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TD says Aeroplan Visa launch going better than expected, Q1 profit up

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TORONTO - The introduction of TD Bank's Aeroplan Visa card is going better than expected and will add to earnings for the year, TD chief financial officer Colleen Johnston said Thursday as the bank reported stronger first-quarter results.

"The initial portfolio that we received, which is just over $3 billion from CIBC in early days, is performing well, but it was really a modest contribution to the quarter because we only had one month of earnings," Johnston said.

"What we've seen is that the new account openings have vastly exceeded our expectations in the first couple of months."

Johnston didn't say exactly how many new customers TD has signed up since launching four types of Aeroplan Visa credit cards this year, but said they were expected to add gradually to earnings "and add nicely to our bottom line."

TD reported Thursday a profit of $2.04 billion or $1.07 per share, up from $1.78 billion or 93 cents per share a year ago, and raised its quarterly dividend by four cents to 47 cents per share. Revenue totalled $7.57 billion, up from $6.57 billion a year ago.

Excluding one-time costs, including $115 million related to the launch of the Aeroplan Visa cards, and a gain of $196 million on the sale of TD Waterhouse Institutional Services, the bank earned an adjusted profit of $2.02 billion or $1.06 per share, up from $1.91 billion or $1 per share a year ago.

Under a deal with CIBC, TD acquired about 540,000 cardholder accounts with an outstanding balance of $3.3 billion. The agreement was a compromise between the banks and Aeroplan's parent company Aimia (TSX:AIM).

Johnston, who noted Aeroplan Visa users tend to be higher spending customers with good credit quality, said Canadians are loyal to the Aeroplan program even with the rise of more flexible travel reward credit cards and other programs.

"There's a lot of our competitors who are very interested in acquiring new accounts, but we think we are very well positioned competitively in terms of what we are offering to the customer," she said.

CIBC's sale of half its Aeroplan credit card business to TD helped boost its first-quarter results to $1.18 billion or $2.88 per share compared with $785 million or $1.88 per share a year ago. Revenue was $3.63 billion, up from $3.17 billion.

Excluding the gain on the sale of the Aeroplan business and other one-time items, CIBC said it earned an adjusted profit of $951 million or $2.31 per share for the quarter compared with $882 million or $2.12 in the first quarter of 2013.

CIBC also raised its quarterly dividend by two cents to 98 cents per share.

To help make up for the loss of roughly half of its Aeroplan Visa customers, CIBC has launched its own Aventura Visa travel reward cards.

"The value proposition of our enhanced Aventura card is resonating well, and CIBC is enrolling new clients at a pace well in excess of our expectations," CIBC president and chief executive Gerald McCaughey told a conference call with analysts.

"Our quarterly travel reward card sales were the highest we've experienced in over a decade."

CIBC also recently launched a collaboration with Tim Hortons for a co-branded credit card which will offer Tim Hortons loyalty rewards.

Barclays analyst John Aiken noted the CIBC results felt the impact of the Aeroplan Visa card sale but, with only one month included, said it would carry over into the second quarter.

"That said, it was a reasonably strong quarter, on the back of lower provisions (for credit losses)," Aiken wrote.

For TD, Aiken said the acquisition of the Visa portfolio implies further upside in the second quarter its domestic retail banking business.

"While the headline results may not capture the imagination of investors, similar to Royal's results yesterday, there is little denying the solid underlying results generated by TD this quarter," Aiken wrote.

"There is little reason to believe that TD should not be able to garner above average industry growth, and likely the greatest dividend increase reported this quarter amongst the group underscores management's confidence in its relative outlook."

The Canadian retail banking earnings at TD totalled $1.2 billion or $1.34 billion on an adjusted basis, up five per cent compared with a year ago on increased deposits, improvements at its wealth management business and favourable credit performance. Provisions for credit losses slipped to $230 million compared with $244 million a year ago.

Meanwhile, TD's U.S. retail business benefited from a weaker Canadian dollar as it reported a profit of $492 million, up from $355 million a year ago. Provisions for credit losses in the U.S. were $224 million compared with $177 million.

Johnston attributed the year-over-year increase in provisions for bad loans to TD's acquisition of the Target credit card portfolio.

"If you take out that addition of that new business, they were down," she said.

Wholesale banking earned $230 million for the quarter for TD, up from $160 million in the first quarter of 2013.

At CIBC, the bank's retail and business banking operations earned $746 million, up $580 million a year ago. Provisions for credit losses were $210 million, down from $241 million.

Wealth management earned $114 million, up from $89 million, while CIBC's wholesale banking operations earned $264 million, up from $86 million in the first quarter of 2013.

Note to readers: This is a corrected story. An earlier version incorrectly stated the one-time costs related to the launch of the TD Aeroplan Visa cards as $155 million instead of $115 mllion.

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