Ameriprise Financial Inc. could spend $110 million — or more — to bail out its beleaguered independent-broker-dealer subsidiary Securities America Inc.
That's the conclusion of an expert witness who provided an analysis of Ameriprise and its relationship to its subsidiaries as part of a continuing class action against the two companies.
The $110 million figure is particularly relevant this week. Attorneys for plaintiffs suing the firm and attorneys representing Securities America sit down Thursday for a court-ordered mediation. That gathering could end the dispute over $400 million in soured private placements — creating a “global settlement” for all investors suing the firm. It is unclear whether lawyers from Ameriprise also will be attending the mediation.
“While it is impossible to put an upper limit on how much support might be available to [Securities America] from Ameriprise, the company's support to other subsidiaries during the past three years would suggest that a minimum of $110 million would be available,” wrote Timothy Hurley, a managing director at boutique investment bank Bentley Securities Corp., who was hired as an expert witness by attorneys representing plaintiffs suing Securities America in arbitration.
The two operations have a number of assets — including $90 million of stockholders' equity at Securities America and $2.6 billion at Ameriprise — that would make the $110 million available, he claimed in his report. Mr. Hurley's calculations were filed in federal court in Dallas on March 14 as part of the class action, Billitteri v. Securities America Inc., et al.
Spokespeople at Securities America and Ameriprise were not immediately available for comment on this story.
What does seem clear, however, is that the financial condition of Securities America is far from stable. On Friday at a hearing in federal court in Dallas, the firm's chief financial officer, Kelly Windorski, testified that the firm could go out of business if a federal judge does not approve a proposed $21 million class action settlement with plaintiffs. But an attorney representing individual investors who are suing Securities America in arbitration objected strongly to that settlement figure, claiming that the two firms have substantial assets.
The judge, W. Royal Furgeson Jr., ruled against the settlement. On Monday, Securities America said it was turning to its Plan B to resolve the dispute, which, in some unstated way, involved Ameriprise. “Ameriprise has reached out to us to determine whether it can help the parties find a reasonable resolution for all constituents,” Securities America said in a statement. “We hope to develop a process in the coming days that would facilitate exploration of such a resolution and to have a good sense by the end of the week.”
The amount of money that Ameriprise would contribute to a bail out of Securities America has brokers at the firm and lawyers buzzing. Securities America is keeping tight-lipped about the potential amount of money it's willing to offer in the mediation this Thursday. However, in its annual report, Ameriprise said it was holding $40 million in reserve for legal actions stemming from Securities America's selling clients private placements that have gone bust.
Mr. Hurley, the banker and expert witness, points to recent events in his evaluation. “In the last three years, Ameriprise has provided or committed to provide capital infusions of more than $110 million to its subsidiaries on two separate occasions,” he wrote.
“Like the other broker-dealer subsidiaries of Ameriprise, [Securities America] is a very important cog in the Ameriprise machine,” he wrote. “For that reason, it is virtually certain that it would be fully supported by Ameriprise if support were needed for either regulatory or financial reasons.”
