Ameriprise Financial Inc. Q1 2009 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2009. Ameriprise Financial, Inc. operates as a diversified financial services firm providing financial planning, products, and services through four main segments: Advice & Wealth Management, Asset Management, Annuities, and Protection. The reporting period was characterized by extreme market volatility, with the S&P 500 declining approximately 40% compared to the prior year, significantly impacting asset-based fee revenues.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 | Change |
|---|---|---|---|
| Total Net Revenues | $1,719 million | $1,991 million | (14%) |
| Net Income Attributable to Ameriprise | $130 million | $191 million | (32%) |
| Diluted Earnings Per Share | $0.58 | $0.82 | (29%) |
| Total Assets | $94,581 million | $95,577 million (Dec 2008) | (1%) |
| Cash and Cash Equivalents | $5,796 million | $6,228 million (Dec 2008) | (7%) |
| Total Debt | $1,922 million | $2,027 million (Dec 2008) | (5%) |
| Shareholders' Equity | $6,384 million | $6,178 million (Dec 2008) | 3% |
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased $272 million (14%) primarily due to a 30% drop in management and financial advice fees and a 28% drop in distribution fees, driven by lower asset levels from equity market declines.
- Expense Reduction: Total expenses decreased $216 million (12%). Notably, "Benefits, claims, losses and settlement expenses" dropped $204 million (67%) to $100 million. This was largely due to a $231 million benefit from the market impact on variable annuity guaranteed living benefits (net of hedges), which offset a $31 million expense on death benefits.
- DAC Amortization Increase: Amortization of deferred acquisition costs (DAC) increased $132 million (86%) to $286 million. This increase was driven by a $146 million expense related to variable annuity guaranteed living benefits and equity market depreciation, partially offset by lower account values.
- Investment Income: Net investment income increased $20 million (5%) to $421 million, aided by $16 million in net realized gains compared to losses in the prior year, despite $35 million in other-than-temporary impairment losses recognized in earnings.
- Segment Performance:
- Advice & Wealth Management: Reported a pretax loss of $61 million compared to income of $64 million in Q1 2008.
- Annuities: Pretax income increased to $129 million from $42 million, driven by the benefit from variable annuity guarantees.
- Protection: Pretax income increased 10% to $112 million.
Guidance, Outlook, and Risks
- Accounting Changes: The company early adopted FSP FAS 115-2 regarding other-than-temporary impairments. This resulted in a cumulative effect increase to retained earnings of $132 million and a corresponding increase to accumulated other comprehensive loss.
- Capital Actions: The company temporarily suspended its stock repurchase program due to market conditions. However, it extinguished $113 million of junior subordinated notes in Q1 2009, realizing a $50 million gain. A quarterly dividend of $0.17 per share was declared.
- Liquidity: The company maintained substantial liquidity with $5.8 billion in cash and cash equivalents. It has access to a $750 million unsecured revolving credit facility and recently joined the Federal Home Loan Bank of Des Moines for collateralized borrowing access.
- Risks and Contingencies:
- Market Risk: A hypothetical 10% decline in equity markets would result in a net negative impact of $352 million on pretax income. A 100 basis point increase in interest rates would result in a net negative impact of $71 million.
- Legal Proceedings: The company is involved in various legal and regulatory proceedings, including an SEC inquiry regarding REIT sales (2000-2004) and a client arbitration regarding investment guidelines. The company cannot estimate the potential loss from these matters.
- Credit Risk: The company holds non-agency residential mortgage-backed securities in an inactive market. While $35 million in impairments were recognized, management expects to receive all contractual payments on remaining investments.
Investor Verification Checklist
- Variable Annuity Guarantees: Verify the sustainability of the $231 million benefit recognized from variable annuity living benefits and the corresponding increase in DAC amortization.
- Investment Portfolio Quality: Review the composition of non-agency residential mortgage-backed securities and the assumptions used for fair value measurements in inactive markets.
- Asset Flows: Monitor net inflows/outflows, particularly the shift toward fixed income products and the impact of market depreciation on fee-based revenues.
- Regulatory Capital: Confirm that subsidiaries (RiverSource Life, Ameriprise Bank, ACC) remain in compliance with regulatory capital requirements following the capital injections made in January 2009.
- Legal Exposure: Track the status of the SEC inquiry regarding REIT revenue sharing and the outcome of the client arbitration regarding investment guidelines.