American Express to Spin Off Advisory Unit

American Express(AXP) will spin off its financial adviser and asset-management operation to shareholders, saying the lucrative operation would able to finance itself more efficiently as a separate company.

American Express Financial Advisors will be distributed to shareholders in a tax-free transaction during the third quarter. The operation produced revenue of $7 billion and earnings of $700 million in 2004, compared with the $22 billion of revenue and $2.7 billion of earnings generated by American Express's charge card segment.

AEFA runs a network of more than 12,000 advisers serving about 2.5 million clients in financial planning, asset management and insurance. It runs about $410 billion in assets and over $145 billion in in-force life insurance.

"With direct access to capital markets, AEFA will have greater flexibility and resources to grow its business and capitalize on investor interest in large, successful financial services companies," American Express said in a statement.

The two companies will be independent with separate public ownership, boards and management after the spinoff. They will enter exclusive marketing agreements that will allow AEFA to continue to use the American Express name during a transition period.

Hiving off the advisory unit will also separate operations with fairly distinct cultures. The financial adviser unit does business in an industry that has seen several high-profile scandals over the past five years, including the Wall Street research and mutual fund trading investigations and Eliot Spitzer's probe of the insurance industry. AEFA avoided implication in each of those scandals but did pay $300,000 to the NASD in May 2004 for record-keeping violations.

In February 2002, AEFA agreed to pay $31 million to settle a gender and age-discrimination suit brought by female employees who said they were denied promotions and equal pay at the company. The division was also responsible for a bad bet in junk bonds in 2001 that resulted in about a billion dollars of writedowns for the parent over 12 months.

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