TD to acquire Target’s U.S. credit card portfolio

TD Bank Group will acquire Target’s existing U.S. Visa and private label card portfolio, with a gross outstanding balance of US$5.9 billion. The deal is expected to close in the first half of 2013.

Also, the two companies have entered into a seven-year agreement. TD will become the exclusive issuer of Target-branded Visa and private label consumer credit cards to U.S. customers. Currently, there are about 5 million active accounts.

Read: TD reports record quarter earnings

“This asset purchase aligns perfectly with our risk profile and strategy, and will contribute to achieving our stated adjusted earnings target of US$1.6 billion from our U.S. P&C segment in 2013,” says Ed Clark, group president and CEO, TD Bank Group.

TD expects its Tier 1 capital ratio to decrease by approximately 20 bps on closing, on a pro forma basis as at TD’s last quarter ending July 31, 2012, and its common equity tier 1 ratio to decrease by approximately 14 bps under Basel III on a fully phased in basis. In addition, TD expects the portfolio to produce a return on assets of approximately 100 bps in the first year. The transaction will be funded with available resources.

Read: TD appoints new strategic advisor

Under the terms of the agreement, TD and Target will share in the profits generated by the portfolios, with Target having the more substantial interest. Target will be responsible for all elements of operations and customer service and will bear most operating costs to service the assets. TD will control risk management policies and regulatory compliance, and will bear all costs related to funding the portfolio. TD will have a team on-site in Minneapolis to work with existing Target staff in overseeing the program.

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