to think about acquiring assets and we continue to look."
Canada's second-largest bank is betting on a recovery in the U.S., which accounted for about a quarter of the bank's revenue last year. The lender has spent more than $25 billion on U.S. acquisitions since 2004, building a series of branches that's bigger than its Canadian network, spanning from Maine to Florida.
"I think some of the legacy issues that have been plaguing the U.S. are actually starting to become a bit more positive," Johnston said. "You think about tighter credit, you think about the housing market being relatively weak -- we're starting to see some modest recovery in all of those areas."
The lender is unlikely to stray from the U.S. Northeast, with branches that offer free coin-counting machines, treats and water bowls for dogs. The Toronto-based bank said it will become the third-largest lender by branches in New York City in the next four years by adding about 50 more locations.
"We've got huge potential in the United States if you think about the major markets of New York, Philadelphia, Washington, Boston, Miami," said Johnston, 54. "We think there's lots of potential to intensify our presence in these major markets."
Toronto-Dominion began its U.S. expansion by buying a stake in Portland, Maine-based Banknorth Group Inc. and has made six additional purchases since then.
"We've only been in the U.S. for seven years," said Johnston. "We don't have aspirations to grow the bank on a national scale. We think this footprint makes sense for us."
Asset purchases such as Chrysler Financial help to narrow the gap between Toronto-Dominion's U.S. deposit base and its assets. Toronto-Dominion would also consider credit-card portfolios, Johnston said.
"We're still growing our balance sheet at a rate much faster than U.S. banks," she said. "So organic growth is still in the double-digit territory; we're growing our assets and our deposits currently by about 10-plus percent."
Toronto-Dominion forecast profit of C$1.6 billion ($1.57 billion) by 2013 from its U.S. businesses, which include consumer banking, investment banking and a stake in TD Ameritrade Holding Corp. The bank had U.S. consumer-banking profit of C$1.27 billion in 2011.
Johnston, named in March Canada's CFO of the Year by Financial Executives International Canada, PricewaterhouseCoopers LLP and Robert Half International, said the lender will have to "work hard" to reach the lower end of a 7 percent to 10 percent profit growth target this year.
The bank said it plans to reach its profit goals by continuing to slow the rate of expense growth, a strategy Johnston began last year.
"The reality is that revenue growth is clearly slowing down," said Johnston. "What that means is we need to be able to slow down our rate of expense growth to something in the low single digits, but still invest for the future."
Toronto-Dominion is expected to increase its quarterly dividend 4.2 percent to 75 cents a share, according to Bloomberg Dividend Forecasts. The bank is scheduled to report fiscal third-quarter results on Aug. 30.
Johnston, a triathlete who joined Toronto-Dominion in 2004, said the bank has "room to move" within its projected dividend payout ratio of 35 percent to 45 percent of earnings. The bank's dividend yield, or the dividend relative to stock price, is the lowest of the country's six biggest banks, at about 3.8 percent.
"In an ideal world, we do like to think about dividend increases every couple of quarters," Johnston said. "Our investors like more regular increases."
Johnston disagrees with Sanford "Sandy" Weill, the former Citigroup Inc. chief executive officer who said yesterday it's time to dismantle the nation's largest lenders.
"We are believers in the universal banking model, and we think there's lots of value," she said. "Having said that, we are definitely fans of a safer business model that is more customer and client driven.”