UPDATE 1-CIBC in talks with TD Bank to keep half Aeroplan portfolio

Mon Aug 12, 2013 2:00pm EDT

* TD replaces CIBC as issuer of flight rewards card

* CIBC's right to match TD's deal expired on Friday

* CIBC objects to TD's agreement with Aimia

By Cameron French

TORONTO, Aug 12 (Reuters) - Canadian Imperial Bank of Commerce is in talks to retain about half of its Aeroplan credit card portfolio after Toronto-Dominion Bank replaced it on Monday as the issuer of the popular flight rewards card.

TD said in June it would replace CIBC as issuer of the "Aerogold" card after Aimia Inc, which runs the Aeroplan loyalty program, and CIBC were unable to agree an extension of their 22-year partnership.

CIBC's right to match TD's deal with Aimia expired on Friday.

CIBC, the smallest of Canada's big five banks, said on Monday it was in talks to sell about half its Aerogold portfolio to TD, but that it wants to retain cards held by clients who have a "broader banking relationship" with the bank. It said it is seeking to issue Aerogold cards to those customers for at least 10 years.

If an agreement with TD can't be reached by Aug. 26, CIBC said it has a right to legally challenge TD's deal with Aimia. CIBC said Aimia's deal with TD is not valid because it doesn't comply with Aimia's obligations to CIBC.

Analysts estimate that CIBC earns about 10 percent of its profit from the Aerogold card, which allows customers to accumulate Aeroplan points that can be cashed in for goods or for travel on Air Canada, the country's biggest airline, and its partner airlines.

Peter Routledge, an analyst at National Bank Financial, said the deal that CIBC wants with TD would allow it to mitigate what could otherwise be a sizable product loss for the bank.

"If they wind up getting a pretty good price for the business they sell to TD and still retain their most valuable customers, then they'll come out of a difficult situation not too badly bruised," Routledge said.

CIBC's shares were up 1.9 percent at C$78.40 on Monday, while TD was up 0.1 percent at C$86.73. Aimia climbed 3.7 percent to C$15.87.

LUCRATIVE CARD

For TD, taking on the Aerogold card will allow it to boost revenue at a time when Canadian banks are struggling to drive profit growth.

Canadian banks have faced the double-whammy of slowing loan growth from a cooling housing sector, as well as low interest rates, which narrow the margins they make on loans.

TD, Canada's second-largest bank, has been building up its credit card business. In 2011, it bought the MBNA Canadian credit card business from Bank of America.

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

TD has said taking over the Aeroplan agreement will not have a material impact on 2014 earnings, but will make a "solid contribution" to its 2015 results.

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