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Bank of America sells mutual fund unit

Columbia will remain in Boston after deal, buyer Ameriprise says

By Todd Wallack
Globe Staff / October 1, 2009

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Bank of America Corp. has found a buyer for its Boston-based mutual fund unit, Columbia Management.

The banking giant, which has been peddling Columbia for at least five months, announced a deal yesterday to sell much of the business, including the Columbia name, to Ameriprise Financial Inc. of Minneapolis for as much as $1.2 billion in cash.

Ameriprise, which was spun off from American Express four years ago, agreed to buy Columbia’s flagship stock and bond fund business, which boasts $165 billion in assets. Bank of America is still considering a sale or other options for the rest of Columbia’s business - $170 billion in money market funds.

Columbia operates 114 mutual funds, largely under the Columbia Wanger and Acorn brand names. Its largest fund is Columbia Acorn, a $14.1 billion mid-cap growth fund, while the second-largest is the $6.8 billion Columbia Value and Restructuring fund, which mostly holds large US stocks.

Ameriprise executives said yesterday they would combine Columbia with their own investment business and vowed to keep Columbia’s name, with its headquarters still in Boston. Columbia has close to 900 employees, including 500 in Massachusetts. But Ameriprise said it will cut an unspecified number of jobs when it merges the units in the next 18 months. Ameriprise said it hopes to save $130 million to $150 million per year by combining the units.

“We don’t need two of everything,’’ said Jim Cracchiolo, Ameriprise’s chief executive. Ameriprise executives, however, said the cuts will come both from Columbia and its own ranks and will be based on merit.

Bank of America said it decided to sell Columbia after buying investment banking giant Merrill Lynch a year ago, which prompted the bank to review its portfolio of businesses. Merrill already owned nearly half of investment giant BlackRock Inc., a New York firm that manages $1.3 trillion, which may have made the Columbia business redundant.

In addition, Bank of America has been looking for ways to raise cash to improve its financial position and repay the government, which lent the bank $45 billion during the financial crisis last year.

Under terms of the Columbia deal, Ameriprise promised to pay Bank of America between $900 million and $1.2 billion, depending on how well the bank can attract and retain investors between now and next spring, when the deal closes.

The pact will help Ameriprise become a bigger player in mutual funds. Ameriprise estimated that it would become the eighth-largest US mutual fund company (excluding money market mutual funds), with $400 billion in assets under management.

“This will give us the scale we need for what we want to accomplish,’’ said Cracchiolo.

Ted Truscott, an Ameriprise executive based in Cambridge, will run the combined entity as head of the company’s US asset management division.

Some key Columbia executives are expected to join Ameriprise: Michael Jones, Columbia’s president, will serve as president of the US asset management business; and Colin Moore, Columbia’s chief investment officer, will serve in that role for the combined division. Both will remain in Boston.

Bank of America acquired Columbia Management when it bought FleetBoston Financial five years ago and combined it with its own asset management business. Columbia has been pieced together over the years through a series of deals of smaller investment firms.

It was one of several prominent mutual fund companies caught up in the market-timing trading scandal several years ago. Bank of America and FleetBoston paid a combined $675 million fine five years ago to settle charges they let a large customer quickly trade in and out of its funds, despite rules barring the practice. Rapid trading can drive up a fund’s costs and hurt other investors.

In January, the head of Columbia’s mutual fund business, Christopher Wilson, left after the unit reported a $459 million loss in 2008. It lost $53 million in the first quarter but reported a $72 million profit in the second quarter.

For some years, Columbia was also dogged by mediocre investment results. But Morningstar Inc. analyst David Kathman said Columbia’s performance has been relatively strong for the past four to five years. Columbia Acorn fund beat 70 percent of its peers over the past five years, while the Columbia Value fund topped nearly 80 percent.

“They’ve gotten their act together and their funds are doing well,’’ Kathman said.

Todd Wallack can be reached at twallack@globe.com.