TD Bank seeks to replace CIBC as Aeroplan credit card partner

Thu Jun 27, 2013 5:11pm 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: Quote), which runs the Aeroplan loyalty program, rose more than 10 percent after it announced the proposed 10-year agreement with TD on Thursday. Shares of the two banks rose 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 more than 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, according to TD.

However, CIBC said in a statement that after reviewing the terms of the deal, it had concluded "that the notice and document provided by Aimia to CIBC appears to have been intentionally structured in a way that attempts to nullify CIBC's right of first refusal and any ability to match."   Continued...