Morningstar | Ameriprise Reported Decent 4Q Results Despite Equity Market Turbulence
Ameriprise Financial reported decent fourth-quarter results, despite the company having a high proportion of revenue tied to assets under administration that took a dive during the quarter along with equity markets. The company reported net income of $539 million, or $3.76 per diluted share, on $3.2 billion of net revenue in the fourth quarter of 2018. On an operating basis that primarily excludes the effect of model assumption changes for the company’s insurance and annuity businesses, operating earnings were $544 million, or $3.80 per share, compared with $485 million, or $3.15 per share, a year ago. On a sequential basis, net revenue decreased $113 million, or 3%. This is a relatively small decline considering that over 60% of the company's revenue comes from its asset and wealth management segments and that the S&P 500 fell over 13% in the fourth quarter. The company's assets under management and administration decreased 10% sequentially and 8% from the previous year to $823 billion. We don't anticipate making a significant change to our $153 fair value estimate for narrow-moat Ameriprise.We view the company applying to change its trust bank to a federal savings bank positively. It's been a trend across the wealth management industry to sweep client cash balances into a company's own bank subsidiary. This has been pursued by other investment service firms such as Raymond James Financial and Charles Schwab. In the fourth quarter, the company had a brokerage sweep fee yield of 1.95% compared with Raymond James that had a net interest margin in its bank of 3.25%, so Ameriprise could garner an extra 100-basis points or more of revenue on client cash balances from this move.
Ameriprise is also reviewing its auto and home insurance business. The company could sell this business and free up capital. Currently, $1.5 billion of capital is allocated to the protection segment.
Ameriprise Financial is a holding company. Through its subsidiaries, the company provides a range of products and services to individual and institutional clients. The company's segments are: Advice and Wealth Management, which provides financial planning and advice, as well as brokerage services, to retail clients through its advisors; Asset Management, which provides investment management, advice and products to clients through the Columbia Threadneedle Investments? brand; Annuities, which provides variable and fixed annuity products to clients; and Protection, which provides products to address the protection and risk management needs of the company's retail clients including life, disability income insurance.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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