TD Bank Group and Canadian Imperial Bank of Commerce have settled on a deal over Aeroplan loyalty credit cards that will see half of CIBC's Aeroplan card portfolio shift to TD Bank.
TD, CIBC and and Aimia Inc., which operates the Aeroplan program, have settled on a compromise after two months of negotiations.
TD said it expects to acquire approximately 550,000 cardholder accounts from CIBC, representing approximately $3 billion in card balances and $20 billion in annual retail spending.
It promised a "seamless" transition for cardholders, when the agreement goes into effect in January 2014.
"From our point of view, this is a very customer-friendly deal," TD chief executive Ed Clark told analysts after the announcement.
The bank said it 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.
CIBC, which had objected to Aimia's deal with TD offering more money for Aeroplan benefits, gets to keep about the half of its portfolio of Aeroplan card holders that has a broader relationship with the bank.
"The agreements we are announcing today with TD and CIBC will put real momentum behind the transformed Aeroplan program we will launch in January and provide a strong and stable platform for growth in the Canadian business," said Rupert Duchesne, group chief executive for Aimia.
"Having these agreements in place will also preserve the financial flexibility to invest in the growth opportunities we might see for Aimia over the next few 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 a 10-year term, starting Jan. 1, 2014.
CIBC had been associated with Aeroplan, which offers travel and other rewards to points collectors, for 22 years.
Aimia says about $312.5 million will be paid to CIBC for the shift of half its Aeroplan cards portfolio to TD, with Aimia funding about $150 million of the payments.
TD will pay $162.5 million, including $50 million when the deal closes. The rest will be paid over three years — about $37.5 million annually.
Barclay’s analyst John Aiken said the deal between TD and CIBC lessens the risk that other credit card companies will snap up Aeroplan business.
“Ultimately, we believe that the biggest winner of the agreement is Aimia, which now has two banks issuing its branded card, while the remaining banks will see far less opportunity to benefit as attrition will likely be much lower under an orderly transition scenario,” he added.
CIBC says it also plans to introduce an enhanced travel loyalty rewards card.