AMP Ameriprise Financial Inc

We are maintaining our long-term Neutral recommendation on Ameriprise Financial Inc. (AMP) after reviewing the company’s third-quarter 2011 results, which were significantly below the Zacks Consensus Estimate. The company reported improved net revenues, which were more than offset by higher operating expenses.

Moreover, steady capital deployment activities by Ameriprise raise our hopes for greater investor confidence on the stock. Though we remain concerned about the sluggish market recovery, an improvement in retail client activity and a decent growth in Advice & Wealth Management segment will drive operating leverage in the upcoming quarters.

Over the years, Ameriprise has grown through acquisitions, divestitures and spin offs. Further, the company continues to restructure its operations to serve the changing market needs. In May 2010, Ameriprise acquired the long-term asset management business of Columbia Management from Bank of America Corporation (BAC).

This acquisition has significantly pushed up the performances of the company’s retail mutual fund and institutional management businesses. Additionally, in November 2011, the company completed the sale of Securities America Financial Corp. We believe that Ameriprise will continue to restructure its business operations with an aim to remain profitable by focusing on its core business.

Ameriprise is an asset for yield-oriented investors. Last month, Ameriprise increased its quarterly cash dividend by 22% to 28 cents. Also, the company continues to buy back shares. In June 2011, Ameriprise had announced a new share buyback program, under which the company will be able to repurchase its common shares worth $2 billion through June 2013. We expect management to continue deploying excess capital in the form of dividends and share buybacks going forward.

Ameriprise is operating on a healthy balance sheet by utilizing enterprise risk management capabilities and product hedging to anticipate and mitigate risk. The drop in the company’s debt-to-total capital ratio, from 22.1% in 2008 to 17.7% in 2010, projects management’s ability to pose significant capital leverage in future.

On the flip side, despite lowering its deferred and acquisition related costs through re-engineering strategies, Ameriprise’s fixed interest costs and claims continue to rise. Though the company is working on increasing advisor productivity by tightening the productivity standards and improving the technology available to advisors, we believe more is required to be done to mitigate continued pressure on fee and asset growth, higher deferred acquisition costs amortization and hedging.

Additionally, Ameriprise is yet to recover from the effects of the financial crisis. Weak equity and other credit markets have brought down the market-driven asset-based fees and hindered the maintenance of high liquidity levels and lower cash product spreads.

Ameriprise currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

 
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