Magazine article American Banker

Inside Hudson, TD Finds A Card Unit to Build On

Magazine article American Banker

Inside Hudson, TD Finds A Card Unit to Build On

Article excerpt

Toronto-Dominion Bank discovered a gem in its U.S. banking operation's deal for Hudson United Bancorp -- a lucrative private-label credit card operation.

"We were very surprised how good the management team was and how well they were running it and how profitable it was," said W. Edmund Clark, Toronto-Dominion's chief executive officer, in an interview last week.

"It turned our thinking around. ... If Hudson United hadn't made that acquisition, I don't think you would have seen us getting into the card business. But that may be a space that we can continue to build."

Six months after buying a 51% stake in Banknorth Group Inc. of Portland, Maine, Toronto-Dominion is exploring expansion options here.

On July 12, TD Banknorth announced that it had agreed to pay $1.9 billion for Hudson United, of Mahwah, N.J. The idea was to boost revenue from the company's branches in wealthy parts of Connecticut and New Jersey. But now Mr. Clark sees the cards business as far more interesting than he originally thought.

In a luncheon speech to the Canadian Association of New York, Mr. Clark also said that though TD Banknorth would not buy again until the Hudson United deal closes early next year, it will start looking "soon thereafter."

In an interview after the speech, Mr. Clark also spoke of plans for the joint branch TD Banknorth and Toronto-Dominion's U.S. discount brokerage business, TD Waterhouse USA, opened in July as a pilot test in Braintree, Mass.

The bank-broker experiment will continue after Ameritrade Holding Corp. buys TD Waterhouse, Mr. Clarke said. (As a result of that stock deal, announced in June, Toronto-Dominion will own 32% of Ameritrade, whose name will change to TD Ameritrade.)

"The two transactions are very different," Mr. Clark said. "In the Ameritrade-Waterhouse deal it's, 'Can you get the cost out and keep the customers?' But in the case of Hudson United it's more revenue driven; ultimately, if all we do is getting the cost out but we don't turn the revenue story of Hudson United, then we have failed to exploit the gem."

The cards business is one such revenue opportunity, he said.

On June 30, Hudson United's card loans were up 30.4% from a year earlier, to $422.1 million.

"We routinely try to grow 20% a year ... and actually reduced our expenses significantly," said Thomas R. Nelson, a first senior vice president at Hudson United and the head of its cards business, in an interview Friday. "We have grown it to the point that in the private-label credit card business we are the seventh largest nationally."

William J. Ryan, TD Banknorth's chairman and CEO, said the unit has "great potential" and pledged to give the cards business more money for marketing. TD Banknorth, he said, will pitch private-label card opportunities to its commercial customers.

In interviews last week, Mr. Ryan, Mr. Clark, and Mr. Nelson said they intend to grow the cards business after the Hudson United acquisition takes place early next year. Toronto-Dominion's deep pockets may give TD Banknorth the means to expand the business, they said.

Anthony R. Davis of BankAtlantic Bancorp's Ryan, Beck & Co., said Hudson United "has the expertise and the technology to expand" but "not the balance sheet to grow." The cards business may well turn out to be one of the biggest opportunities of the TD Banknorth acquisition, he said. (Mr. Davis rates TD Banknorth's shares "market perform" and rated Hudson United "underperform" before he discontinued coverage after the companies announced their deal.)

Credit card businesses have been hot commodities this year, with Bank of America Corp. buying MBNA Corp., Washington Mutual Inc. …

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