In the latest wealth management reverberation from the regional banking crisis earlier this year, Ameriprise dropped a plan to switch the classification and regulator of the company's bank.
Last month, Minneapolis-based Ameriprise abruptly announced that the company had withdrawn its 2021 application to change its burgeoning bank from a federal savings bank overseen by the Office of the Comptroller of the Currency to a state-chartered industrial bank under the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation. It also pulled back a filing seeking to convert the bank's personal trust services unit into a new limited-purpose national trust bank. On the firm's second-quarter earnings call last week, an analyst asked why the company had abandoned the idea.
After the collapses of Silicon Valley Bank and Signature Bank and the takeovers of Credit Suisse and First Republic, "the environment just, we felt, was not there," Ameriprise Chief Financial Officer Walter Berman said, according to a transcript by Seeking Alpha. The company is "quite confident" with the federal savings bank structure, and it's retaining "the capability, so it doesn't really affect us," Berman said.
"It's a matter of, certainly, the situation as you look at the FDIC board and what they felt about with the regional bank situation. Would they really want to now expand into a state?" he added. "And we just felt the probability was not there."
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Representatives for the company declined a request for additional comment beyond the brief remarks on the earnings call and Ameriprise's July 13 statement on the decision.
"These changes do not impact the company's long-term growth strategy for the bank and Ameriprise will continue offering its strong lineup of banking solutions, including deposits, credit cards, mortgages and securities-based lending to its wealth management clients without interruption," the company said earlier this month.
Two years ago, Ameriprise described the potential conversions as a means of enabling the company to "align capital frameworks across its businesses to compete more effectively and efficiently." However, rival firm Edward Jones had backed away last year from its own previous intention to launch an industrial bank chartered in Utah. Even before the banking crisis, Edward Jones cited "the current environment" and its discussions with the FDIC, which experts describe as less receptive over the past decade to applications for new industrial banks.
"Given the current market stress and recent bank failures, it is possible that banks may want to maintain existing supervisory structures rather than migrate to new ones, especially given market uncertainty and the likelihood of greater regulatory scrutiny," Sandeep Vishnu, a partner at global business and technology consultancy Capco, said in an email.
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Ameriprise launched its bank in 2019, and the institution has been boosting the company's earnings for the past four years. It and other wealth management firms that own banks use them in part to reap bigger profits from cash sweep accounts that pay the companies a higher interest yield than what's received by their clients. Like other wealth management firms, the company's yield on cash sweeps is rising substantially: The rate surged by 347 basis points from the year-ago period to 4.77% in the second quarter, according to an investor presentation.
The bank "continues to perform well," with assets of $22 billion and combined bank and certificate balances soaring by more than 50% year over year to $33 billion, Ameriprise CEO Jim Cracchiolo said in prepared remarks on the call. Even with client cash balances falling to 5% of the wealth unit's assets from 6.5% at the same time last year as investors put money back into stocks, the business line helped the division's income surge by 49% in the past three months. The wealth division's profit margin reached a record 31.2% for the quarter.
"It's a strong complement to our business and an attractive way to gain spread revenue in this rate environment," Cracchiolo said. "The cash balances in these accounts are very rational today, and we feel comfortable with our position. We will continue to build out our banking capabilities and are in the process of introducing other savings products later this year. This will help advisors further deepen client relationships and bring in more assets from other banking institutions."
