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American Express To Sell AEFA (Updated)

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A New York payment card company wants to spin off its financial advisory unit.[@@]

The card company, American Express Company, says it hopes to separate from American Express Financial Advisors, Minneapolis, by Sept. 30.

American Express is splitting the companies so it can focus on its charge card, credit card and payment processing network operations, executives say.

American Express plans carry out the split by putting 100% of the common stock of American Express Financial Corp., the subsidiary that controls AEFA, into the hands of American Express shareholders.

American Express Chairman Kenneth Chenault says the deal should be good for AEFA as well as for American Express.

“As an independent company, AEFA would not have to compete for capital or management resources with other American Express businesses and therefore would be able to react more quickly to market opportunities for new products, partnerships and expansion,” Chenault says in a statement about the proposed spin-off.

In 2004, AEFA generated net income of about $700 million on $7 billion in revenues. It has more than 12,000 advisors serving more than 2.5 million clients, and it owns or manages more than $410 billion in assets and administers more than $145 billion of life insurance in force.

James Cracchiolo, chairman of AEFA, would keep his position after the spin-off, American Express says.

One of the operating companies involved in the spin-off would be AEFA’s insurance affiliate, IDS Life Insurance Company.

Analysts at Fitch Ratings, New York, have reacted to the proposed spin-off by lowering the insurance financial strength ratings of IDS Life and its subsidiaries to AA minus, from AA, and putting the ratings on Rating Watch Negative, because Fitch now will be rating IDS Life as a stand-alone company.

“Fitch views IDS Life’s profitability as adequate,” the firm says in a comment about its rating moves. “However, the group’s heavy dependence on annuity earnings, which can be more volatile than other insurance related products, will be an area of focus.”

Fitch also wants to know about AEFA and IDS Life’s plans for continuing to attract and retain high-quality financial advisors, Fitch says.


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