Acquisition of Columbia Management a Great Deal for Ameriprise

Ameriprise investors should be doing the Carlton dance:


This is absurd, in a good way, depending on whether you own shares in Ameriprise (AMP) or Bank of America (BAC). I'm awaiting call back from Ameriprise to get some extra detail, but in the meantime....

Ameriprise Financial announced that they're buying the long-term piece of asset management business Columbia Management from Bank of America. Ameriprise share are up 12% on the news, and BAC shares are down 2%. Why?

Because Ameriprise essentially paid $1 billion for about $300 million in expected annual net income for this business -->> a Price-to-Earnings ratio of less than 3.5! And that's based on the June '09 quarter's number, which is likely headed higher thanks to improved equity market performance. What the HELL was BofA thinking??????

Ameriprise is picking up $165 billion in assets under management ($93m equity, $75m fixed income) for $1 billion -->> they're paying 60 basis points for this, which should be pleasing to them and SCARY to other asset management outfits, as it's a much lower percentage of assets than these sales often fetch. Importantly, Ameriprise is not buying the "cash management" business that BofA has had to sink billions into over the last couple years.

This deal will be massively accretive to Ameriprise earnings, even before they pull costs out of the business - a fine job done by management!

Details on Columbia, from BofA's most recent 10Q:

Discloure - No position

Comments

[Asitoughtobe:]

Great article. I can not wait to see how the market responds to this sale. BAC's great marketing team would rather have everyone focus on the fact that Ken Lewis is departing.

Healthy Trading!

Sep 30 10:12 PM