09/18/2013 05:28 EDT | Updated 11/18/2013 05:12 EST

CIBC expects only short-term hit from partial loss of Aeroplan customers

MONTREAL - CIBC (TSX:CM) was willing to take a short-term earnings hit from losing about half of its Aeroplan credit card customers because of the strategic benefits from launching its own card for travel on any airline, says chief executive Gerry McCaughey.

The net impact of its deal with TD Bank (TSX:TD), announced early this week after weeks of negotiation, will not only be short-term but also total less than 30 cents per share, McCaughey told a conference Wednesday.

Under the deal between the two banks and Aimia (TSX:AIM) announced Monday, CIBC will receive about $312.5 million for shifting about 500,000 cardholder accounts to TD. Aimia will fund about $150 million of the payments to CIBC.

Losing half the Aeroplan customers will lower CIBC's ongoing earnings per share by about 45 cents, but renewing the contract would have cost 15 cents per share.

"There was a cost to re-signing," he said.

McCaughey said retaining complete control of the "value proposition" of its own card was a critical part of its decision not to renew with Aimia, while the deal with TD gives it the best of both worlds by allowing it to continue to issue Aeroplan cards to customers who fly mainly with Air Canada.

"The key element for us is that we are in complete control of the value proposition for the portion of our strategy that will be the in-house flying airline card, and that's critical."

Tim Hockey of TD Bank (TSX:TD) told the conference later that the bank was "pleasantly surprised" by both the high spending and "nice" level of balances held by Aeroplan card members.

He added that there is a certain "cache" that comes with having a relationship with a national carrier and Aeroplan holders who have been very loyal over 20 years.

"That's why the actual deal was hotly contested (and) why we're thrilled to win it," he said, adding that Aimia's investment to refresh Aeroplan will improve an offering that "got a little stale" in light of the many competing cards.

The Aeroplan deal also helps TD's efforts to further tap into the U.S. market after the bank became the exclusive issuer of Target-branded credit cards to American customers, Hockey said.

"When you look at our opportunities in the U.S., we think it's just enormous not just because of our retail presence but because of the rebound in the card market and our position to be able to grow there."

Meanwhile, Hockey told the conference that while Canadian housing remains "a bit" overvalued, the chances of a major drop — or hard landing — are increasingly unlikely.

"Our belief that there will any form of hard landing is actually diminishing because the industry and the government in particular has been able to show that when we see signs of that we'll be able to implement additional steps that will put a damper on, so we're actually feeling quite good."