The deal is the latest example of a healthy Canadian bank using their muscle to snap up U.S. institutions battered by the financial crisis.
Toronto-Dominion CEO Ed Clark said Canada's second-largest bank is looking to accelerate their growth in the U.S.
"The Chrysler Financial acquisition delivers that for us," he said on a conference call with analysts. "With this deal we are positioned to become a top five North American auto lender."
Cerberus acquired the lender when it bought most of the automaker for $7.4 billion in 2007. Cerberus lost control of Chrysler when the automaker nearly ran out of cash and faced liquidation in 2008.
The automaker was saved by a U.S. government bailout. It went through bankruptcy protection last year, and the government turned control over to Italy's Fiat SpA. Cerberus kept ownership of Chrysler Financial.
TD wants to expand its loan business, and said the deal will give it access to technology that can process more than 2 million credit applications per year. The auto lending market hasn't taken as much of a hit as other kinds of consumer loans over the last several years. And the value of used cars is picking up as the economy improves.
The deal is the second U.S. acquisition in a week by a Canadian bank. Last Friday the Bank of Montreal announced it is buying Milwaukee-based bank Marshall & Ilsley Corp. for $4.1 billion in stock.
Canadian banks are investing in the U.S. from a position of strength, as they weathered the economic crisis far better than their counterparts in other countries. In a concentrated banking system dominated by five major players, Canadian banks have been looking across the border to find growth opportunities.
Toronto-Dominion Bank has expanded its U.S. presence in recent years with the purchase of New Jersey-based Commerce Bancorp in what has been its largest acquisition. TD also bought smaller, troubled banks in the Carolinas and Florida such as South Carolina-based South Financial Group. Earlier this year, TD agreed to buy the risky assets of three insolvent Florida banks worth $3.8 billion. TD didn't have a presence in U.S. six years ago, but now has about 1,300 branches in the U.S. compared to about 1,100 in Canada.
TD Bank expects to rebrand Chrysler Financial under the TD name by spring 2011. The acquisition is expected to add about $100 million in adjusted earnings in 2012, the first full year of operations.
The deal should close in TD's fiscal 2011 second quarter, the companies predict, pending regulatory approvals and other conditions. Chrysler Financial will maintain its Toronto headquarters and its top executive, CEO Tom Gilman, after the deal closes.
A TD spokesman said the purchase is comprised of net assets of US$5.9 billion and approximately US$400 million in goodwill.
Shares of TD rose $1.28, or 1.8 percent, to $70.79 in morning trading on the New York Stock Exchange.
Samantha Bomkamp contributed from New York.