Canada’s TD Bank acquires Target’s credit card operation

Canada’s Toronto-Dominion Bank (TSE:TD), or TD Bank, said it has reached a deal to purchase the existing US Visa and private label card portfolio of Target Corp (NYSE:TGT) for an undisclosed amount.

The particular US credit card portfolio has a current gross outstanding balance of USD5.9bn (EUR4.6bn). Its acquisition fits well with TD Bank’s risk profile and strategy and is expected to help the buyer achieve its earnings target of USD1.6bn from the US P&C segment in 2013, group president and CEO Ed Clark stated. He also noted that the agreement will significantly grow TD Bank’s presence in the North American credit card business.

The parties have also agreed to a seven-year programme as part of which TD Bank will act as the exclusive issuer of Target-branded Visa and private label consumer credit cards to the latter’s US clients. Under the terms of this programme deal, the two companies will share the profits generated by the portfolios, but Target will have the more substantial interest.

As part of the transaction, which will be financed with available resources, TD Bank will acquire more than five million active Visa and private label accounts and will fund the receivables for the existing Target Visa and private label accounts in the US. The purchase is pending regulatory clearance and is anticipated to close in the first half of next year.

The Canadian entity estimates that its Tier 1 capital ratio will drop by about 20 basis points on completion, on a pro forma basis as at its last quarter to 31 July 2012. Its common equity Tier 1 ratio is seen to go down by some 14 basis points under Basel III on a fully phased in basis. Furthermore, the acquired portfolio is expected to result in a return on assets of around 100 basis points the first year.