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Rating:AmEx Sheds Funds, Advisors Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, February 01, 2005

AmEx Sheds Funds, Advisors

Reported by Theresa Sim

Financial conglomerates are shrinking before our eyes. American Express executives unleashed a plan to spin off its American Express Financial Advisors unit in a conference call on Tuesday.

Executives made the case that the spin-off would give the unit some breathing room: "As an independent, publicly-owned company, AEFA would not only have direct access to capital markets but it would also have the flexibility and resources to pursue growth investment opportunities without the constraints of the competing corporate priorities that exist today." Executives added "In short, we expect this transaction to position AEFA to grow at a rate that would not be possible under the American Express umbrella."

AEFA includes a 12,344-strong advising business, asset management and American Express mutual funds, and American Express Retirement Plan Services.

"AEFA is both a more capital- and people- intensive business. Its ROE, while consistent with peer companies, is in the low-to-mid teens ... There are relatively few critical strategic linkages between the two businesses that create a compelling case for keeping them together," they continued.

Jim Cracchiolo will head the new entity, tentatively-named American Express Financial Corporation. Executives expect the transaction to close in the third quarter.

AEFA will be allowed to use the American Express name for a limited period of time. American Express spokesman Paul Johnson declined to indicate what the company will be called after that.

Historically, American Express advisors have not done a tremendous job of selling proprietary mutual funds, so it's not clear what impact the spin-off of both businesses will have on fund distribution, if any.

In the past quarter, AEFA's 12,000 plus advisors sold $8.7 billion in mutual funds, according to a release. Although the company did not break out what portion of total sales were of non-proprietary funds, officials attributed a 12 percent increase in cash sales in part to "strength in non-proprietary mutuals" in an earnings release.

In the second quarter of 2004, Chief executive officer Gary Crittenden reported that the AEFA's proprietary fund sales remained flat, while non-proprietary sales increased "substantially." Total fund sales increased by 19 percent.

AEFA managed $292.7 billion in assets at the end of December. In total, AEFA has 2.5 million clients and administers $413 billion in assets.

The unit acquired Threadneedle, a UK asset manager, for approximately $566.5 million in June of 2003. 

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