Ameriprise Financial, Inc.

We learned that Ameriprise earns Hudson Wallet's top performer recognition in three important categories. Unbiased and puts my interest first, explains things in understandable terms, and understands me and shares my values. These are very important attributes to be known for, and they help set us apart as a leader in advice. However, we're not resting on our laurels. We're investing in our end-to-end client experience to take it to the next level of engagement and to help advisors grow productivity. Let me touch on a few of the key areas. First, we continue to invest in our digital capabilities, with digitally enabling our goal-based device capabilities to make it even easier for advisors to fully engage clients and deliver the value and service they're seeking. We've just begun to roll out this training in the field and are pleased with the initial results. I'm already receiving advisor updates and client stories and they're very positive. Many clients feel more engaged and confident and have shared that these are some of the best conversations they've had with their advisor and they're beginning to move more money and assets to Ameriprise. Second, we're implementing a new customer relationship management platform and we are on track to deliver it this year. We're further developing our investment advisory platform to provide a streamlined and customized experience for clients and advisors to help in the management of their investments. And fourth, we're investing to expand our banking solutions, and I'll share an update on our bank investment in a moment. Given these growth investments, you saw we had higher expenses in the quarter. While we're making these investments, we will continue to re-engineer and reduce expenses so that the incremental expense is very manageable. We are dedicated to delivering a comprehensive, best-in-class Ameriprise client experience more fully and to more consumers who seek it. As a leading wealth manager, we're building an even stronger position, and we feel very good about the significant opportunity before us. Now I'll move to our insurance, annuities, and asset management businesses. In INA, we're providing good value and generating free cash flow with strong books supported by excellent risk management. These solutions complement our third-party offerings and help address clients' retirement income protection needs, and they're part of a high-quality experience we're known for. With regard to the quarter, sales were slower in January, but they started to come back nicely and we're getting back to a more normal run rate. In asset management, it's clearly a tough environment, and there are real industry pressures for all active managers, which we're also feeling. However, our asset management business is part of our larger enterprise and supported by the strength of Ameriprise rather than a standalone active manager. We're investing in the business while making tradeoffs to manage expense levels. Our margin in asset management is competitive, but was clearly pressured in the quarter, and you're seeing this with others. In terms of assets under management, we ended the quarter with $459 billion, which was down from a year ago but up 7% sequentially. After a tougher fourth quarter last year, short-term equity investment performance improved in the United States in many of our strategies, and longer-term performance also remains quite good. In addition, short- and long-term taxable and tax-exempt fixed income performance continues to be strong. In EMEA, our short-term performance in U.K. equities weakened. However, European equities bounced back nicely, and long-term equity and fixed income track records continue to be good. Moving to our flow picture, though we remain in net outflows, the team is very focused on gaining traction and we have some improvement when compared to fourth quarter last year. Here are the key themes for the first quarter when compared to a year ago. Former parent outflows were better year over year. Global institutional outflows were higher due to clients' asset allocation calls, some performance challenges, and a slowdown in mandate fundings. However, recently, in the areas where we had some strategies underperforming, we saw improvement. In U.S. retail, we remain in net outflows but are beginning to benefit from our investments in data analytics and our segmentation strategy. We did improve in the broker-dealer and independent channel. We were positive in five of our top seven firms. Equity fund flows improved somewhat from the fourth quarter, though we still experienced outflows. and fixed income flows were essentially flat as we didn't get as much of a boost as the industry in ultra-short and short-duration products where we're not a big player in this tight margin asset class. In the UK and European retail, the ongoing uncertainty about Brexit and slower economic backdrop in Europe created flow challenges. With regard to Brexit in particular, the team has been supporting clients and taking actions to prepare the business. During the quarter, we completed a transfer of EU client assets from our OIC funds into Lux Stomacel CCAF products. While this pressured sales and increased expenses, it will be beneficial to gaining flows on the continent going forward. Quarter after quarter, we've been very proactive in expense management while we invest for the long term, including in our data capabilities, operating platform solutions, and expanding in Europe. As I said at the beginning of the year, We recognize the ongoing challenges we in the industry face and will continue to make the changes necessary to compete. Now, when I opened, I indicated some additional strategic actions we're taking to drive future growth and value creation. First, as many of you have acknowledged, Ameriprise has a strong record of returning capital at a differentiated level and we're adding to it again. In the quarter, Ameriprise returned $482 million to share repurchases and dividends, which is consistent with what we've been returning. We also announced a new $2.5 billion share repurchase authorization. And yesterday, we declared another increase to our quarterly dividend, another 8%, which will bring our capital return even higher. In fact, This is our 12th increase over the past 10 years, something we're very proud of. Second, as many of you know, we've always focused on enhancing our capital flexibility and risk profile, and that was punctuated at quarter end with the culmination of our strategic review of Ameriprise Auto and Home and decision to sell the business. We had four priorities as we executed the deal. Continue to deliver outstanding service to policyholders. Find the right firm to help Auto and Home grow. Provide the potential for a great future for our team there and earn an appropriate return. I'm very confident that we found the right partner in American Family Insurance. They plan to grow and expand on what we've built. We're pleased with this outcome and as we do in all transactions, we will work to ensure a seamless transition over the next few quarters. The sale of auto and home will generate $950 million of net proceeds when we close the deal later this year. Third, in addition to the auto and home sale, we announced our first fixed annuity reinsurance transaction. We've reinsured about 20% of our block which freed up about $200 million in capital for us. Importantly, it positions us to explore additional transactions for the approximately $1 billion of capital that backs our remaining block. Fourth, last week we gained final approval from the Fed to convert our National Trust Bank into a federal savings bank, allowing us to further expand our product suite. We plan to launch the bank in the latter part of the quarter. This is a long-term growth opportunity for Ameriprise, and I feel good about the future contributions it will bring. As you can tell, we made significant progress in the quarter, executing some important strategic actions. We're freeing up capital, further enhancing our risk profile and capital flexibility. I know you may have questions about our plans to deploy the additional capital that we're freeing up that will grow to above $2 billion when auto and home sale closes later this year. On that front, you can expect us to continue to build on our long-standing record of managing our capital just as well as we have for many years. We'll evaluate a number of alternatives, such as investing in our bank, looking at other opportunities to add to our wealth management business. We'll continue to look at adding capabilities for asset management and further de-risking our long-tailed businesses. Finally, we will look to further increase our return of capital to shareholders. In that regard, we plan to increase our share repurchase rate in 2019. As you can see, we're in a very strong position. We're serving client needs, building on our advice value proposition while generating strong returns. Now, I'll turn things over to Walter.

Thank you, Jim. Ameriprise achieved another solid quarter of financial results while proactively executing several strategies that will optimize our capital and risk profile, positioning the company to drive continued shareholder value creation. On a normalized basis, EPS grew 8%, and I will go into the details on the next page. Financial results were led by advice wealth management, which delivered 11% earnings growth and continued strong metric trends in the face of market headwinds and volatility as we entered the year. Our other businesses are generating good, stable financial results that were in line with our expectations. Let me take you through the details beginning on slide six. In total, adjusted operating EPS was $3,075, up 2%, which understates the underlying financial performance in the quarter. To understand the underlying results, you must consider both a previously disclosed one-time vendor settlement last year, as well as the tax rate. The tax rate in the quarter was 17.3%, higher than last year, and above our expectations of 16% for the full year, primarily due to share-based accounting changes and timing. Normalizing for these items, APS was up 8% and better reflects growth in the quarter. Revenue growth reflected continuous strong RAP net inflows offset by lower average markets, asset management outflows, and slower transactional activity early in the quarter. Expenses continue to be well managed across the firm, with G&A up only 2%. We are continuing to make important growth investments in advice and wealth management while executing on our expense reengineering objectives across the business. and we returned over 90% of earnings to shareholders through buyback and dividends, a continuation of our track record of differentiated return. Lastly, we have increased excess capital to $1.8 billion, while achieving a 36% return on equity, up 790 basis points. We have seen strong growth trends in advice and wealth management, which you can see on slide seven. Total client assets were up 6% year-over-year, demonstrating a nice recovery after the pullback in the fourth quarter, and continued strong $4.3 billion inflows into RAP accounts. Brokerage cash balances of $25.3 billion are consistent with last year. On a sequential basis, we saw balances come down in line with historic patterns. We are benefiting from short rates getting back to more normal historic levels, and we earned 212 basis points, up from 132 basis points a year ago. Based on recent Fed announcements, we do not anticipate additional rate increases this year and remain committed to being competitive in our client rates. Finally, advisor productivity also continues to improve. reaching $628,000 on a trailing 12-month basis in the face of market and activity headwinds. We continue to see strong productivity gains and are seeing good payback from our investments, as well as from the strength of the experienced advisor recruits that we've been bringing in. The 90 experienced advisors we brought in in the first quarter has record productivity which will support continued productivity growth over time. Let's turn to financials on slide eight. Advice and wealth management is continuing to deliver consistent, strong financial performance over time. I thought it would be helpful to provide a detailed description of revenue this quarter because there are a number of dynamics at play. First, management and financial advice fees grew 4%. Unlike previous quarters, with good RAP inflows, have been supplemented by market appreciation, this quarter, the benefit from good inflows was partially offset by the impact of lower average markets. So the growth rate lagged a bit. However, as we exited the quarter, markets have recovered up 13% point to point, and RAP flows improved in February and March after a slower January. As a result, we expect improved growth in management fees as we move through 2019. Next, distribution fees were up only marginally. We had meaningful benefits from the spread earned on brokerage sweep balances. However, market sentiment following the fourth quarter disruption resulted in lower client activity levels early in the quarter. This improved throughout the quarter and April activity levels have returned to good historic levels. So again, we would expect improved growth in distribution fees in 2019. Lastly, net investment income is up 43% from both a higher certificate asset earning rate and higher balances. Overall, both markets and activity levels have recovered well, and this should lead to more robust revenue growth going forward. General and administrative expenses were up 6% for the quarter, but we believe they continue to be well managed. As Jim discussed, we are making substantial investments for future growth in this business, and the level and timing of those expenses was more heavily weighted in the beginning of the year. We remain committed to effective expense discipline and will continue to execute on our re-engineering initiatives that will benefit the remainder of the year. Finally, pre-tax operating earnings were up 11%, and margins were strong at 22.5%. Let's turn to asset management on page 9, where financial performance was clearly impacted by substantial headwinds, including average equity markets down 3% and unfavorable foreign exchange translation. Additionally, the cumulative impact of net flows hurt results, as did a previously disclosed prior year one-time item. This resulted in a decline in revenues of 11% and a decline in PTI of 25%. G&A expenses were down 4%, demonstrating our continued commitment to expense discipline. However, a significant portion of our expense base is fixed, so it will be difficult to adjust quickly to this challenging revenue environment. Margins in the quarter decreased to 34%, and given the challenging revenue environment, we'd expect margins to remain pressured. Let's turn to annuities and protections on slide 10. In the quarter, variable annuities earnings were $115 million, up 5% from last year. Variable annuities continued to be in outflows, though at a slower pace than last year. Variable annuities sales slowed, similar to the overall slowdown we saw in client activity. It should be noted that our net amount at risk declined to 0.8% of account value with living benefits and 0.2% of account value with death benefits from improvement in markets. Fixed annuity pre-tax adjusted operating earnings declined $3 million, reflecting the continued impact of lapses in interest rates. The previously announced reinsurance transaction had a small impact on fixed annuity results, but it is earnings neutral across the firm for the year. Importantly, the transaction generated $200 million of excess capital and established a platform for future reinsurance transactions. The remaining block of fixed annuities is backed by about $1 billion of capital. In life and health, Earnings were within expectations at $74 million, up 14% from last year. Claims remain within expected ranges, though favorable relative to the prior year period. Let's move to the balance sheet on slide 11. Our balance sheet fundamentals remain strong. Our excess capital increased to $1.8 billion, which benefited from the fixed annuity reinsurance transaction, and incremental debt from our recent issuance. Our hedge program has been quite effective, with weighted managed hedged effectiveness at 97% in the quarter. The investment portfolio has high credit quality and is well diversified, and free cash flow generation remains excellent. We returned nearly $500 million of capital to shareholders through dividends and share repurchase in the quarter. and we recently announced a new share repurchase authorization and an 8% dividend increase. Continued capital return will be supported by both our free cash flow as well as the execution of capital optimization strategies. Let's turn to slide 12. As Jim discussed, we have announced a variety of proactive actions this year to optimize our capital structure and risk profile. Over the past several years, we have spoken with you about the initiatives underway to improve the underlying performance of our auto and home business, and we saw the intended results. We completed a strategic review, which resulted in our decision to sell the business. When this transaction closes later this year, cash proceeds will be $950 million, the majority of which will be additive to our excess capital position. As I mentioned, the reinsurance of a portion of our fixed annuity block freed up substantial capital without an earnings impact to the firm. And the framework is now in place to execute additional reinsurance transactions as appropriate. And we issued $500 million of senior notes, part of which is being used to pre-fund an upcoming maturity and reposition our debt ladder. In aggregate, These actions will enable us to increase the level of capital that we will return to shareholders this year by accelerating our share repurchase. We plan to return approximately 110% of adjusted operating earnings to shareholders through buyback and dividends, and we will fund the anticipated bank capital requirement. We are completing a review of our capital structure and evaluating potential uses of excess capital. In summary, Ameriprise is well situated to drive continued growth in advice and wealth management and continues to generate substantial shareholder value. With that, we will take your questions.

Thank you. We will now begin the question and answer session. If you do have a question, press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, press star then 1 on your touchtone phone. Our first question is from Ryan Krueger. Please go ahead.