TD-CIBC Reach Agreement With Aimia on Aerogold Visa

Canadian Imperial Bank of Commerce agreed to sell about half its Aerogold Visa credit-card portfolio to Toronto-Dominion Bank, which is planning to start its own Aeroplan rewards card program in January.

Canadian Imperial will receive about C$3 billion ($2.9 billion) cash for the outstanding card balances, as well as an upfront payment of C$200 million from Toronto-Dominion and Aeroplan owner Aimia Inc., Toronto-based CIBC said today in a statement. Toronto-Dominion also agreed to pay CIBC C$37.5 million annually for three years, the bank said.

The companies had been in talks since last month, when Toronto-Dominion was chosen as the primary card partner of Montreal-based loyalty-program operator Aimia. Toronto-Dominion will offer co-branded Aeroplan Visa cards that offer miles for flights and other rewards starting in January under a 10-year contract with Aimia, while CIBC keeps the right to offer Aeroplan cards.

Toronto-Dominion said in a separate statement that it will acquire 550,000 cardholder accounts, primarily those who don’t have a banking relationship with Canadian Imperial. The agreement, expected to be completed in December, will add about 10 cents a share to its adjusted earnings next year, and 15 cents in 2015, Toronto-Dominion said.

Aimia Contract

“We believe the negative in the agreement is that TD will no longer be the sole Canadian bank issuing Aeroplan cards,” John Aiken, an analyst with Barclays Plc in Toronto, said in a note to clients. “We do not believe this was the original vision when TD initially pursued the contract with Aimia.”

Toronto-Dominion plans to introduce five Aeroplan Visa cards in Canada and the U.S., the lender said in a conference call. The three-way deal gives Toronto-Dominion Aeroplan cardholders from the outset of its new offering, allowing the lender to avoid starting from scratch and having to win over each cardholder individually, Chief Executive Officer Ed Clark said.

“It’s just dramatically lower risk, and so I’ll always say a bird in the hand is worth two in the bush,” Clark said in a telephone interview from Toronto. “So we get an earnings base and we can spend vigorously on marketing to grow this file.”

Renewal Option

Canadian Imperial will retain its Aerogold Visa cardholders that have “deeper” banking relationships with the lender, David Williamson, group head of retail and business banking, said today in a conference call. The bank can continue to offer Aeroplan cards for 10 years, and may have the option to renew after that, he said.

Canadian Imperial rose 0.8 percent to close at C$81.74 in Toronto and Toronto-Dominion advanced 1.2 percent to C$91.02. Aimia surged 7.3 percent to C$17.85, the most since June 27.

“While CIBC does not receive much of a premium on the cardholder balances, the accounts sold were the ones that were the highest risk of flight and receiving any value should be viewed as an incremental positive,” Aiken said. “With the ability to continue to issue Aeroplan cards, CIBC should be able to more adequately defend the customers that it retained.”

Canadian Imperial will release about C$65 million of loan-loss provisions tied to the sold portfolio and have about C$55 million in costs, the bank said. Net income of upfront payments, the loan-loss release and closing costs is expected to be about C$180 million. Annual earnings will be reduced by about 45 cents a share, Canadian Imperial said.

Air Canada

Canadian Imperial’s two-decade partnership with Aimia made the CIBC Aerogold Visa its most popular card. The bank 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.

Aimia said in a separate statement that Toronto-Dominion becomes Aeroplan’s primary financial-services partner and credit-card issuer, though CIBC will also continue to be an issuer of Aeroplan cards through 10-year agreements. CIBC will keep 630,000 Aeroplan accounts held by existing banking customers under the agreement, Aimia said.

“CIBC has been an issuer of Aeroplan loyalty credit cards for more than 20 years, and this deal ensures that our clients will continue to have access to the program for the next 10 years,” Canadian Imperial CEO Gerald McCaughey said on the conference call.

Aeroplan began in 1984 as a promotional tool for business travelers on Air Canada. CIBC Aerogold Visa was started in 1991, according to Aimia.

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