TD Bank, CIBC and rewards company Aimia Inc. reached a compromise on the Aeroplan loyalty credit card program that handles billions of dollars worth of transactions annually.
In 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 travel 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.
Clark said TD Bank will be the primary issuer of Aeroplan Visa credit cards on Jan. 1, 2014. CIBC will continue to provide services to those cardholders until they're transferred.
The 10-year deal will give the bank a "solid" base of earnings, he said.
"Instead of going out and having to win every customer, you start off with more than 500,000 customers."
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 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.
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 a conference call.
"And that is a great asset of this deal."
Canadian Imperial Bank of Commerce will retain the half of the portfolio that includes Aerogold customers that are bank clients with financial products such as mortgages. CIBC (TSX:CM) has been the primary Aeroplan credit card issuer for more than 20 years.
CIBC chief executive Gerry McCaughey also called the deal "very client friendly" and said it gives them more choice.
McCaughey wouldn't go into detail when asked why the bank couldn't reach a renewal agreement with Aimia (TSX:AIM). CIBC noted the new deal will ultimately lower its ongoing earnings per share by about 45 cents.
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.
CIBC objected to the decision and the three parties agreed to seek a compromise.
Aimia said 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 (TSX: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.
CIBC also said it plans to introduce its own travel loyalty rewards card later this year.
Barclays analyst John Aiken said Aimia benefits the most from the deal.
"Ultimately, we believe that the biggest winner of the agreement is Aimia, which now has two banks issuing its branded card," Aiken said in a research note.
Aiken said CIBC's launch of its own travel rewards credit card will not offset a big portion of lost earnings from the sale of its half of the Aeroplan portfolio.
Desjardins analyst Michael 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.