Td makes grab for cibc’s aeroplan

Bank has until Aug. 9 to counter-offer

It was nearly 20 years ago that Canadian Imperial Bank of Commerce launched its Aeroplan credit card, the country’s first air flight rewards card, which quickly became a money spinner.

Now Toronto-Dominion Bank is looking to grab that franchise. Canada’s secondbiggest bank and Amia Inc., owner of the Aeroplan loyalty program, on Wednesday announced a deal under which TD would replace CIBC as the primary issuer of Aeroplan credit cards.

The current agreement, which expires at the end of the year, gives CIBC the right of first refusal, or the ability to match any competing offers. But according to Amia and TD, that right expires August 9, so the clock is ticking.

Brad Smith, an analyst at Stonecap Securities, argues that much hangs in the balance.

“While CIBC has provided little information regarding the potential impact of this agreement on its domestic banking business, and has not confirmed whether it intends to exercise its right of first refusal ... the loss of the Aeroplan arrangement would in our view come at a very unfortunate juncture for CIBC,” Mr. Smith said in a note to clients.

Canada’s fifth-largest bank signalled back in May that the deal was coming up for renewal, so none of this is a complete surprise.

But observers speculate that even if CIBC manages to out-bid its rival, it may still end up with a less preferential agreement.

According National Bank Financial analyst Peter Routledge, up to now CIBC has enjoyed a “pretty sweet deal” with Amia, primarily because of the low price the bank had to pay for loyalty rewards, significantly under the market rate.

“We suspect the cost/point issue constituted a major sticking point in the negotiations between CIBC and Amia,” Mr. Routledge said in a research note.

According to Mr. routledge, the proposed agreement with Td would resolve the problem at least from Amia’s perspective by boosting the price of reward miles.

CIBC could come back with a better offer but it would still be paying more than it is now. (In a statement on Wednesday afternoon, the bank reiterated its position that it was not properly notified of the Td offer. “[W]e have concluded that the notice and document provided by Amia to CIBC appears to have been intentionally structured in a way that attempts to nullify CIBC’s right of first refusal and any ability to match,” it said.)

But here’s another view. Back in the early days of the Aeroplan deal it was a lucrative arrangement for the bank, but since then the other major banks have come out with their own air flight rewards programs, some created in-house, others through tie-ups with Amia competitors. even CIBC now has a non-Aeroplan flight rewards card.

Bottom line: The flight rewards business has been commoditized, and as a result the once-pioneering arrangement has lost at least some of its value.

No slouch when it comes to deals of this sort, Td is putting a lot on the line. But maybe that’s more an indication of the tooth-and-nail competition in the current retail banking environment than anything else.