Ameriprise Surpasses Handsomely

Ameriprise Financial, Inc.’s (AMP - Analyst Report) third quarter core operating earnings of $1.03 per share were substantially ahead of the Zacks Consensus Estimate of 63 cents. However, the earnings were down 8.8% from $1.13 per share in the prior-year quarter. Core operating results exclude realized net investment gains/losses, non-recurring integration costs and other market impacts.

Results for the quarter primarily benefited by improved revenue and reduced expenses as a result of its expense re-engineering effort. However, core operating earnings reflect weak equity markets and the cost of maintaining high liquidity levels.

GAAP net income came in at $260 million or $1.00 per share for the third quarter of 2009, compared to a net loss of $70 million or 32 cents per share in the prior-year quarter.

Net revenues increased 19.7% over the prior-year quarter to $2.0 billion. The year-over-year growth reflects the improvement in net investment income, primarily driven by net investment losses in the year earlier.

Expenses declined 10.8% year-over-year to $1.6 billion. Core expenses decreased 4.5% year-over-year to $1.6 billion. Core expenses included ongoing expenses related to the 2008 acquisitions and higher average crediting rates on fixed accounts, offset by the impact of re-engineering and cost controls. During the reported quarter, the company recognized approximately $120 million in re-engineering benefits. The company expects to exceed $350 million in re-engineering expense benefits for full-year 2009.

The company continues to maintain strong liquidity, which we think will help it grow through acquisitions. During third quarter of 2009, Ameriprise’s excess capital position was more than $2 billion, including $1 billion from its decision to pre-fund acquisition and expected year end changes to capital requirements for the variable annuity business. As of Sep 30, 2009, the company had $0.8 billion in net unrealized investment gains.

Book value per share increased to $34.97 from $31.29 at the end of prior quarter and $30.73 at the end of prior-year quarter.

Last month, the company agreed to purchase the long-term asset management business of Bank of America Corporation's (BAC) - Analyst ReportColumbia Management unit for approximately $1 billion. Following the conclusion of the deal, Ameriprise will manage about $400 billion in assets. The transaction, which is expected to be closed in 2010, will be accretive to earnings and ROE within one year.

Though there are concerns related to weak equity markets and significant cost of maintaining high liquidity levels, we anticipate continued synergies from the company’s re-engineering and cost control initiatives. Also, the acquisition of Columbia Management will significantly help it grow in the upcoming quarters.

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