(Reuters) - Aimia Inc , which runs the Aeroplan credit card loyalty program, emerged as the clear winner on Monday after reaching a deal that will see both Toronto-Dominion Bank and Canadian Imperial Bank of Commerce issue its branded cards.
The agreement, which drove Aimia's shares to a five-year high, averts a potential legal battle between the two banks, which are also Canada's top two credit card issuers.
Earlier this year, TD Bank replaced CIBC as the issuer of the popular Aeroplan flight rewards Visa card. CIBC had been the main issuer for more than 20 years but failed to reach agreement with Aimia to extend the partnership, which expired on December 31.
In June, TD Bank, Canada's second largest in terms of assets and market capitalization, made a deal with Aimia to replace CIBC. But the two banks said last month they were working on a compromise to split the credit card portfolio down the middle.
CIBC, Canada's No. 5 bank, will retain card customers that have other products with the bank, while TD Bank will acquire the remainder.
TD Bank said on Monday it will pay C$162.5 million ($157.22 million) to CIBC to acquire about 550,000 cardholder accounts, representing about C$3 billion in card balances and C$20 billion in annual retail spending.
Aimia said CIBC will keep the remaining 630,000 Aeroplan accounts held by existing banking customers. CIBC will continue to have the right to market the Aeroplan program and to issue new Aerogold cards through its CIBC brands.
"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," said Barclays analyst John Aiken in a note to clients.
CIBC PROFIT SEEN TRIMMED
TD Bank said the deal, effective January 1 2014, would contribute 10 Canadian cents per share to earnings next year on an adjusted basis.
TD expects to complete the acquisition of CIBC's portfolio in December.
The deal will trim CIBC's earnings by about 45 Canadian cents on an annual basis, the bank said. However, CIBC said it will receive on closing, C$200 million in upfront payments from TD and Aimia as well as annual payments from TD of about C$37.5 million per year in each of the 3 years after closing.
Last month, CIBC disclosed that the Aeroplan card portfolio generated 95 Canadian cents per share in profit over the 12 months ended July 31, or about 12 percent of the bank's overall profit during that period.
Shares of both banks rose slightly in trading on the Toronto Stock Exchange. Aimia shares jumped 3.8 percent to C$17.58, but touched C$17.98, their highest level since April 2008.
($1 = 1.0336 Canadian dollars)
(Reporting by Euan Rocha in Toronto and Krithika Krishnamurthy in Bangalore; Editing by Kirti Pandey and Jeffrey Benkoe)