AMERIPRISE FINANCIAL INC quarterly report, Q3 FY2009

Ameriprise Financial, Inc. — Form 10-Q Summary

Business context and reporting period

Ameriprise provides financial planning, wealth management, asset management, annuity, insurance, banking and brokerage products. Its principal segments are Advice & Wealth Management, Asset Management, Annuities, Protection and Corporate & Other. The unaudited filing covers the three and nine months ended September 30, 2009, compared with the corresponding 2008 periods. The company had more than 12,300 affiliated financial advisors and registered representatives at quarter-end.

Financial performance and position

Metric	Q3 2009	Q3 2008	9M 2009	9M 2008
Total revenues	$1,983 million	$1,672 million	$5,659 million	$5,720 million
Net revenues	$1,950 million	$1,629 million	$5,546 million	$5,588 million
Pretax income	$340 million	$(176) million	$589 million	$246 million
Net income attributable to Ameriprise	$260 million	$(70) million	$485 million	$331 million
Diluted EPS	$1.00	$(0.32)	$2.04	$1.46

Q3 net revenue increased 20%; nine-month net revenue declined 1%.
Approximate pretax margin was 17.4% in Q3 and 10.6% for the first nine months. Net margin attributable to Ameriprise was approximately 13.3% and 8.7%, respectively.
Net investment income increased to $542 million in Q3 and $1,477 million for nine months, versus $62 million and $856 million in the comparable 2008 periods. The 2009 figures included net impairment losses of $19 million and $85 million, respectively.
Management and financial advice fees declined 4% in Q3 and 19% for nine months, while distribution fees declined 2% and 16%, primarily because of lower equity markets and asset-based fees.
Cash and cash equivalents were $3.6 billion at September 30, 2009, down from $6.2 billion at December 31, 2008. Net cash used in operating activities was $938 million, compared with $189 million provided in the prior-year period.
Net cash used in investing activities was $6.2 billion, principally reflecting purchases of available-for-sale securities. Financing activities provided $4.4 billion, including $869 million from common-stock issuance and $553 million from debt issuance, partly offset by debt repayments and dividends.
Total assets were $111.2 billion, compared with $95.6 billion at December 31, 2008. Total equity was $9.4 billion versus $6.5 billion.
Debt was $2.1 billion at September 30, 2009, compared with $2.0 billion at year-end 2008. Customer deposits were $9.0 billion, up from $8.2 billion.
Owned, managed and administered assets reached $439.9 billion, up 12% year over year. Asset-management net inflows were $2.3 billion in Q3 and $2.2 billion for nine months, versus outflows in the comparable 2008 periods.

Material changes versus the prior comparable periods

Ameriprise returned to profitability in Q3, with $260 million of attributable net income versus a $70 million loss in Q3 2008. Nine-month attributable net income rose 47% to $485 million.
The improvement was driven largely by higher investment income, reduced realized investment losses and impairments, valuation-assumption benefits, lower expenses and re-engineering savings. It was partly offset by lower asset-based fee revenue and higher variable-annuity benefit expenses.
The third-quarter annual review of RiverSource Life valuation assumptions produced a $134 million pretax benefit, compared with a $106 million benefit in Q3 2008. Market impacts provided an additional $27 million pretax benefit in Q3 2009.
Variable-annuity death and living benefit expenses, net of hedges and deferred sales inducement cost amortization, were $52 million in Q3 and $136 million for nine months. These amounts included noncash expenses of $116 million and $517 million, respectively, from changes in the nonperformance spread on living-benefit liabilities.
Deferred acquisition cost amortization was a $64 million benefit in Q3 and a $27 million benefit for nine months, compared with expenses of $240 million and $281 million in the prior-year periods.
The company issued $500 million of senior notes in June 2009, repurchased $450 million of senior notes due 2010, and extinguished $135 million of junior subordinated notes. It also issued 36 million common shares for net proceeds of $869 million.
The share-repurchase program remained suspended; only 2,636 shares were acquired in the quarter through employee-related withholding transactions. Quarterly dividends remained $0.17 per share.

Guidance, outlook, commentary and risks

Management’s multi-year financial targets are average net revenue growth of 6% to 8%, diluted EPS growth of 12% to 15% and return on equity of 12% to 15%. The filing does not provide specific revised full-year 2009 earnings guidance.
Management stated that operating cash flows, available cash and revolving-credit capacity were expected to fund operating liquidity needs. The company had a $750 million unsecured revolving facility, expandable to $1.0 billion, with no borrowings and $2 million of letters of credit outstanding.
Ameriprise agreed to acquire Columbia Management’s long-term asset-management business for $900 million to $1.2 billion, funded with cash on hand. Closing was expected in spring 2010, subject to regulatory approval. The company incurred $4 million of pretax acquisition and integration costs in Q3 and expected $130 million to $160 million through 2011.
Ratings agencies affirmed the company and RiverSource Life ratings but maintained negative outlooks. Liquidity and dividend capacity depend substantially on regulated subsidiaries, whose ability to distribute capital is restricted.
Primary market risks include equity, interest-rate, credit-spread, foreign-exchange and market-volatility changes; investment impairments; policyholder mortality, morbidity and surrender behavior; variable-annuity guarantees; derivative-counterparty and reinsurance credit risk; and valuation assumptions for DAC and DSIC.
A hypothetical 10% equity-market decline was estimated to reduce pretax income by $373 million after hedging. A hypothetical 100-basis-point interest-rate increase was estimated to reduce pretax income by $79 million after hedging. These are sensitivities, not forecasts.
The company continued to monitor and occasionally support certain money-market funds; management expected the subsequent-period impact to be immaterial. Legal, regulatory and arbitration matters remained elevated, including matters involving Securities America private-placement products, a client investment dispute and mutual-fund fee litigation. Potential losses could not be estimated clearly.
At September 30, 2009, available-for-sale securities had $796 million of gross unrealized losses, including $752 million on securities held for at least 12 months. Non-agency mortgage-backed securities and other structured investments remained significant valuation and impairment exposures.

Important facts for investors to verify

Whether improved earnings are sustainable after excluding valuation-assumption benefits, noncash nonperformance-spread effects, investment gains and prior-year crisis-related losses.
The sensitivity of fee revenue, DAC amortization, annuity guarantees and capital to subsequent equity-market and interest-rate movements.
Liquidity after the planned $900 million to $1.2 billion Columbia Management acquisition and expected integration costs of $130 million to $160 million.
The credit quality, valuation methods and impairment outlook for mortgage-backed, structured and below-investment-grade securities.
The status and potential financial impact of regulatory inquiries, Securities America litigation, the Gallus mutual-fund fee case and the client arbitration settlement.
Subsidiary capital and dividend restrictions, negative rating outlooks, and the company’s ability to maintain dividends while supporting regulated subsidiaries.