NEW YORK – Canada’s Toronto-Dominion Bank is expanding its U.S. mortgage lending by holding loans on its books – a business model U.S. banks are just starting to revive as policy makers seek to reduce the government’s dominant role.
Toronto-Dominion, Canada’s second-largest bank, made about $8 billion of home loans in the past 12 months through its U.S. unit, known as TD Bank, according to Malcolm Hollensteiner, the division’s director of retail lending sales and production. It retained almost all of that debt, more in keeping with Canadian practices, and in contrast to most U.S. banks, which usually package their originations into government-backed securities.
U.S. regulators and lawmakers want to draw more private capital into the $9.3 trillion market after the fallout from the housing crash left taxpayer-backed programs financing about 85 percent of new loans. TD Bank, which operates on the East Coast, where it’s open seven days a week and late into the evening, is among lenders flush with deposits that are chipping away at the government’s share. The bank plans to hire 140 loan officers to more than double staff and bolster originations as higher interest rates choke off refinancing, Hollensteiner said.
“We’re an institution that’s interested in growing,” he said in a telephone interview. “We’re still a very young player on the scene.”
Toronto-Dominion’s success in the market is poised to become even more important to the company with Canadian consumers’ record debt burdens set to stifle borrowing in its home country, according to Barclays Plc analyst John Aiken.
The Toronto-based company began its U.S. expansion in 2004, with the announcement it would acquire 51 percent of Portland, Maine-based Banknorth Group Inc. for about $3.8 billion, and about two years later said it would buy the rest. It agreed in 2007 to purchase Cherry Hill, N.J.-based Commerce Bancorp Inc. for $8.5 billion and added South Financial Group Inc. in May 2010 for about $61 million.
Along the way, TD Bank embraced Commerce’s branding as “America’s Most Convenient Bank” and its unusual branch hours - including being open as late as 8 p.m. on weekdays and on Sundays when other banks are closed.
The result has been “what normally would be a great problem: an amazing deposit-gathering capability,” said Peter Routledge, a Toronto-based analyst at National Bank Financial. The catch is that the cheap funding needs to be used to lend to maintain the margins of the business, and the banks it acquired weren’t as good at adding loans, he said.
In response, TD Bank also agreed in December 2010 to buy auto lender Chrysler Financial Corp. for about $6.3 billion from private-equity firm Cerberus Capital Management LP, and this year acquired $5.7 billion of credit-card balances from Target Corp. and entered into an agreement to help provide new debt to the retailer’s customers.