Ameriprise 2007 Annual Report Download - page 77

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acquired $493 million of customer loans, assumed $963 million of
customer deposits and received net cash of $470 million. The assets
acquired and liabilities assumed were recorded at fair value.
Separately, on October 23, 2006, the Company purchased $33 million
of secured loans from American Express Credit Corporation for cash
consideration. These loans were made to the Company’s customers
and are secured by the customers’ investment assets and/or insurance
policies and will be serviced by Ameriprise Bank. The Company
recorded the loans purchased at fair value.
6. Discontinued Operations
The components of earnings from the discontinued operations of
AEIDC for December 31, 2005 were as follows:
2005
(in millions)
Net investment income $165
Banking and deposit interest expense 104
General and administrative expense 36
Pretax income from discontinued operations 25
Income tax provision 9
Income from discontinued operations, net of tax $ 16
7. Sale of Defined Contribution
Recordkeeping Business
On June 1, 2006, the Company completed the sale of its defined
contribution recordkeeping business for $66 million. For the year
ended December 31, 2006, the Company incurred $30 million of
expenses related to the sale and realized a pretax gain of $36 million.
The expenses included a write-down of capitalized software develop-
ment costs of $17 million and severance costs of $11 million. The
administered assets transferred in connection with this sale were
approximately $16.7 billion. The Company continues to manage
approximately $10.5 billion of defined contribution assets. The
Company received $25 million for a contingent payment settled and
paid in the fourth quarter of 2007, resulting in a combined 2006 and
2007 pretax gain of $61 million.
8. Variable Interest Entities
The consolidated variable interest entity for which the Company was
considered the primary beneficiary at December 31, 2007 relates to a
structured entity, both managed and partially-owned by the
Company. The structured entity contains debt obligations of
$18 million issued to investors that is non-recourse to the Company
and supported by a $30 million portfolio of municipal bonds. The fair
value of the municipal bonds was $31 million at December 31, 2007.
In the fourth quarter of 2007, the Company deconsolidated a CDO
after determining it was no longer the primary beneficiary of the
structure as a result of the sale of a portion of its interest in the
residual and rated debt tranches of the CDO structure and recorded a
gain of $68 million ($44 million after-tax) related to the deconsolida-
tion. The $68 million gain represents the reversal of net operating
expenses related to the CDO in prior periods. The Company
recorded investment income of $14 million in 2005 related to two
liquidated secured loan trusts that had previously been consolidated.
The Company has other significant variable interests for which it is
not the primary beneficiary and, therefore, does not consolidate.
These interests are represented by carrying values of $46 million of
CDOs managed by the Company and $96 million of affordable
housing partnerships. For the CDOs managed by the Company, the
Company has evaluated its variability in losses and returns consid-
ering its investment levels, which are less than 50% of the residual
tranches, and the fee received from managing the structures and has
determined that consolidation is not required. The Company
manages approximately $7.5 billion of underlying collateral within
the CDOs. The Company’s maximum exposure to loss as a result of
its investment in these entities is represented by the carrying values.
The Company is a limited partner in affordable housing partnerships
in which the Company has a less than 50% interest in the partner-
ships and receives the benefits and accepts the risks consistent with
other limited partners. In the limited cases in which the Company
has a greater than 50% interest in affordable housing partnerships, it
was determined that the relationship with the general partner is an
agent relationship and the general partner was most closely related to
the partnership as it is the key decision maker and controls the opera-
tions. The Company’s maximum exposure to loss as a result of its
investment in these entities is represented by the carrying values.
9. Investments
The following is a summary of investments:
December 31,
2007 2006
(in millions)
Available-for-Sale securities, at fair value $25,931 $30,880
Commercial mortgage loans, net 3,097 3,056
Trading securities, at fair value, and
equity method investments in hedge funds 504 522
Policy loans 706 660
Other investments 387 386
Total $30,625 $35,504
Ameriprise Financial 2007 Annual Report 75