Monday, January 07, 2008

TD Bank & Commerce Bancorp Amend Deal

Reuters, 7 January 2008

Commerce Bancorp Inc , New Jersey's largest bank, on Monday said it has settled shareholder lawsuits over its planned $8.5 billion acquisition by Canada's Toronto-Dominion Bank , and said it expects fourth-quarter credit losses to increase.

In a regulatory filing, Cherry Hill-based Commerce said it reached an agreement that would reduce the fee it would pay if it backed out of the stock-and-cash merger, to $255 million from $332 million.

In exchange, it said the plaintiffs would dismiss their federal and state claims, including those against former Chief Executive Vernon Hill.

The settlements were reached after mediation before retired Magistrate Judge Joel Rosen of the U.S. District Court in New Jersey, and require final documentation and court approval, Commerce said.

Commerce also said it expects to set aside $50 million to $60 million for credit losses in the fourth quarter, up from $26 million in the third quarter.

It attributed the increase to a large loan transferred to non-accrual status, residential and other real estate exposure, and exposures to leveraged loans in its commercial portfolio.

Commerce announced the takeover by Toronto-Dominion on October 2, barely three months after it announced Hill's departure following the disclosure of a variety of dealings involving him and his family. The bank has said it faces a U.S. Securities and Exchange Commission probe into those dealings.

Toronto-Dominion's purchase of Commerce would nearly double the U.S. presence of Canada's second-largest bank, which previously bought TD Banknorth of Portland, Maine and Hudson United Bancorp of Mahwah, New Jersey. Commerce on Monday set a February 6 meeting for its shareholders to vote on the merger.
Bloomberg, Jeff Kearns, 7 January 2008

Toronto-Dominion Bank fell to a six-week low on speculation Canada's second-largest bank may write down loans tied to the subprime mortgage market.

Toronto-Dominion spokesman Simon Townsend said in an e-mailed statement that "TD does not have any direct or indirect exposure to U.S. subprime mortgages." The Toronto bank's shares fell C$1.46, or 2.2 percent, to C$65.66 in Toronto trading.

Options traders increased their bets that the stock will continue to decline.

"They're supposedly going to be taking a writedown related to their subprime and collateralized debt obligation exposure,'' said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages $5 billion in San Antonio. ``We're hearing it's going to be $11 billion.''

In Canadian options trading, contracts that convey the right to sell the shares at C$62 before Jan. 18 were the most active. Those contracts, which require a 5.9 percent share-price drop to reach their strike price, more than quadrupled to 45 cents in Montreal trading.

Bearish options bets outnumbered bullish ones, or calls, by 2-to-1 in Canada and 34-to-1 in U.S. trading. Puts trading volume in the U.S. surged to 10,537 contracts, or 29 times the 20-day average.

``There are rumors of a writedown,'' said Steve Sosnick, equity risk manager at Timber Hill LLC, the options market-making unit of Interactive Brokers Group. ``I'm seeing very active put buying of TD options in both Canada and the U.S. and for TD this is unusual activity."
The Globe and Mail, Tara Perkins, 7 January 2008

Shares of Toronto-Dominion Bank slumped Monday on speculation that the lender had substantial undeclared exposure to the subprime mortgage mess, a notion the bank staunchly denies.

TD chief executive officer Ed Clark has spent the past few months reminding anybody who will listen that his bank has avoided the subprime debacle, but a rumour swept through the market Monday morning that the bank could have as much as $12-billion of exposure through complex derivatives.

The speculation was that the bank got the exposure through Commerce Bancorp, a U.S. lender that TD is acquiring, and with so many rumours about banks coming true, some investors were inclined to believe the tale.

At their lowest, TD shares dropped as much as $2.12 each, or 3.2 per cent, to $65 on the Toronto Stock Exchange.

However, officials of both banks denied any subprime exposure. Commerce Bancorp's director of investor relations, Edward Jordan, said Monday that the New Jersey-based bank has no exposure to subprime mortgages.

"We don't have any subprime," he said.

Late in the afternoon, TD issued a statement saying it does not have any direct or indirect exposure to U.S. subprime mortgages, and that, based on its continued due diligence, Commerce Bancorp also has no direct or indirect exposure in its investment portfolio and has only nominal exposure in its loan portfolio.

"TD continues to be comfortable with the credit quality of Commerce's investments and loan portfolios," TD stated.

Commerce did disclose in a filing with regulators yesterday that it expects to book a fourth-quarter charge in the range of $50-million (U.S.) to $60-million in relation to credit losses, up from $26-million in the third quarter. The charge stems partially from real estate exposures, and exposures in the leveraged loan part of the bank's portfolio.

TD's stock closed down 2.18 per cent, or $1.46 (Cdn) at $65.66 on the Toronto Stock Exchange.
The Globe and Mail, Tara Perkins, 4 January 2008

Toronto-Dominion Bank and the New Jersey bank that it's buying have entered into a settlement agreement to put to rest a number of lawsuits that had been filed on behalf of the target bank's shareholders.

As part of the agreement, they will make changes to some aspects of the $8.5-billion (U.S.) takeover deal, including reducing the break fee that Commerce Bancorp Inc. of Cherry Hill, N.J., would have to pay TD if the takeover falls through.

In regulatory filings yesterday, Commerce disclosed that 10 purported shareholder class-action suits against it had been filed since it announced on Oct. 2 that it had struck a deal to be taken over by TD.

All of the suits named Commerce and some of its executives and directors; seven of the suits also named TD Bank.

The suits, which were consolidated in the New Jersey Superior Court, alleged that TD was not paying enough for Commerce, which was accused of not doing enough to maximize shareholder value. Plaintiffs then took their claims to the federal court in New Jersey, where TD was accused of aiding and abetting a breach of fiduciary duty.

"Although Commerce and TD believe that these lawsuits are without merit, they sought a settlement in order to avoid the burdens and expenses of further litigation," Commerce's proxy statement said.

They negotiated from Dec. 28 to Dec. 31, when they reached a settlement agreement that was put to the court on Jan. 2.

It led to TD and Commerce making additional disclosures about their deal. They also agreed to change the break fee, chopping it to $255-million from $332-million.

The proposed settlement is still subject to court approval.
Bloomberg, Jesse Westbrook, 2 January 2008

A Toronto Dominion Bank unit, trying to prevent investor losses, received regulators' approval to buy $300 million in mortgage-linked securities out of one its money market funds.

The U.S. Securities and Exchange Commission won't object if Toronto Dominion's TD Asset Management USA Inc. purchases ``trust certificates'' held by the fund, the SEC said in a Dec. 21 letter released by the agency. The certificates, which may trigger losses if the underlying home loans default, account for about 1.6 percent of the fund's total assets.

Toronto Dominion, Canada's second-largest bank, joins Legg Mason Inc. and Bank of America Corp. in trying to bolster money- market funds whose holdings have plunged amid the worst U.S. housing slump in 17 years. The bailouts are aimed at keeping funds from falling below the $1-a-share threshold promised to investors. That can shake confidence and spur withdrawals.

``The Company's board of directors has authorized the proposed transaction as being in the best interest of the fund and its shareholders,'' TD Asset Management said in a Dec. 21 letter to the SEC.

The trust certificates, issued by Corsair Trust I-1020, are held by TD Asset Management's TDAM Money Market Portfolio. TD Asset Management sought permission to buy the certificates after determining ``the absence of liquidity in the market'' may have prompted losses.

Corsair is a limited-purpose finance company, similar to a structured investment vehicle, TD Asset Management spokeswoman Lisa Hodgins said. The trust certificates, which included a credit-default swap, were a ``non-material holding'' for the TDAM Money Market Portfolio, she said in an interview.

SEC spokesman John Nester declined to comment.

SIVs, popular investments for money funds looking to increase yields, sold commercial paper or medium-term debt backed by subprime mortgages. SunTrust Banks Inc. and Bank of America have propped up funds with SIV-issued debt in the past month.

Atlanta-based SunTrust received SEC approval in October to prop up two money-market funds if they suffered losses on $115 million in medium-term notes issued by an SIV. Last month, SunTrust injected $1.4 billion into the funds.