The Aeroplan rewards program lifted Toronto-Dominion Bank’s second quarter earnings, but it may take the wind out of the sails for Canadian Imperial Bank of Commerce next week, industry analysts say.
TD Bank, which reported its second-quarter earnings on Thursday, said that its Canadian banking revenues increased in part because of a deal struck last year to acquire the popular loyalty program from its rival.
“The Aeroplan portfolio is operating ahead of expectations with respect to new account growth,” Ed Clark, chief executive officer of TD, told analysts on a conference call.
TD said that personal lending volumes increased 9 per cent, “and with Aeroplan in the mix for the second half, Canadian retail is well-positioned” to contribute to the bank’s growth targets for the year, chief operating officer Bharat Masrani told analysts.
Credit card balances rose 25 per cent in the second quarter compared to the year-earlier period, chief financial officer Colleen Johnston said on the conference call.
“In a low-interest rate environment, I view that as a positive,” said Tom Lewandowski, analyst at Edward Jones.
TD is now the main partner and issuer of Aeroplan Visa cards under a 10-year deal struck with CIBC and Aimia Inc., which owns and operates the rewards program in Canada.
TD acquired approximately 540,000 cardholder accounts with an outstanding balance of $3.3 billion, the bank said.
The deal has also given a boost to Aimia, which reported its quarterly results in mid-May.
“Our partnership with TD has resulted in a successful launch,” the company said in a release, noting that TD has enrolled around 275,000 new cardholders.
The company typically adds between 50,000 and 80,000 new cardholders each year.
For CIBC, the effect of the Aeroplan deal would likely be “reduced exposure to an asset that’s generally higher yielding than other assets,” Lewandowski said.
He said that while it’s difficult to gauge the impact on earnings at this point, “from a 10,000-foot level, I would expect it to be a negative for the company.”
CIBC said in a release issued last week it will take a $420 million non-cash goodwill impairment charge related to its investment in CIBC FirstCaribbean International Bank Ltd. for the second quarter “in light of persistently challenging economic conditions in many Caribbean countries.”
The bank also said it recorded $123 million of incremental loan losses for the unit, because of difficulties in the Caribbean region’s economic recovery.
CIBC is slated to report its second quarter results on May 29.
- With files from Star wire services