August 26, 2013 / 12:49 PM / 4 years ago

CIBC, TD extend talks to split Aeroplan card portfolio

4 Min Read

TORONTO (Reuters) - Canadian Imperial Bank of Commerce (CM.TO) and Toronto-Dominion Bank (TD.TO) have extended talks on a deal for CIBC to retain about half of its Aeroplan credit card portfolio, with TD getting the rest.

The two banks, Canada's top two credit card issuers, had set Monday as a deadline to hammer out a deal with Aeroplan program owner Aimia Inc (AIM.TO) for the two splitting the portfolio essentially down the middle.

Earlier this year, TD, Canada's No. 2 bank in terms of assets and market capitalization, replaced CIBC as the issuer of the popular flight rewards card. CIBC, Canada's No. 5 bank, had been the main issuer for more than 20 years, but failed to reach agreement with Aimia to extend their partnership, which expires on December 31.

In June, TD swooped in to make a deal with Aimia to replace CIBC, but the banks said earlier this month they were working on a compromise to split the portfolio down the middle.

CIBC would retain its card customers that have other products with the bank, while TD would acquire the remainder.

"The parties will make an announcement when an agreement has been reached or when the discussions have concluded without an agreement," TD said on Monday.

Customers who use the Aeroplan card can accumulate points to travel on Air Canada ACb.TO and its partner airlines, or buy goods.

Analysts estimate the card produces more than 10 percent of CIBC's profits.

Hot Card Space

The deal is one of several in the Canadian credit card sector over the last few years, as Canadian banks seek ways to boost revenue in the face of slowing consumer loan growth and a cooling housing sector.

"If you look at credit cards in general, they're just more profitable than what you're going to find with traditional consumer lending," Tom Lewandowski, an analyst with Edward Jones, said.

Canadian banks are due to begin reporting third-quarter results this week, starting with Bank of Montreal (BMO.TO) on Tuesday. TD and CIBC report on Thursday.

TD has been aggressive in adding credit card assets, buying Bank of America Corp's (BAC.N) MBNA Canadian credit card business in 2011 and purchasing Target Corp's (TGT.N) U.S. credit card portfolio earlier this year.

Canada's big banks escaped the 2008 financial crisis with little damage, and have been expanding both internationally and domestically.

But consumer loan growth, their biggest revenue segment, has begun to slow along with the housing market, and a recent rise in mortgage rates may exacerbate that trend.

While credit card loans are considered riskier than the mortgages that make up the bulk of Canadian bank loan books, they boast more lucrative rates.

Shares of CIBC were up 1.1 percent at C$80.73 on the Toronto Stock Exchange. TD added 0.8 percent at C$89.50. Aimia rose 7 Canadian cents at C$15.88.

Additional reporting by Euan Rocha; Editing by Jeffrey Benkoe

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