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Rating:Three Things to Know About Columbia From Ameriprise's Q2 2013 Earnings Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, August 26, 2013

Three Things to Know About Columbia From Ameriprise's Q2 2013 Earnings

Reported by Casey Quinlan

Ameriprise Financial reported adjusted earnings per share of $1.69 for the second quarter compared to $1.13 a year ago and revenue rose 6.97 percent to $2.7 billion. Ameriprise's earnings beat the mean analyst estimate of $1.62 but missed the revenue estimate of $2.77 billion, reported Wall Street Cheat Sheet. Analyst expectations on outlook have improved however, raising the average estimate for profit to $1.68 in the past three months from $1.67.

Its asset management net revenues came in at $822 million for the quarter compared to $707 million a year ago. Ameriprise posted Columbia Management's [profile] AUM as $459 billion compared to $446 billion a year ago and Ameriprise's total segment net flows came to outflows of $2.1 billion versus a loss of $6.6 billion a year ago.

MFWire found three important points to note from Amerprise's Seeking Alpha transcript of the earnings call.

POINT 1: Ameriprise is making progress with wholesaling and distribution with third party distribution and is now working to get into model portfolios and through gatekeepers.

POINT 2: There will be "lumpiness" in the third quarter due to legacy parent issues around pensions.

POINT 3: It will take a little time for Columbia Management to establish itself as it wasn't in the same shape as Threadneedle when it was acquired.

And now to elaborate on those points:

POINT 1: Ameriprise is making progress with wholesaling and distribution with third party distribution and is now working to get into model portfolios and through gatekeepers.
Suneet Kamath of UBS Investment Bank: Got it. And then, just the last question I have is on the Asset Management business. I guess, we've talked for a while now about expanding into third-party distribution channels. And I'm just wondering, as you think about that strategy, what are the levers or the catalysts that you have to increase your penetration there? In other words, is it just about performance of the funds or are there some other competitive advantages that you bring to the table that could increase penetration in that channel?

James Cracchiolo of CEO, chairman, and chairman of the executive committee: Yes. I think as we talk about growing our third-party distribution -- and again, I'll separate the retail from the institutional. In the retail side of the business, it's really getting in front of the various distribution partners with our product. As you would imagine, they have a number of products already on their platforms. They've utilized a number of carriers. And so what we're doing is showing them what our Columbia lineup is. We had reestablished our wholesaling and the distributions as we have merged the wholesaling.

And now we need to continue to make progress working with them to get into the model portfolios, through the gatekeepers and on the various platforms for the different types of products that we have. So it's not as though we don't have the products nor the performance, we do. It just takes time to build those relationships back and see our products versus the other ones that they're offering and getting our wholesaling and capabilities attached to that.

So we are making good progress. As you know, it's a very competitive area, but one that is large...Now in the institutional space, we have broadened our lineup, and we will continue to broaden our lineup as we're actually developing some of our other products in certain categories. So in that case, it's more expending some of our product lines as we hit full fruition with the number of years et cetera with some of the merged platforms. So I feel like we will make good progress, however, it doesn't come as quickly as we'd all like.
POINT 2: There will be "lumpiness" in the third quarter due to legacy parent issues around pensions.
Alexander Blostein of Goldman Sachs Group: Another quick follow-up, I guess, on the Asset Management business. The institutional business, I guess, was a little bit better in Columbia this quarter, and I know things can be fairly lumpy, but maybe you can give us maybe a little more granularity on where the kind of pipeline stand today versus where they were a quarter ago. And then maybe the mix of those pipelines. So what kind of, I guess, strategies you guys had seen most traction on the institutional front?

Cracchiolo: Okay. So our pipeline for institutional actually continues to look quite strong. We also have won a number of mandates that still are unfunded, just like we had in the first quarter, that funded in the second quarter. We won some nice mandates in the second quarter. They're unfunded and hopefully they'll fund in the third quarter. We continue to have a good pipeline as we look out today and that pipeline has grown. Having said that, as we look to the third quarter, we may get some lumpiness for some other ex-parent activity legacy things around pensions, et cetera in the Columbia business.

We'll get the usual from the Zurich. So I think we'll find that as second quarter, as we showed you, we had a nice pick-up in the third-party. However, when you look at the absolute flow, that was offset a bit by some of the legacy parent stuff, which would be at lower basis point. So we might experience some of that. We can't always optically know exactly when the timing is, but we know there's some of that, that will come out. We think it will come out in the third quarter.
POINT 3: It will take a little time for Columbia Management to establish itself as it wasn't in the same shape as Threadneedle when it was acquired.
Eric Berg of RBC Capital Markets: It's interesting to me that it feels like and it seems like the retail picture at Threadneedle has been materially better than that at Columbia. Would that be your perception, too? And if so, why this contrast? When you think of these 2 money managers and their mutual -- retail mutual fund businesses. If it is in fact the case that in general Columbia has been in an outflow mode, Threadneedle in inflow mode, why the difference?

Cracchiolo: So Eric, very clearly, let me take Threadneedle first, okay? Threadneedle, for many years had excellent performance. But at the beginning, just having excellent product and performance didn't get them to win business in the U.K. because again, in the past, they worked more closely with Zurich, and they focused on Zurich as a part of their proprietary house for that business. So when we purchased Threadneedle, we worked with Threadneedle to really diversify, invest appropriately so that we took more time and effort. But it took years for us to get onto those platforms and channels in the U.K. I mean, last year, I'll give you an example, even with some of the larger players there, we actually, for a few quarters, actually became the #1 seller in the U.K. because we had good performance.

But we've been there, and we took the time to build those relationships and positioning. And we had great product that was what was in demand there. And that's what we're doing right now with Threadneedle in Europe. So again, 2 years ago, we weren't really selling much in Europe. We're trying to build that. Now, we're starting to sell in Europe after it took us the time to build. And so that's what's happening at Threadneedle. Columbia has good product and good performance. Having said that, a number of years ago, Columbia didn't have that performance, and they were dealing with a lot of their own things and the roll up of those firms from Fleet and Bank of America and Nations and all that and going through their changes.

But they also had big focus on when they merged into U.S. Trust business and the Asset Management business with the Fleet business, with the Bank of America business, there was roll up with Nations. So over time, those things have to settle, they actually want 1 brand called Columbia. And so it wasn't as though they were firmly established for a long period of time. And so when we acquired them, they were on their way. But when we acquired them, that disrupted a little bit, too, right? It put things on hold, we had to merge funds, there's a number of changes that occur. So that's exactly what's happening. So I actually see this as still a terrific opportunity, but it does take more time than we once think about because it wasn't as though Columbia was all settled and established for a long period of time prior.
See the transcript of Ameriprise's earnings call and the earnings release for more on how Ameriprise is doing.  

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