business

For much of the year, Ameriprise Financial Inc. watched from dry ground as its peers in the financial services industry drowned in hefty credit-related losses. But trouble on Wall Street dampened the Minneapolis-based financial planning and insurance company in the third quarter.

Ameriprise reported a net loss of $70 million, or 32 cents per share, from June through September, compared with net income of $198 million, or 83 cents per share, in the previous three months. Analysts had expected the company to earn 82 cents per share, according to a survey by Thomson First Call.

Total net revenue dropped 22 percent to $1.68 billion because of declines in investment income related to previously reported credit-market losses. Positions in failed Lehman Brothers and Washington Mutual, as well as trouble with money market mutual funds, cost Ameriprise $301 million in after-tax losses.

"We've reached a point where no one is immune to such extraordinary dislocation," Ameriprise Chairman and CEO Jim Cracchiolo told analysts and investors in a conference call.

Excluding those one-time events, revenue was down 6 percent, better than Wall Street had predicted. Third quarter core operating earnings were $1.04 per share, compared with 99 cents per share during the same period in 2007.

Ameriprise was also harmed by the bear market. Both its RiverSource and Threadneedle brand mutual funds experienced outflows. Financial advice fees, which are linked to assets under management, declined 10 percent because of the stock market's double-digit slide. Net investment income decreased to $62 million -- a drop of $439 million, or 88 percent, driven mainly by losses in troubled mortgage-backed securities.

On the bright side, executives assured analysts that although market conditions have affected the company unfavorably, they have an iron grip on expenses and the company balance sheet remains strong. "The economy and market environment remains very tough but we continue to feel good about our financial position," Cracchiolo said.

Liquidity shouldn't be a problem, with $4 billion in cash and cash equivalents; that's more than it had in the second quarter. Ameriprise expects to have $1 billion in excess capital left once it pays for the multimillion-dollar acquisitions of J &W Seligman and H&R Block Financial Advisors. Both acquisitions are expected to close in the fourth quarter.

The company's insurance business also gained.

Client retention strong

Despite the challenging markets, clients didn't dump their advisers. Client retention remains strong because of Ameriprise's emphasis on long-term financial planning, Cracchiolo said. Sales of branded financial plans are up 9 percent from a year ago and clients gave $2 billion to advisers to invest in conservative assets such as cash.

Money market mutual funds have caused headaches for Ameriprise in recent weeks. Because of Lehman Brothers holdings, its Riversource Cash Management Fund would have "broken the buck" -- industry-speak for falling below $1 per share -- if Ameriprise hadn't stepped up with $57 million of its own money.

The company is embroiled in a lawsuit with Reserve Management Co. of New York because its Reserve Primary Fund fell below $1 per share in September. Ameriprise and its clients have $3.2 billion stuck in the now-frozen fund. Ameriprise alleges that the company tipped off larger institutional clients before announcing its troubles, resulting in a $40 billion run on the fund.

"Ameriprise felt the need on behalf of those mom-and-pop investors to jump in aggressively, put a hold on things, make sure things were being handled adequately and fairly for all the investors and not just the big guys," said Will Stute, an attorney at Faegre & Benson representing Ameriprise.

If the matter is not resolved, Ameriprise has agreed to make investors whole to the tune of as much as $33 million if the Reserve distribution is liquidated at below $1 per share. Reserve has yet to announce a date for when it will distribute funds, and how. "We're disappointed with the lack of action," Cracchiolo said.

Ameriprise released earnings after the market closed Wednesday. Shares ended at $21.79, down 8.6 percent.

Kara McGuire • 612-673-7293

3rd quarter FY2008, 9/30

9 months

Figures in millions except earnings per share.