Ameriprise set to pay millions to protect clients

In the latest signal that Wall Street's credit crisis has reached Main Street, the Minneapolis broker-dealer Ameriprise decided late Wednesday to pony up as much as $33 million to protect 330,000 client accounts in the event that the Reserve Primary Money Market Fund is liquidated at less than $1.00 per share.

The move means that Ameriprise clients with frozen assets in the troubled Primary Fund can rest easier.

The decision does not include clients of Ameriprise subsidiary Securities America.

"The unprecedented situation with the Reserve has caused significant anxiety and hardship for individual investors," said Ameriprise CEO Jim Cracchiolo in a statement.

"With this additional action, we are addressing losses incurred through an investment option that has for decades provided an unquestioned safe haven for consumers' cash," he said.

On Wednesday, TD Ameritrade also pledged up to $50 million to guarantee that its clients stuck in the Primary Fund get $1 back for every dollar they have invested. Both companies are taking this unprecedented action because the guarantees that the U.S. Treasury proposed last week for money market funds likely won't cover Primary Fund shareholders.

Last week, the New York-based Reserve Management Company's Primary Fund became only the second money market fund to ever "break the buck" -- industry lingo for money market shares that fall below $1.00 in value. Reserve and its investors were stung by the failure of mortgage-backed investments from now-bankrupt Lehman Brothers. Several other money market funds, including RiverSource's Cash Management Fund, would have broken the buck in recent weeks if their companies had not fronted the money to prevent it.

Wednesday's moves by Ameriprise and TD Ameritrade were no surprise to Peter Crane, founder of Massachusetts-based money market information company Crane Data LLC.

"The revolt was starting to grow. Their shareholders were basically starting to demand action from somebody," Crane said. "Fifty million to a large financial company is nothing compared to [its] reputation." He expects other brokerages with clients in the Primary Fund to follow suit.

Money market funds have traditionally been sold to investors as a vehicle that is as safe as cash, but with slightly higher returns.

Since the Primary Fund's troubles, Ameriprise and its subsidiary, Securities America, have sued Reserve, alleging executives informed institutional investors about the money fund's worthless Lehman Bros. holdings before retail investors. Earlier this week, the Securities and Exchange Commission (SEC) stepped in and froze the assets in the fund, meaning no investor big or small can access money.

For clients who typically use the funds for day-to-day expenses, Ameriprise is providing the money needed to pay the mortgage or the tax bill. For the rest, Ameriprise is trying to let them know "we're trying hard with all the legislators and regulators we can find to expedite this process," said Ameriprise spokesman Ben Pratt.

Pratt also said the company's decision to cover potential client losses wasn't made because it believes there's no money there. "This is the case of frozen funds, not disappeared funds."

It's possible that by the time the Primary Fund is liquidated, its value could be restored and clients get their money back without Ameriprise contributing a penny toward making clients whole.

"It's anybody's guess what that portfolio's worth now," said Crane, the money market fund expert.

If the fund's net asset value falls below $0.97, Ameriprise would "reevaluate" the situation to decide whether it will put up more money to protect additional losses, Pratt said.

The company expects this decision, which was announced after the market close, to have a 1 cent per share effect on third-quarter earnings.

Kara McGuire • 612-673-7293