Toronto-Dominion Bank (TD) is seeking to replace Canadian Imperial (CM) Bank of Commerce as the main credit-card partner for Aimia (AIM) Inc.’s Aeroplan loyalty program.
Under a conditional agreement, Toronto-Dominion would be the primary card issuer for Aeroplan starting Jan. 1, according to statements from the companies today.
Canadian Imperial, the country’s fifth-biggest bank by assets, said in March that it’s exploring options as it negotiates with Aimia before their agreement expires at year end. The 22-year partnership has made the CIBC Aerogold Visa the bank’s most popular credit card. Montreal-based Aimia counts CIBC as its biggest partner.
Toronto-Dominion, Canada’s second-largest lender, would commit C$100 million ($96 million) to the loyalty program and agree to minimum annual miles purchases. Aeroplan’s loyalty partners include Air Canada, the country’s biggest airline.
“TD announced that it did not anticipate that the agreement would have a material impact on 2014 earnings, however, it remains positive on the outlook for 2015,” John Aiken, a bank analyst with Barclays Plc, said in a note. “Signing the agreement fits in quite well with TD’s strategy to focus on assets and should complement the growth of the MBNA card acquisition.”
TD agreed in August 2011 to pay C$7.5 billion to buy Bank of America Corp. (BAC:US)’s Canadian MasterCard portfolio. That transaction was completed in December 2011.
Incremental spending from marketing and guaranteeing minimum purchases from Aimia won’t be “overly disruptive” to earnings, Aiken said.
“We expect a neutral to slightly negative impact to CIBC’s share price today as investors digest the news of a potential agreement between Aimia and TD Bank,” Andre-Philippe Hardy, an analyst with Royal Bank of Canada, said in a note. “We believe that CIBC-Aerogold accounts for 5 to 15 percent of the bank’s profits.”
Aimia climbed 3.1 percent to C$14.35 at 9:32 a.m. trading in Toronto, its biggest intra-day gain since Dec. 17. CIBC rose 0.1 percent to C$75.07 and TD gained 0.4 percent to C$83.77. CIBC slid 6.2 percent this year through yesterday, the worst performer on the eight-company Standard & Poor’s/TSX Banks Index. TD shares declined 0.4 percent since Dec. 31, compared with a 1 percent drop in the index.
CIBC said in a separate statement that it’s reviewing the Aimia proposal and has the right to match the terms of the new agreement by Aug. 9. TD is entitled to a C$80 million fee to cover costs if CIBC agrees to match the terms by that time, the Toronto-based lender said in a statement. CIBC spokesman Kevin Dove and TD spokeswoman Ali Duncan Martin declined further comment.
Aeroplan began in 1984 as a promotional tool for business travelers on Air Canada. CIBC Aerogold Visa was started in 1991, according to Aimia. The card allows users to collect Aeroplan points for travel on Air Canada (AC/A) and get goods from retailers.
Aimia also has a pact with American Express Co. (AXP:US), and negotiations with the credit-card company are “proceeding in parallel,” the company said.
CIBC is Canada’s largest credit-card issuer based on total outstanding balances, according to an April 2013 issue of the Nilson Report, a credit-card industry publication. Toronto-Dominion is the second-largest.
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