[Robillard]

In other news today, it looks like RBC is intent on buying Ally Financial's Canadian operations for about $4 billion.

http://www.reuters.com/article/2012/10/22/allyfinancial-canada-idUSL1E8LMBZW20121022

Comments?

 

[andrewf]

Losing another high interest savings account provider.

The upside is that these seem easy to set up these finds of banks. Hopefully some new entrants will pop up to replace ING and Ally.

 

[CanadianCapitalist]

I don't like the Ally acquisition because Ally currently offers one of the highest interest rates around. I'd expect the interest rates to go down once RBC gets its hands on the bank.

 

[CanadianCapitalist]

It's a done deal now. RBC has acquired Ally.

http://www.rbc.com/newsroom/2012/1023-announce.html

 

[andrewf]

Boo.

 

[Square Root]

Another reason to buy(and hold) the banks. TD has purchased Target's CC portfolio in the US as well as partnering in other unspecified ways. $5-6billion in receivables. Presumably they will also issue the CC's when Target comes to Canada next year. Both RY and TD are down big today. This probably reflects the normal deal announcement declines. Interesting times.

 

[Sampson]

I'm surprised everyone thinks this is negative. Many of the same posters were neutral and saying, lets see what happens with the ING Canada acquisition.

Do you guys believe it is simply in the big 5's nature to increase margins at the expense of losing some customers.

 

[Young&Ambitious]

Didn't ING's savings rates get slashed upon their takeover? As Ally is now moreso one of the few higher-interest savings/chequings providers, why wouldn't RBC reduce this a bit to increase their own revenues.

 

[Echo]

@Young&Ambitious - ING's savings rates did not get slashed upon their take over. That said, they haven't had the highest rates for a while now. I believe the savings account rate dropped from 1.5% to 1.35% earlier this year.

@Square Root - It was RBC, not TD, who purchased Target's CC portfolio. They will be releasing an RBC Target MasterCard when the Target stores start opening next year - http://www.rewardscardscanada.com/target-rbc-mastercard-in-the-works/

 

[andrewf]

No one cared about ING because ING was no longer very competitive in HISAs when Scotia acquired them.

 

[Sampson]

@Square Root - It was RBC, not TD, who purchased Target's CC portfolio. They will be releasing an RBC Target MasterCard when the Target stores start opening next year - http://www.rewardscardscanada.com/target-rbc-mastercard-in-the-works/

Not true. TD purchased the underlying portfolio and assets. RBC releasing a Target MC doesn't mean they own Targets lending portfolio.

As a customer, I don't really care. As an investor of both RBC and TD, I'm worried.

Seems like they are stretching/reaching to diversify. Their core strategies have not been working (asset management and lending into capital markets for RBC) so they are looking elsewhere. Makes me nervous especially since neither of these acquisitions can be clearly called good to excellent.

Seems like competition among Canadian banks and a pile of cash has led to 'fair-value' acquisitions at a time where it appears things may go south again in the economy.

 

[Echo]

@Sampson - you're right, my mistake - http://www.bloomberg.com/news/2012-...n-buying-spree-to-bolster-slowing-profit.html

 

[Cal]

If the rate drops substantially, I move my money. Its that simple.

 

[Robillard]

On the issue of TD acquiring Target's credit card portfolio, I'm a little concerned. Consumer finance is a great segment for a bank to be in during an economic expansion, when everyone makes their loan payments and you rake in the money hand-over-fist. But it really stinks when the party is over, and you have to write down large portions of the loan portfolio. I hope that TD got a good price for the the credit card portfolio, and for the Chrysler finance assets that they bought earlier.

I note that HSBC is exiting the consumer finance business, as they already got burned by this market segment in the financal crisis.

 

[Sampson]

I hope that TD got a good price for the the credit card portfolio, and for the Chrysler finance assets that they bought earlier.

This is just it, they did not, paid book value. Meanwhile, the market thinks Target got a good deal.

 

[Square Root]

A purchase of a CC portfolio is always preceded by a thorough due diligence review. I participated and ran many of these when I was working. TD is very aware of the risks associated with such a portfolio. They usually insist on a clawback of losses above a certain level to protect themselves. I am quite sure they acted prudently with this purchase. Their purchase of Chrysler financial has worked out quite well so far. Paying book value for a well performing asset (ROE usually in excess of 20%) sounds like a reasonable cost to the buyer to me?

Any business that grants credit can be run well or not well. The ones that are run well with good underwriting standards can be very profitable. Obviously, if you don't run it well you can blow your brains out. The Cdn banks have done pretty well recently much better than most of the other international banks.

The market is never wrong, but it changes its mind frequently. I am betting on TD.

 

[Sampson]

The Cdn banks have done pretty well recently much better than most of the other international banks.

Based on what metric. Give it 5 years, and an acquisition like Well's Fargo's dime discount, government sponsored purchase of Wamu is infinitely better than buying at book value.

I trust TD's management to an extent, but these buys (Ally and the Target credit) are neither fortuitous, nor do they fit into either company's stated strategies.

 

[sags]

It will be interesting to watch what TD does with Ally.

As an example, GM owned GMAC and could set their own lending criteria for customers. They moved a lot of cars to subprime borrowers. After they sold GMAC, they discovered they couldn't sell cars, because a lot of their customers didn't qualify for a loan with the new lenders.

So, they acquired their own lender again, and lowered the lending requirements.

The question is if TD will maintain the bank's lending criteria to Ally financing, or go after the business auto subprime lenders, such as Carfinco or Cash for Cars, are presently doing. These secondary lenders are charging over 30% a year interest and install a GPS tracker in the car which can turn the car off if payments are in default. Their loan default rate is very low.

If TD just absorbs Ally into their business and sets the borrowing standards at the same level as the banks......what do they gain?

 

[Square Root]

Based on what metric. Give it 5 years, and an acquisition like Well's Fargo's dime discount, government sponsored purchase of Wamu is infinitely better than buying at book value.

I trust TD's management to an extent, but these buys (Ally and the Target credit) are neither fortuitous, nor do they fit into either company's stated strategies.

I totally disagree with your statement on strategy. These deals are right on their stated stategies. What do you think their stategies are? The CDN banks have certainly outperformed virtually all internationally comparable banks over the last 5 years based on any metric. Incidently,the RY deal was well in excess of BV and generally well liked by analysts. The TD deal was less significant as it was more of a partnership with Target with the benefits split(mostly to Target). The partnership lasts for 7 years.

 

[Square Root]

@Sags RY got Ally, TD partnered with Target