Canadian Imperial Bank of Commerce is in talks to sell about half its Aerogold credit-card portfolio to Toronto-Dominion Bank, the lender that's taking over as the main card partner for Aimia Inc.'s rewards program.
Toronto-Dominion, Canada's second-largest bank by assets, agreed to become the primary credit-card partner for Aimia's Aeroplan program, the companies said today in a joint statement. The accord ends a 22-year alliance the Montreal-based loyalty- program operator had with CIBC, the country's fifth-biggest bank.
Canadian Imperial is in "ongoing active discussions" to sell about 50 percent of its Aerogold portfolio, primarily comprised of credit-card only clients, to Toronto-Dominion, CIBC said in a statement. CIBC would retain Aerogold card accounts of customers with broader relationships at the bank, the Toronto- based firm said. The three companies said they aim to reach a deal by Aug. 26.
"While there are no guarantees that a deal will be finalized, the framework for these discussions would see CIBC retain the right to continue to issue Aerogold credit cards for at least the next 10 years," Kevin Dove, a Canadian Imperial spokesman, said in an e-mailed statement.
A sale is a "common sense approach" that should benefit both CIBC and Toronto-Dominion, John Aiken, a Barclays Plc analyst in Toronto, said in a note.
"This should defray some of the retention costs anticipated to be incurred by CIBC as it can focus on retaining the customers it has a more fulsome relationship with," Aiken said. "For TD, it alleviates some of the risk that current Aeroplan card holders will move to an alternative platform."
Canadian Imperial rose 1.1 percent to C$77.76 at 9:56 a.m. in Toronto and Aimia climbed 3 percent to C$15.76. Toronto- Dominion fell 0.2 percent to C$86.47.
TD has increased its push into cards through acquisitions, including its purchase of Bank of America Corp.'s Canadian MasterCard portfolio in December 2011 and October's agreement to buy the $5.9 billion U.S. credit-card holdings of Target Corp.
Under its agreement with Aimia, TD will offer a variety of co-branded Aeroplan Visa credit cards that offer miles for flights and other rewards. The Toronto-based bank said it also expects to include a card for Canadian small business owners and U.S. residents.
Toronto-Dominion said the Aeroplan arrangement won't have a material impact on 2014 earnings, while making a "solid contribution" in 2015. The bank said it doesn't expect a significant change in that outlook as a result of the proposed deal.
Andre-Philippe Hardy, an analyst at Royal Bank of Canada, said in a note today that the Aerogold portfolio accounts for an estimated 5 percent to 15 percent of CIBC's annual earnings.
Canadian Imperial didn't match Toronto-Dominion's June conditional agreement with Aimia by an Aug. 9 deadline, saying the accord wasn't valid because it failed to comply with Aimia's obligation under an existing arrangement. The bank said it retains the right to pursue legal options if it doesn't reach a deal with Toronto-Dominion and Aimia on the portfolio sale.
Canadian Imperial's two-decade partnership with Aimia made the CIBC Aerogold Visa its most popular card. CIBC buys Aeroplan miles from Aimia to give to cardholders on purchases, including flights with Air Canada, the country's biggest carrier. Aimia, which owns and manages rewards programs including Nectar in the U.K. and Italy, counts CIBC as its biggest partner.
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 and get goods from retailers.
CIBC has been preparing to go it alone with its own card. CEO Gerald McCaughey, 57, said on a May 30 conference call that the bank is spending more than C$50 million ($48.6 million) over four quarters to create an alternative card if the Aimia agreement isn't renewed. Canadian Imperial also has its Aventura Gold Visa card, which it introduced in 2003 to offer lifestyle and travel rewards with purchases.
"CIBC is still faced with the C$50 million expenditure to develop the new card offering, with additional marketing and retention costs after the new cards are issued," Barclays's Aiken said. "As well, the lost revenues from the potential portfolio sale will still weigh on the bottom line."