TD Bank seeks to replace CIBC as Aeroplan credit card partner

Thu Jun 27, 2013 2:17pm EDT
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By Cameron French

TORONTO (Reuters) - Toronto-Dominion Bank (TD.TO: Quote) has agreed to replace Canadian Imperial Bank of Commerce (CM.TO: Quote) as issuer of the popular Aeroplan credit card, a move that could pressure CIBC's bottom line at a time when Canadian banks are struggling to drive profit growth.

Shares of Aimia Inc AIM.TO, which runs the Aeroplan loyalty program, rose nearly 10 percent after it announced the proposed 10-year agreement with TD on Thursday. Shares of the two banks were up modestly.

CIBC and Aimia have partnered for 22 years on the profitable "Aerogold" rewards card, which allows customers to accumulate Aeroplan points that can be cashed in for travel on Air Canada ACb.TO and its partner airlines, as well as other goods.

Analysts estimate the card produces around 10 percent of CIBC's profits. The bank, Canada's fifth-largest, does not disclose financial results from its cards business.

"In the short term, definitely a headwind for earnings for CIBC," said Jeffrey Bradacs, a portfolio manager at Manulife Asset Management, which owns shares of both banks.

CIBC and Aimia entered talks to renew their agreement last year. But CIBC said last month it was going ahead with a plan to create an alternative rewards card in the event the partnership was not renewed.

Under the terms of the current agreement, CIBC can still hold on to the Aimia partnership if it matches the terms of TD's deal by August 9, but observers said that seemed unlikely. If that happens, TD is entitled to a breakup fee of C$80 million.

"While this is a possibility, we do not believe that it is probable as the relationship between the two organizations has likely become tarnished through these developments," Barclays Capital analyst John Aiken said in a note.   Continued...