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Asset purchase expands TD's existing presence in North American cards
Transaction is financially attractive and consistent with TD's risk appetite
Opportunity to work with a top U.S. retailer
Oct. 23, 2012 /PRNewswire/ - TD Bank Group (TD) (TSX and NYSE: TD) today announced an agreement with Target Corporation (Target) (NYSE: TGT) under which TD will acquire Target's existing U.S. Visa and private label card portfolio, with a current gross outstanding balance of
US$5.9 billion. In addition, the two companies have entered into a seven-year program agreement under which TD will become the exclusive issuer of Target-branded Visa and private label consumer credit cards to Target's U.S. customers.
"Our agreement with Target will significantly expand our presence in the North American credit card business," said
Ed Clark, Group President and CEO, TD Bank Group. "We're excited to be working with Target's strong team and leading retail brand. 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."
This transaction provides TD with the opportunity to work with a top retailing franchise with an established card program that includes an industry leading rewards offering. Target's REDcard Rewards program, which has been experiencing strong growth in usage, offers U.S. customers a 5% discount on Target purchases. TD will acquire over 5 million active Visa and private label accounts and will fund the receivables for existing Target Visa accounts and all existing and newly issued Target private label accounts in the U.S.
"Target is very pleased to have reached this agreement with TD which is the result of extensive efforts by teams at both companies," said
Gregg Steinhafel, Chairman, President and Chief Executive Officer of Target Corporation. "This transaction achieves all of Target's strategic and financial goals for a portfolio sale. We look forward to working with this premier global financial institution to continue Target's long history of innovation in our guest-focused financial services strategy."
Under the terms of the program 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. In addition, TD will have a team on-site in
Minneapolis to work with existing Target staff in overseeing the program.
Additional details of the transaction
The acquired portfolio's credit quality is comparable to industry benchmarks. The REDcard value proposition is compelling and attracts customers with above average credit characteristics. TD expects to originate new private label accounts at a rate consistent with Target's recent experience. The new private label portfolio will have lower average balances per account than the legacy Visa portfolio.