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Aeroplan cards over the years

The race is on to calculate just how much Canadian Imperial Bank of Commerce has at stake in Aeroplan.

Despite warning investors and analysts that its contract with Aimia, Aeroplan's parent company, could voluntarily lapse, few people took CIBC too seriously. Aeroplan has been a money-maker, and CIBC is already in the midst of a number of big retail changes, including reworking its mortgage sales unit, which are weighing on its bottom line.

Plus, credit cards are extremely important to CIBC, comprising between 20 and 25 per cent of CIBC's profit, according to analyst calculations. Analyst John Reucassel at BMO Nesbitt Burns estimated that this contribution is more than double what credit cards contribute to other banks' profits.

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So you can understand why analysts believe the cost of losing the Aimia contract could hit CIBC's earnings by 25 cents to 65 cents a share next year.

However, there are some serious counterpoints to consider. Keep in mind that TD agreed to a 15-per-cent hike in the price it pays Aimia per mile. To keep the Aeroplan contract, CIBC would have to match that offer and analyst Peter Routledge calculated that this would reduce the bank's earnings by 11 cents to 27 cents a share.

Then there's the big black box that is CIBC's new credit card offering. If the bank lets the Aeroplan contract lapse, Mr. McCaughey said last quarter that he will launch a new travel rewards card, and hinted that it could be similar to Royal Bank of Canada's Avion card that lets users cash in their points for flights on any airline. (Full disclosure: I'm an Avion cardholder.)

Mr. McCaughey also said that CIBC would spend $50-million over the next year to market the new card and retain existing clients.

Keep in mind that Aimia CEO Rupert Duchesne said Thursday that the majority of Aeroplan members do not have a banking relationship with CIBC. That cuts two ways. On one hand, it might mean many existing Aeroplan clients could not care less if TD takes over the account.

But it also means that CIBC isn't getting much bang for its buck from these clients, by being able to cross-sell them mortgages and the like. A new CIBC travel rewards card might be better able to do this.

Still, the potential industry shakeup comes with much more reason to worry than to be optimistic. CIBC has acknowledged that it expects its rivals to spend heavily to try to steal its credit card clients should the Aeroplan account change hands. And the numbers are staggering. Mr. Reucassel at BMO estimates that the industry could spend $500-million to $700-million in additional marketing next year to get their hands on CIBC's clients.

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(Tim Kiladze is a Globe and Mail banking reporter.)

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