Aeroplan client transition to be seamless: TD
The transfer of more than 500,000 Aeroplan-branded credit cardholders to TD Bank Group from Canadian Imperial Bank of Commerce by Jan. 1 will be "seamless," the CEO of TD Bank Group said Monday.
TD Bank, CIBC and rewards company Aimia Inc. reached a compromise deal covering the Aeroplan loyalty credit cards that handle billions of dollars worth of transactions annually.
As a result of the agreement, each bank will have rights to about half the portfolio of accounts that offer their customers loyalty points that can be exchanged for airline tickets and other goods through Aimia's flagship Aeroplan program.
"From our point of view, this is a very customer-friendly deal," TD chief executive Ed Clark told analysts after the announcement.
TD Bank also said there won't be any "interruption" in Aeroplan miles earned and CIBC will provide continuing services to those cardholders until they're transferred.
Clark also said TD Bank will be the primary issuer of Aeroplan Visa credit cards, which will immediately contribute to the bank's earnings.
"Instead of going out and having to win every customer, you start off with more than 500,000 customers," Clark said.
TD said the roughly 550,000 cardholder accounts it's getting from CIBC represent about $3 billion in card balances and $20 billion in annual retail spending.
The bank said it will be easier to earn flights under the program and will introduce five new credit cards, including a TD Aeroplan high net-worth card, a small business card and a TD Aeroplan U.S. dollar card.
Aimia chief executive Rupert Duchesne said the deal is good for all three parties.
"Being with two leading credit card providers, and what that will do to drive immediate growth for us, is very encouraging. It will also take out any uncertainty for credit card holders," Duchesne said in an earlier conference call.
"And that is a great asset of this deal."
CIBC will retain the half of the portfolio that includes Aerogold customers with broader relationships with the bank such as mortgages. CIBC (TSX:CM) has been the primary Aeroplan credit card issuer for more than 20 years.
The three companies have been in negotiations for weeks, following Aimia's decision to pick TD as the primary issuer of Aeroplan Visa credit cards for the 10-year term, starting in January.
CIBC objected to the decision and the three parties agreed to seek a compromise agreement.
Aimia said about $312.5 million will be paid to CIBC for the shift of half its Aeroplan cards portfolio to TD, with Aimia (TSX:AIM) funding about $150 million of the payments.
TD (TSX:TD) will pay $162.5 million, including $50 million when the deal closes. The rest will be paid over three years â€” about $37.5 million annually.
CIBC also said it plans to introduce its own travel loyalty rewards card.
Desjardins analyst Michael Goldberg said CIBC's agreement to sell 50 per cent of its Aeroplan customers to TD will ultimately lower its ongoing earnings per share by about 45 cents. TD's earnings per share are expected to increase by just 15 cents, Goldberg said, due to the higher-than-expected cost of the acquisition.
"It is a complex agreement that removes the overhanging threat of litigation and involves a fairly significant upfront payment from TD and Aimia to CIBC," Goldberg said in a research note.
Goldberg said CIBC will retain about 630,000 credit card accounts, representing $2.8 billion in credit card balances and $18 billion in annual retail spending.
He questioned why CIBC couldn't have come to an improved agreement with Aimia and why TD opened the door to the threat of legal action from CIBC.
TD's Clark said he wouldn't comment on the legal aspect of the deal.