阿默普萊斯金融 (AMP) 2014 Q1 法說會逐字稿

Welcome to the Q1 2014 earnings call.

My name is Dawn, and I will be the operator for today's call.

(Operator Instructions)

Please note that the conference is being recorded.

I'll now turn the call over to Alicia Charity.

You may begin.

Thank you and good morning.

Welcome to Ameriprise Financial's first quarter earnings call.

Unfortunately, Jim Cracchiolo, our Chairman and CEO, is not feeling well and is unable to join today's call.

Walter Berman, Chief Financial Officer, will review financial performance in the quarter and then take your questions.

As a reminder we will be hosting our financial community meeting on May 14 at 9 AM.

The meeting information and registration are on our website.

During the call, you will hear references to various non-GAAP financial measures, which we believe provide insight into the Company's operations.

Reconciliation of the non-GAAP numbers to the respective GAAP numbers can be found in today's materials available on our website.

Some statements that we make on this call may be forward-looking, reflecting management's expectations about future events and operating plans and performance.

These forward-looking statements speak only as of today's date and involve a number of risks and uncertainties.

A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release, our 2013 annual report to shareholders, and our 2013 10K report.

We take no obligation to update publicly or revise these forward-looking statements.

And with that, I will turn it over to Walter.

Thank you, Alicia.

Jim sends his apologies and looks forward to providing you with an update on our strategy and business growth initiatives in a few weeks at our Investor Day.

I will touch on business highlights and focus on the financial results.

Ameriprise delivered excellent financial results again this quarter.

Business leading indicators remain strong with solid revenue growth and disciplined expense management.

Assets under management and administration increased 11% to $783 billion, reflecting strong advisor client flows and positive markets.

Let's start with operating net growth on page 3. In total, operating net revenues grew 8% led by strong growth in advice and wealth management up 13% and asset management up 8% versus last year.

This growth, coupled with effective expense management, resulted in a record 15.8% margin in AWM and a 39% margin in asset management.

Together, advice and wealth management and asset management, operating earnings grew 36% from last year and now account for 61% of earnings, representing substantial progress in shifting our business mix.

Turning to slide 4. Operating return on equity reached an all-time high of 20.8%, up over 400 basis points from last year.

Operating earnings per share reached a new record level of $2.04, up a strong 28%.

The combination of our strong financial results and the level of free cash generation is a strong point of differentiation for Ameriprise that is creating clear shareholder value.

Moving to slide 5. We continue to deliver excellent metrics and financial results in advice and wealth management with pretax operating earnings up 39%.

This was driven by asset based activity, which was up 18%; and transactional based activity, up 6%.

Clients are engaged and activity increased again this quarter with exceptionally strong wrap net inflows.

After a record year in 2013, wrap net inflows hit another record level in quarter one of $4.2 billion.

Total wrap assets are now $159 billion, up 19% from a year ago, and total client assets were up 12% to $418 billion.

Importantly, our advisor force remains strong, and retention and satisfaction rates remain high.

We continue to recruit good, productive people, and brought in another 76 experienced advisors in the first quarter.

We have also seen significant margin expansion, which reached a new record high of 15.8% in the quarter, up 300 basis points from last year.

We delivered this strong business and financial performance in the face of an $8 million headwind from low interest rates.

The spread earned on the $19.3 billion of brokerage cash decreased to 16 basis points from 37 basis points a year ago.

At the current level, the downside risk from continued low short-term interest rates is marginal.

That said, there is substantial upside opportunity associated with an increase in short-term interest rates.

Overall, it was another excellent quarter for AWM.

We delivered good growth and profitability in both the employee and franchise channels.

The business is consistently delivering the results we indicated that we could achieve.

Turning to asset management on slide 6. Revenues increased to $807 million from $746 million last year, primarily from growth in assets under management.

Assets under management increased 8% from market appreciation offset by net outflows, which I will cover in more detail in a moment.

We also continue to manage expenses tightly.

These have resulted in strong earnings growth of 33% to $183 million and margin expansion to 39%.

In the quarter, we had a total of $3.9 billion of net outflows.

Outflows were concentrated in two areas.

First, we had $1.8 billion of outflows from legacy relationships, including a legacy insurance mandate at Threadneedle and a former parent affiliated distribution relationship at Columbia.

Secondly, we had $2.1 billion of net outflows associated with a manager change on the US equities team at Threadneedle.

The outflows are in line with what we expected, and we may see some additional outflows this year.

Excluding these items, results remained mixed.

At Columbia, excluding the legacy outflows I discussed, retail outflows were $2.2 billion and included $1 billion of outflows in the defined contribution investment only channel.

This reflected poor performance in a few funds, and changes have been made to improve results.

Overall, we are gaining traction.

We are getting some platform wins and have been added to a number of model portfolios and continue to improve wholesaler productivity.

However, this is taking a bit of time to translate into gross sales.

At Threadneedle, excluding the PM departure, retail inflows were $1.2 billion with particular strength in our UK and global equity products.

In April, we won a $5.5 billion retail mandate to manage assets in a strategic managed fund, which holds a combination of global and UK domestic equities and bonds.

We expect it will fund in the second quarter.

In institutional, we had net inflows of $0.5 billion excluding the legacy relationships I previously mentioned.

We are winning mandates and continue to have a good pipeline.

Overall in asset management, we know that we need to execute well to strengthen our position in the marketplace and drive profitable net inflows.

We are making good progress in growing higher fee business while reinforcing strong client relationships and building our global organizations.

Our teams are collaborating across multiple areas of our business, and we are launching a number of investment products and solutions using the combined capability of both Threadneedle and Columbia.

As I have discussed, there is more work to do, but we are moving in a positive direction.

Turning to annuities on slide 8. Pretax operating earnings were $176 million.

Variable annuity pretax operating earnings grew 38% from a year ago, driven by the impact of clients moving to managed volatility funds and improved equity market performance offset by lower mean reversion.

Existing policyholder movement to manage volatility funds remains very strong and has been higher than we anticipated.

This resulted in a benefit to earnings again this quarter as the managed volatility funds require lower reserves.

In fixed annuities, pretax operating earnings were $31 million, down 16% from a year ago.

These results are in line with our expectations, particularly given lower overall market sales.

Fixed annuity account values declined 5%, primarily reflecting continued elevated lapses on products sold through third parties where rates have been reset.

This is offset by the change of crediting rates, which decreased the level of spread compression in the quarter.

Approximately $1 billion of this lot will be repriced in the balance of the year.

This initiative is proceeding in line with our expectation in terms of lapse and the favorable impact on spreads.

Moving to protection on slide 9. Pretax operating earnings were $59 million, down significantly from the prior-year due to losses in auto and home.

Our life and health businesses remain solid, and earnings are in line with expectations.

We continue to have good sales, up 22%.

Claims experience was good, although at a higher level than last year.

Auto and home earnings were impacted by severe winter weather that affected the industry and by a reserve increase.

Based upon additional analysis and information regarding continued adverse development of bodily injury claims associated with accident year 2011 and 2012, we increased reserves.

We believe that this reserve strengthening appropriately addresses this issue.

To date the 2013 accident year has continued to have better experience than 2011 and 2012.

That being said, our auto and home business metrics are good.

We had steady policy growth, up 11% from a year ago.

We are working to deepen our relationships with our affinity partners and our own advisors, and we are seeing nice progress.

Auto and home is rated one of the best firms for client satisfaction and retention also remains high.

Let's turn to capital on slide 10.

We ended the quarter with continued strong balance sheet fundamentals, approximately $2 billion of excess capital and an RBC ratio of over 500%.

We returned $457 million to shareholders through dividends and share repurchase in the quarter.

We remain committed to continue to raise our dividends and announced a 12% increase yesterday.

This brings our payout ratio to the high 20% range.

Additionally, our Board of Directors approved a new 2.5 billion share repurchase authorized over the next two years.

Return of capital is an important driver of our ROE expansion.

We reached a record 20.8%, which is above our target range of 15% to 18%.

With that, I will take your questions.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions)

[Klanis Kamok], UBS.

A couple on advice and wealth to start.

First I guess the margin as you discussed was 15.8% in the quarter.

And I think the commentary suggested that expense -- the expenses in the quarter were a little light.

I'm just wondering, how do see that margin progressing over the course of 2014, particularly as expenses start to ramp up?

Okay, taking a look at -- if you look at the year for 2013, it was 13.8%.

We ended at 14.2%.

Looking at it and looking at the revenue growth we see and trying to manage our expenses -- basically flat or little bit above that.

Probably, I would say, somewhere around 150 to 200 basis points above that should be a reasonable target range for the average for the year.

So 150 to 200 over the 13.8%?

Yes.

That is correct.

Got it.

And I guess on the employee advisor count, I think we talked about this last quarter, but you lost another 50, I guess sequentially.

I know there was some nuances last quarter that caused the advisor count not to grow.

But I am just wondering at what point will we start to see the employee advisor count actually start to grow, because my sense is that is a decent driver of the margin upside in that channel.

Yes.

And, again, as Jim has said, the issue -- the number's important, but it is actually the quality of the advisor [breen] which from a trailing 12 and the AUM we're bringing on is substantially higher than we have seen in 2013.

So Jim has indicated that we certainly at one point will start to grow the number, but really the most important thing to concentrate it on is the quality and the activity levels and the AUM they are bringing which really leverages the profitability of the AWM activity.

Again, we are looking at and we are dealing with trying to drive profitable growth, and so on that basis, that will be the focus, and certainly I agree with you.

The more you bring on -- but, again, profitable advisors is the key here.

Okay, got it.

Are you still running sort of in the 60% to 70% utilization of capacity in that channel?

We are actually approaching over 70% right now.

Okay, got it.

Last one is just on Columbia retail flows.

I just want to go back to your prepared remarks.

It seemed like your comment suggested that things are taking a little bit of time in terms of getting on these third-party platforms.

I just want to understand are your comments consistent with what you've said in the past, or are you sort of suggesting to us that perhaps things are taking even a little bit longer than you had thought previously?

I think it's taking a little bit longer.

I think we're making good progress, but it is taking a little longer from that standpoint, and certainly we are seeing sales that are good and redemptions are slowing, so we feel good about it, but it is certainly taking a little longer than we indicated.

Okay.

Thanks.

Bill Katz, Citi.

Hi, this is Steve Fullerton filling in for Bill.

Just touching on advice and wealth again and the margin.

Some of your competitors have talked to increased competition for advisors.

To what extent are you guys seeing maybe a tick up in Q1 in competition, and how that might affect the margin going forward?

Yes, we are seeing some tick up.

Again, we are staying within the target zones that we talked about on the pay backs from a P&L standpoint under three years.

Probably the biggest thing that is causing more -- I would say resistance in terms of moving over is the market.

When you get markets that are this strong, it does create a complacency.

But we are still able to attract the type of advisors we want, which will drive profitable growth.

And it certainly is a bit more challenging, but the team is doing an excellent job.

And then just the Threadneedle, the $5.5 billion win that you guys had.

What are kind of the main drivers there?

And behind that, how does the pipeline look for these type of wins?

And just digging in specifics, what drove the win on that mandate?

Again, the mandate was based upon our capability and certainly the demonstrating not just the performance of the PM, but the total capability of Threadneedle.

Once they decided to leave their prior investment house, we basically went into a bidding with them, and certainly they demonstrated the capabilities that we had, and they felt comfortable.

As far as pipeline, I can say as we talked about in the announcement, if you -- the US equity was down $2.1 billion, but if you back away from that, it was very, very strong, growth both in retail and institutional, so there is a very good pipeline there.

And so we are feeling quite good about that, and certainly we -- we're, I guess, favorably taken with awarding of the $5.5 billion from St.

James.

It was certainly a good recognition of our capability.

Okay.

Great.

Thanks.

Nigel Dally, Morgan Stanley.

I guess in the past you've talked to -- with the advice margins about the opportunity to significantly improve the margin from the employee advisors.

Hopefully you can comment on whether some of the improvement that we saw this quarter was kind of driven by that channel with that -- how important was that as a driver for the improvement we saw?

I'm having a little trouble, because you are breaking up.

Could you repeat that question?

I just don't want to not answer it appropriately.

Sure, absolutely.

So the employee advisors, you talked about them having margins in the low single digits before.

Did we see -- was an improvement in the margins from the employee advisors one of the drivers that we saw improving the overall advice margins this quarter?

Yes.

Generally what is happening, as we talked about, we are clearly seeing an improvement.

And as Jim has said, it's moved from actually a loss situation into a positive.

Its margins are in the 4% to 5% range, and what you're having is again advisors being attracted in.

They are vintaging out, and they are also making a greater contribution to the fixed base.

So we certainly think it is on the right trajectory to sort of yield the target of profitabilities that we see, but that has certainly occurred in the first quarter.

Great.

Thanks.

(technical difficulty) property and casualty I guess another charge this quarter raises the question over whether those operations are really strategically important for Ameriprise?

Do the charges that we saw lead Management to reassess the strategic importance of those operations to the Company looking forward?

Again, you're having a break, but I think I got the question as it relates to PC.

The charge we took in the quarter, yes, back in the fourth quarter, we took a charge of $20 million relating to bodily injury and uninsured motorists.

What that related to was the 2011, 2012, primarily.

And what was happening we were seeing more legal claims moving into legal status from [nasca], which elongates them and certainly takes on a different reserving profile.

We saw that continue to deteriorate after extensive review in the first quarter, and that is why we decided to take the reserves up.

And -- but we also took a look at 2013.

While certainly it's a way to travel with that, but certainly the initial indications that some of the actions that we took place in 2012 and 2011, as it relates to both the pricing risk changes that we made and also looking at it from a credit linking it to pricing, and then focusing on more eliminating or slowing down on the non-client is really starting to pay dividends.

It's a little early for victory, but certainly we are seeing concrete evidence of improvement.

The business is an excellent business.

It really does -- the service levels, the capabilities, and meeting their affinity group is a real asset to the firm, and, yes, we are dealing with this and looking at it, and we feel that we are making the changes, and it's a valuable portion of the firm.

While it is not core, it certainly adds a good diversifier and is an important element.

Again, no guarantees, but we certainly feel we are dealing with it and they have good growth.

And, as a matter of fact, they just added another line of business in the travel accident, which, again, will add another dimension to their capability.

So we think, again, working with them to look at and improve the value proposition as we move forward.

Great.

Thanks, Walter.

Alex Blostein, Goldman Sachs.

A couple questions.

I guess starting with AWM -- or I guess continuing with AWM.

It sounded like there's been a slightly elevated sale of non-traded REIT products in the quarter.

We've seen a similar dynamic from some of the competitors.

I was wondering if you guys could size how much that has contributed to revenues this quarter kind of over and above the more normal run rate.

And then I was hoping you can just give us an update on generally how things have progressed into April given the fact that markets obviously got a little bumpier, so I was just kind of curious how the retail engagement overall has fared in the month of April.

Again, it's not -- certainly the activity contributes to it, but I will say we also saw a slowdown in annuity sales, which negated it to a degree, but it's not really material.

The real -- as I mentioned, was the impact of the expense, and again it's the timing of the expense.

We get certainly syndicates and REITs coming through at different times.

We don't know, but it was not a major, major element.

We certainly had great performance in the quarter without that.

I have not seen, looking at the information that I have seen, that I believe our productivity and performance characteristics and the growth in our assets and wrap assets are continuing.

So, again, there's a little -- if you get into it, and I don't want to make excuses.

There's a little weather activity going on in the first -- as you saw in our auto and home which certainly didn't help the situation, but I think we are tracking.

Got it.

So staying on the topic, you guys highlighted 76 financial advisors that came over in the first quarter in the kind of more experienced bucket.

Can you give us a sense of the productivity for those advisors relative to 450,000 to 460,000 run rate that you guys are seeing in the rest of the book?

I don't have the exact number.

I don't -- I will get that back to you, but it's certainly -- my recollection was certainly it was above that, but let me get back to you on that.

Got it.

But overall the experienced bucket is continuing to kind come in above the run rate of what's in the book overall.

Absolutely.

The quality of what -- Alex, the quality of what we're bringing on again is certainly at a higher level both from production and from assets under management.

Last one for me just shifting to I guess the asset management for a second again.

Threadneedle -- obviously a challenging area with the US product and then obviously a nice win from a big competitor in the UK.

Can you help us understand, I guess, what else is at risk from the US product?

I know you said a couple billion dollars left this quarter, but my understanding is there still a decent amount of assets left.

How do you guys plan on keeping these assets intact?

And then the flip side, the $5.5 billion win that you had, can you give us a fee rate on that?

Let me deal with the first one.

As we said, we do anticipate there will be additional outflows.

The Threadneedle team has done a superb job, both from the team that we have in place with Diane.

She is -- she's been there.

She's excellent.

We have supplemented with people from the US, also, and the full team out of -- out of Threadneedle.

Their performance has been very, very good.

In addition to just PM performance the entire support of the firm, both from distribution, seeing every client, discussing it, so we do feel there will be some.

It will come through in different times, but certainly we do not believe that anywhere near the full amount is at risk, and this is actually pretty close to where we thought it would be.

We'll see -- second quarter it will certainly diminish from that, and we will work our way through -- and the team is working very, very hard, and the performance has been very good.

As far as the fees, we really don't disclose that, but I can say it's less than the US equity one.

All right?

To put it in proportion.

All right?

Got it.

Great.

Thank you very much.

Suneet Kamath, UBS.

I just wanted to follow-up on the employee advisor margin.

I guess the 4% to 5% range that you're talking about for, I believe it was the first quarter, where do you think that can get to over time as these advisors continue to ramp up without the benefit of short-term rates?

If we just leave rates where they are, where can that 4% to 5% get to over the next couple of years?

Double and triple.

Double and triple over the next couple years without short term rates?

Right.

Got it.

Okay, thanks.

Thank you.

I will now turn the call back over to Walter Berman for closing comments.

Listen, thank you, everybody.

I just look forward to seeing you at the FCM and, again, thanks.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.