TD Bank’s acquisition of Chrysler Financial is getting a better reaction from analysts than Bank of Montreal’s recent U.S. deal did.

TD (TSX:TD) announced Tuesday that it has signed a deal to buy Chrysler Financial from U.S. private equity firm Cerberus for $6.3 billion in a bid to grow its auto lending business across North America.

The rating agencies that have commented on the proposed deal indicate that it will not have any rating implications for the bank. DBRS says that it believes the acquisition will not have a material impact on TD’s earnings, and only modest impact on its capital position. It estimates that TD’s Tier 1 capital ratio will decline by 55 to 60 basis points on a pro forma basis, as a result of the deal. “The risk profile for TD remains solid, notwithstanding the execution risk concerns of growing in the auto finance business,” DBRS says.

Fitch Ratings echoes that view, affirming its ratings of TD, saying that the acquisition fits with TD’s consumer banking strategy in both the United States and Canada. Fitch says TD will integrate the auto finance business into its existing bank businesses in the U.S. and Canada, and expects to fund future originations on balance sheet, leveraging its strong core deposit base.

“Asset quality indicators remain very manageable, with low levels of gross impaired loans. TD expanded its U.S. operations with opportunistic acquisitions, including some FDIC-assisted transactions. Capital levels compare reasonably well to global peers, although they will decline slightly with this transaction,” Fitch says.

DBRS adds that it sees the transaction as consistent with TD’s desire to enhance the deposit franchise of the bank by growing its loan book. “This transaction is expected to have some risk concerns given the following: restarting the origination process, and 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),” DBRS adds.

UBS Securities Canada Inc. points out that the Chrysler Financial operation is not profitable and needs to be revived. “However, the price appears fair with good opportunity for growth and leverage of funding/deposits, which is the key rationale,” UBS says. “In this context, risk appears moderate, and price and capital impact appear to provide satisfactory risk/returns.” It says that main risk is execution.

Indeed, DBRS says that it believes one of the challenges facing TD is the extensive execution work it faces 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, it adds.

CreditSights Inc. notes that the deal is the second major U.S. acquisition for a Canadian bank in less than a week. “So it seems that the Canadian banks, having emerged from the crisis in good shape, and are acting quickly to add to their U.S. banking platform as properties become available,” it says. “We cannot rule out that the remaining Canadian banks could consider further bank acquisitions in the U.S.”

It suggests that Royal Bank may be the most likely to consider a U.S. bank acquisition, “although at the moment it is more focused on building out its capital markets effort”, CreditSights says. Additionally, it says that Scotiabank and CIBC are less likely to undertake U.S. deals, as Scotia is more focused on emerging markets and CIBC is concentrating in Canada.

IE