From the June 2011 issue of Research Magazine • Subscribe!

Securities America Up for Sale, Ameriprise Says

Ameriprise Financial said it was looking to sell Securities America, its troubled broker-dealer, and also shared that its first-quarter net income was $241 million, or $0.94 a share, vs. net income of $226 million, or $0.85 a share, a year ago. These results, which represent a 6 percent gain in net income and an 11 percent jump in EPS, include an after-tax charge of $77 million, or $0.30 a share, for a previously disclosed legal matter at Securities America. Excluding the charge, the company had EPS of $1.35. Analysts had expected the company to earn $1.33 per share on sales of $2.7 billion. The company’s actual revenue grew 22 percent to $2.6 billion in the first quarter of 2011 from $2.1 billion last year.

In disclosing this after-tax charge, management at Ameriprise also said it “has decided to identify an appropriate buyer for [Securities America]. A sale would allow SA to focus on growth opportunities in the independent channel and would allow Ameriprise to devote its resources to the Ameriprise branded-advisor business.”  The sale of Securities America came down to a decision to eliminate “excessive risk” that did not bring the company enough “related reward,” said Chip Roame, head of Tiburon Strategic Advisors in Northern California, in an interview.  “Ameriprise is a large company primarily involved in three businesses … all of which have far higher margins than an independent broker-dealer,” he explained.

On April 15, 2011, SAI and its holding company, Securities America Financial Corp., entered into settlement agreements related to the sale of private placement securities issued by Medical Capital and Provident Royalties that resulted in a $118 million pre-tax charge in the first quarter of 2011, according to Ameriprise. The $118 million charge was made in addition to a $40 million pre-tax charge in the fourth quarter of 2010.

“We appreciate the many years Ameriprise has committed to our independent business model. Their willingness to provide the financial means for the Medical Capital and Provident Royalties settlement leaves Securities America in a strong financial position to continue operations with no disruptions,” said Janine Wertheim, spokeswoman for Securities America, in a statement. “Our record first-quarter results make this an opportune time for an ownership change.”

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