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TCF Financial to Buy Gateway One

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Yesterday, TCF National Bank, a wholly-owned subsidiary of Minnesota-based TCF Financial Corporation announced its plan to acquire Gateway One Lending & Finance, LLC. TCF signed a definitive agreement for the acquisition, which is anticipated to be completed by the end of 2011, subject to customary closing conditions.

California-based Gateway One is a private lending company in the indirect auto finance market. The company is working with more than 3,100 active dealer relationships and originates loans to consumers in 30 states. As of September 30, 2011, the company had originated $214 million in auto loans and has a managed portfolio of $406 million.

As part of the deal, TCF will retain Gateway One’s experienced executive management team. J.P. Morgan Securities LLC, a division of JPMorgan Chase & Co., (JPM - Free Report) is serving as private financial advisor to TCF, while Morgan Keegan & Company Inc. is acting as financial advisor to Gateway One.

TCF Financial has a past track record of acquiring, assimilating and operating specialty finance businesses nationwide. With the acquisition of Gateway One, TCF Financial will be able to diversify its business and provide plenty of growth opportunities in the large U.S. auto lending market.

The company will be able to further grow high quality assets with solid risk-adjusted returns with the help of national specialty finance lending programs. Moreover, TCF Financial will have new revenue source and opportunities for balance sheet growth in the current challenging economic environment.

On the other hand, Gateway One is hoping to utilize financial capabilities of TCF Financial for pursuing growth opportunities. Moreover, dealers, customers and employees of Gateway One will even get the benefit of the financial strength of TCF Financial.

Estimate Revision Trends

TCF Financial is expected to release its third-quarter 2011 earnings on October 20, 2011. Over the last 30 days, 1 out of the 16 analysts covering TCF Financial has lowered the estimate for the second quarter, while none moved in the opposite direction. Furthermore, for 2011, 1 out of the 17 analysts has lowered the estimate, while two upward revisions were witnessed over the last 30 days.

Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of 21 cents per share, a decline of 19.71% from the year-ago quarter. Moreover, the Zacks Consensus Estimate for 2011 is operating earnings of 78 cents per share, down 25.38% from the prior year.

Furthermore, over the last 30 days, operating earnings estimate for the third quarter and 2011 have remained stable.

Our Take

We expect TCF Financial to maintain its superior position in the market based on its positive approach to market conditions and grasping growth opportunities. However, the regulatory reform and low interest rate environment might affect the company’s near-term results to some extent.

TCF Financial currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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