Canada banking powerhouse Toronto-Dominion Bank (NYSE: TD) just showed us today that the Bank of Montreal (NYSE: BMO) isn’t the only Canadian financial stock doing some holiday shopping. Toronto-Dominion Bank will buy Chrysler Financial Corp. for $6.3 billion in cash, according to reports this morning.
The auto-finance arm that was formerly part of the U.S. automaker of the same name went defunct in 2009 along with the rest of Chrysler and has been under the stewardship of private equity firm Cerberus Capital Management LP.
The move is meant to give TD a clear edge in the auto loan marketplace, and a sign that the company is looking to the future. The all-cash deal is also a sign that the bank is doing pretty well right now. Of course, it’s worth noting that despite all this cash on the books that Toronto-Dominion Bank missed Q3 its earnings forecast and has seen shares slide about -6% in the past 90 days while the broader market has tacked on nearly +10%.
But value investors know that the time to buy is at the bottom, not when momentum is peaking. It appears banks are thinking the same thing – and buying out other financial firms to strengthen their prospects for 2011.
The TD move comes after the Bank of Montreal (NYSE: BMO) made a deal to acquire Marshall & Ilsley (NYSE:
MI) for a 34% premium of $4.1 billion in stock. Though The Wall Street Journal mused today that the move has the feel of a “shotgun marriage” to repay TARP funds, regional bank shares rallied on the hopes of other takeovers to follow.
But whatever the motivation – either pressure from the Treasury or strategic growth plans from BMO and TD – the upward lift to regional financial stocks is undeniable. The iShares Dow Jones U.S. Regional Banks ETF (NYSE: IAT) is up nearly +12% so far in December – double the broader market. And more merger news amid the annual “Santa rally” could mean big gains for the financial sector.
That’s a holiday gift investors can appreciate after a rough 2010 for most bank stocks.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow Jeff on Twitter at http://twitter.com/JeffReevesIP.
