TD bank to buy South Financial

Canada's TD Bank Financial Group Inc. said Monday it will buy South Financial Group for $191.6 million, adding 176 locations to the Canadian bank's holdings in the U.S. Southeast.

South Financial, which was the subject of Federal Reserve enforcement action on May 4, has incurred more than $1.3 billion in losses since 1998 because of loan charges related to real estate. The enforcement action prohibits the troubled bank from declaring or paying any dividends without approval from the Fed.

Canada's second largest bank said it will pay $61 million in cash or stock to shareholders, less than half the value of its shares before the announcement was made.

The U.S. Department of the Treasury will also sell to TD its $347-million worth of stock, warrants, and accrued but unpaid dividends for total cash consideration of about $130.6 million.

"In addition to the evaluation we came up with to pay shareholders, when we looked at the evaluation of the company with the metrics that we follow, it meant that we had to have this particular kind of deal with the U.S. Treasury," said Bharat Masrani, group head of U.S. Personal and Commercial Banking at the Canadian bank. He added this is the first time TD will pay the U.S. Treasury for an acquisition.

The Treasury's stake comes from its Capital Purchase Program, part of its troubled asset relief program for the 2008 U.S. financial system bailouts.

The Toronto-based bank said the transaction would give it a foothold in North and South Carolina _ two markets TD said were key for its U.S. expansion plans.

TD has been expanding into the U.S. over the past few years. In 2004 when it bought control of New England's Banknorth.

In 2007, it acquired New Jersey-based Commerce Bancorp for $8.5 billion, adding roughly 460 branches on the East Coast just before the global economic crisis hit.

Less than a month ago, TD agreed to buy the risky assets of three insolvent Florida banks worth $3.8 billion.

Riverside National Bank of Florida, First Federal Bank of North Florida and AmericanFirst Bank were all purchased with the help of U.S. Federal Deposit Insurance Corp.

TD Bank also has a stake in the broker TD Ameritrade, based in Omaha.

TD president and chief executive Ed Clark said the bank did not want to wait for the FDIC to take over the assets of South Financial because executives believed it could destroy asset some value.

TD Bank also plans to issue $250 million of common shares before the agreement closes for "prudent capital management."

TD Bank shares were down $1.25 to $72.14 in trading Monday on the Toronto Stock Exchange.