Edward Baird - Chief Operating Officer and Executive Vice President of International Businesses Eric Durant - Head of Investor Richard Carbone - Chief Financial Officer, Executive Vice President and Chief Financial Officer of Prudential Insurance Charles Lowrey - Executive Vice President, Chief Operating Officer of US Businesses, Chief Executive Officer of Prudential Investment Management, President of Prudential Investment Management and Executive Vice President of Prudential Financial & Prudential Insurance Mark Grier - Executive Vice President of Financial Management John Strangfeld - Chairman, Chief Executive Officer, President and Member of Executive Committee

Ladies and gentlemen, thank you for standing by. And welcome to the second quarter 2011 earnings teleconference. [Operator Instructions] And as a reminder, this conference is being recorded. I'll now turn the conference over to Eric Durant, Head of Investor Relations. Please go ahead, sir.

Thank you very much, Good morning. Thank you for joining our call. We look forward to spending a productive hour with you. Before we begin, some housekeeping. In order to help you to understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the predictions we make today. Additional information regarding factors that could cause such a difference appears in the section titled Forward-Looking Statements and Non-GAAP Measures of our earnings press release for the second quarter of 2011, which can be found on our website at www.investor.prudential.com. In addition, in making our business -- in managing our businesses, we use a non-GAAP measure we call adjusted operating income to measure the performance of our Financial Services businesses. Adjusted operating income excludes net investment gains and losses as adjusted, and related charges and adjustments, as well as results from divested businesses. Adjusted operating income also excludes recorded changes in asset values that are expected ultimately to accrue to contract holders and recorded changes in contract holder liabilities resulting from changes in related asset values. Our earnings press release contains information about our definition of adjusted operating income. The comparable GAAP presentation and the reconciliation between the 2 for the quarter are set out in our earnings press release on our website. Additional historical information relating to the company's financial performance is also located on our website. Participants in this call from Prudential include John Strangfeld, CEO; Mark Grier, Vice Chairman; Rich Carbone, Chief Financial Officer; Peter Sayre, Controller and Principal Accounting Officer; Charlie Lowrey, Head of our U.S. businesses; and Ed Baird, Head of our international businesses. John Strangfeld will kick things off with his presentation. John?

Thank you, Eric, and good morning, everyone. Thank you for joining us. We had strong results for the second quarter, both in earnings and on underlying fundamentals. As reported, our earnings per share nearly doubled from last year's second quarter based on adjusted operating income of the Financial Services business. In a moment, Rich and Mark will review the quarter with you more extensively. In brief, our results reflect solid business performance virtually across the board. Market conditions were generally favorable over the last year, but strong fundamentals and good execution are driving our results more than favorable markets. I'll mention a few highlights. In individual annuities and retirement, account values reached record highs $116 billion for annuities, $221 billion for retirement. In annuities, strong sales and net flows, reflecting the value proposition of our HD products, as well as our consistent presence in the market, have driven sustained growth of quarter results. In retirement, our flows reflect strong sales and stable value wrap products, and current quarter sales also include 2 groundbreaking transactions in the emerging defined-benefit risk transfer market. Our Asset Management business achieved a new high for Assets Under Management of $583 billion. Sustained growth in AUM is leading to a greater contribution from core fee-based earnings. International Insurance had exceptional sales of $737 million, up 76% from a year ago based on annualized new business premiums in constant dollars. This result includes sales from the acquired Star/Edison operations. Even without that contribution, international sales would still be 30% higher than a year ago. Organic growth, both in our Life Planner business and Gibraltar Life is producing higher earnings, and early contributions from Star/Edison are solid. I'll wrap up with a few comments on return on equity, which we consider to be the most telling measure of…

Thanks, John, and good morning, everyone. As you've seen from yesterday's release, and as you just heard from John, this is another strong quarter for us. We reported common stock earnings per share of $1.71 in the second quarter based on adjusted operating income for the Financial Services businesses, and this compares to $0.88 per share for the comparable quarter of a year ago. A list of significant discreet items affecting the current quarter is fairly short. In Annuities business, flat equity markets caused our account value performance to fall short of our assumptions, resulting in a charge of $0.03 per share for guaranteed minimum death and income benefits and $0.02 per share related to DAC amortization. In International Insurance, results includes net charges of $0.07 per share for claims and expenses from the March earthquake and tsunami in Japan. Since Gibraltar Life, including the acquired Star and Edison businesses, report earnings of a one-month lag, its claims and expenses from the disaster are included in this quarter's results, along with the revised estimate of these costs for the Japanese life plans, which made its accrual in the first quarter. Gibraltar Life results also include integration costs of $0.04 per share relating to the Star/Edison acquisition. Going the other way, the Asset Management business had a benefit of $0.09 per share from the partial sale of an international real estate feed investment. In total, the items I just mentioned had a net unfavorable impact of about $0.07 per share on our earnings for the second quarter. Adding back the net charges of $0.07 per share to our reported results would bring EPS to $1.78 for the quarter. Our results in the year-ago quarter included net charges of $0.49 per share from the unfavorable unlockings and reserve strengthenings, largely driven by…

Thank you, John and Eric, and good morning, good afternoon, good evening or good night. I'll start with our U.S. businesses. Our Annuity business reported adjusted operating income of $221 million for the second quarter compared to a loss of $131 million a year ago. The reserve true ups and back unlocking, that Rich mentioned, had a net unfavorable impact of $36 million on current quarter results. This includes the charge of $20 million to strengthen our reserves for guaranteed minimum death and income benefits and a further charge of $16 million from increased amortization of deferred policy acquisition and other costs. In both cases, reflecting market performance in the quarter, this fell short of our assumptions. Results for the year-ago quarter included a net charge of $284 million from an unfavorable back unlocking and reserve true ups, largely driven by the equity market downturn in that quarter. Stripping out these items, annuity results were $257 million for the current quarter, compared to $153 million a year ago for an increase of $104 million. These results translate to a return of 89 basis points on average asset account values for the current quarter, compared to 70 basis points a year ago. Essentially, we have higher returns on a growing base, with results benefiting from the addition of profitable business over the past year, lapsing of lower margin older business and account value appreciation, driving higher fees and lower benefit costs. Our gross variable annuity sales for the quarter amounted to $4.5 billion. This compares to $5.3 billion a year ago and represents a decline, as we expected, from the $6.8 billion of gross sales we recorded in the first quarter. Our sales are driven by the strong value proposition of our highest daily protected value feature, which clearly differentiates our…

[Operator Instructions] Our first question will come from Suneet Kamath from Sanford Bernstein.

A couple of questions on capital and then one on the Full Service businesses, if I could. Starting with capital, if I take the $2.2 billion to $2.7 billion of immediately expendable capital back out the $1.5 billion of buyback, that still leaves you with mid-point $950 million of, I guess, immediately deployable capital that as of right now you've not talked about immediately deploying. So I'm just wondering, is that $950 million earmarked for potential dividend increase or acquisitions, or is there something that would preclude you from using that sooner rather than later?

There's nothing that would preclude use from using sooner rather than later. It's not restricted in any way, but we don't have any intended use for it at this point in time.

And, I guess, why is that the case?

We don't see any opportunities at this point, and we've announced the buyback program that we think is sufficient at this point.

Okay. And then on the buyback program, I guess in years past, your annual buybacks have been relatively stable over a course of a given year, roughly the same amount per quarter. Given kind of how your stock is trading in the ROE upside that you see, would you imagine that pattern of stability continues, or would you expect to be more opportunistic based on how the stock is trading?

I know how we did this in the past. Going forward, we'll disclose our buybacks at the end of each quarter. I really think that's a better way to handle this disclosure.

Okay. And then the last question is just on the full-service business. We talked about this a little bit at Investor Day, and then follow-on conversations. But I think it's a fair comment and some others have raised that the full-service business commentary at Investor Day was probably a little less enthusiastic, relative to past Investor Days. And we talked about this with Principal earlier this week, and they are clearly as enthusiastic to use their words, as they've ever been. So I was just wondering if you could provide some thoughts in terms of what you're seeing there. Is it really a change in your view of this business, or how should we think about kind of growth going forward? Is it just tied to the economy and things will resume once the economy picks up, or any additional thoughts would be helpful?

Sure, and I'll be happy to do this. This is Charlie. A couple of things. We are mainly in the mid- to large-case market. And what we're seeing there -- I'll give you some context, and then something specific to what we're doing. But the context is that we see very low new plan formation, so not a lot of our fees out in the marketplace. There is low industry turnovers, so you see a lot of us, including our sales, with very strong persistency numbers. And finally, plan sponsors continue to be distracted in terms of their focus on healthcare and other things. So with that as context, there aren't a lot of plans coming up for renewal or -- out in the marketplace. There's a lot of check bidding going on, where plan sponsors will look at, go out and check the prices. But they don't want to move the plan. Now in terms of our own business, I think we're exhibiting a fair amount of discipline, and then we're targeting specific ROEs and hurdle rates. And as a result, we'll take a look at the business we have and the business that's out there, but will, at times, decline the bid on or that lapse business that doesn't meet hurdles. So what you're seeing is fairly flat flows but that's, in part, due to the context and, in part, due to the discipline that we're showing.

So bottom line, you are seeing some irrational pricing in the market these days?

We're seeing very aggressive pricing, especially on the record-keeping full-service side of things. So I don't know if it's irrational or not, I won't comment on that, but we are very disciplined in terms of what we'll bid on and what we will let lapse.

Understood. And is that coming from other insurance companies or more asset managers or any color there?

Not particularly. It's coming from all over. So there are a lot of different players in this marketplace, and you see different kinds of firms bidding on different kinds of business.

Our next question will come from John Nadel from Sterne AG.

Question on Edison/Star. In the second quarter, the earnings contribution, excluding integration costs, was about 10% higher than what I think the one month of the first quarter would have implied if I'd run rated that for a 3-month period of time. I don't know if there's anything we can read into that. Can you give us a sense for why the second quarter is better?

I think you're right, John. There's not much you can read into that. If you take any one month extrapolated, that's a somewhat risky exercise. So that was our first and only month last quarter. Now this is our first and only full quarter. I think it's still pretty early to draw out any conclusions other than to say that both sets of numbers, the one month and the quarter are quite consistent with our overall expectations in terms of the valuation and what we're expecting to get from these businesses. So to that extent, it's reassuring.

Okay, that's helpful. And then just maybe a 50,000-foot question for John or Mark. If the U.S. economy were to fall back into a recession, if we had -- if the -- I guess growing consensus view now of the potential for a double dip were to prove to be true, how do we think about the 13% to 14% ROE aspiration by 2013 under that type of a scenario? I know that's a very open-ended question.

Well, a couple of things, John, I would offer. It's hard to answer it and then also I think you have to overlay what level of severity you're talking about. But if you take a look -- one thing I would offer in this context, is if you take a look at where we are today, and say, in comparison where we were in 2007, a lot less of our business is being driven by appreciation. It's much more being driven by underlying fundamentals, meaning sales and flows. And that's a big difference. It's almost a reciprocal of what it was at that time. That's not a criticism of that time, but it's more a statement about the strength and the underpinnings of our individual lines of business. So will those fundamentals be effective? They absolutely have -- will have some affect, but is -- are we as depended on appreciation as we once were? Absolutely not. And then the second piece to look at that is, yes, over 40%, 45% of our business is now coming out of Japan. We got very unique aspects in there. We don't expect to see -- those are market that are less market sensitives than they are in the U.S., given the nature of the products, given the level of interest rates, et cetera. So again, I think our portfolio effect in broader terms also works to our advantage in that context as well. And so that gives us a sense that we've got a better prospects for sustaining strong fundamentals and a better prospect for strength and stability through challenging times. I don't know, Mark, if you'd add anything to that?

I guess if I can interject, maybe you could focus, too, on your assessment of the general accounts today versus maybe a couple of years ago, too, and how that might or might not be a significant source of capital strain?

Yes, that was going to be my second point. Let me make the first one, which is if you look at the point that John made in his discussion of the drivers of ROE improvement, the high return business is growing more rapidly than the others. The Star and Edison results coming online and having the impact we want them to have in capital redeployment, within that picture, there is some equity market sensitivity, particularly in the Annuity business. And so that would be one of the things to think about as you're extrapolating forward. But as John said, we're less dependent on appreciation and more dependent on fundamentals and have a less market-sensitive earnings profile than we had several years ago. So you could see things going better in some ways and maybe making up for some of the equity market sensitivity in the downturn. So I think our core story holds together very well. On the second point, which is the one you just asked about, we've not compromised credit risk in reaching for yield since we've come out of the financial crisis and as we've gone through a couple of episodes of very low interest rates. We're feeling quite confident, with respect to overall credit quality and the strength of our balance sheet, liquidity, credit quality, capital across the board. So I think we are also in a good position to weather the storm, with respect to the general account, would not anticipate a significant amount of capital strain there, but rather from the bottoms up right now, looking at a pretty strong credit picture. So I think we've got ourselves in good shape there on the overall strength of the balance sheet, credit quality and the mix of businesses and the management agenda that John talked about.

We will go next to Nigel Dally with Morgan Stanley.

You mentioned this in passing, but I wanted to come back to the issue of the impact of low interest rates to your Annuity business. With the new annuity product, you talked previously about it being priced for a high teens ROE. Can you discuss how sensitive that ROE is to changes in rates? And if rates remain at around a 2.5% level, any need to make further recalibrations to your product design?

Nigel, this is Charlie. I think we anticipated a low interest rate environment when we made the changes, and we did that on a prospective basis earlier this year. So as of now, we don't anticipate making further changes. I think the product is designed for a low interest rate environment, and we're pleased with the returns we're getting.

So would the new business return still be in the teens given what current rates are?

Yes. That's a fair comment.

Okay, and the second question I had was just on POJ. Continue to see very solid sales results, but I am guessing at some point, to maintain that momentum, you're going to need to grow the Life Planner count. For the most recent quarter Planner count was actually down a touch from the previous year. So can you discuss what's holding that back and what needs to be done to get the Planner numbers growing again?

Yes. Actually, it's an interesting point that historically, you're absolutely right. There was a strong correlation between new business growth and Life Planner growth. But if you look over the course of the last 2 years, you'll see that those 2 have largely separated now. And this quarter, as you fairly point out, is yet another example, probably for the last 6 or 8 quarters. And that is in spite of it being flat in headcount with the Life Planner, sales are up about 20%. And keep in mind that sales are driven by 3 things. You cited one, which is the Head Planner count. The second is productivity, but the third is the interesting one I'd draw your attention to, and that is growth in average premium. And that has been happening now for a while, and I think has some sustainability to it. Because of this long-term secular shift that we're making from pure debt protection to that which is more heavily oriented to retirement. And we're seeing that, not only in Japan, but in Korea, Taiwan and elsewhere. So I will never downplay the long-term positive potential of continued growth. But I would cite that now it's important to pay attention as well to the average premium. And so I'm actually encouraged by the fact that in spite of having no growth, we're having quarter-over-quarter of growth of 20% or more. And what I'm hoping to see is really a balance over time of growth being strong double-digit as a result of spreading growth over each of those 3 factors i.e. headcount, productivity and average premiums.

Our next question is from Thomas Gallagher with Credit Suisse.

One question on interest rates, another question on Japan. Just on the interest rate side, I guess my question is, as a firm for planning purposes, are you treating the recent swift decline in rates as a potential aberration, or are you preparing the firm for an extension of this kind of environment? And a related question, as rates have moved down, you revised your HD6 to HD5. If rates stay where they are now, are we looking at HD4? So that's my first question on rates, and then I'll follow-up on Japan.

Tom, it's Mark. I'll take the first part and let Charlie answer the Annuity question. We have had in front of us for a while now the consideration of a scenario in which rates are very low for a long time. And so we continue to consider the situation that we're in with respect to our ability to achieve our objectives in that scenario. So it is part of our thinking. Whether or not I want to particularly forecast rates and tell you what we think this is temporary or not is a little bit different question. But I think the main point with respect to where we are is that it's something that we pay a lot of attention to and have been paying attention to for a while. Remember that our business mix and individual businesses are intrinsically somewhat less rate-sensitive than some of the sensitivities that show up in other companies that would be considered our peers. And our mix is actually pretty attractive and it's somewhat less affected by low rates. But again, it's something that we pay attention to. We have that scenario in front of us, and we keep worrying about it.

Tom, this is Charlie, just a follow up on your comment. At this point again, we've designed the product for a low interest-rate environment. We'll always reevaluate the environment as we go forward. But at this point, we have no plans to change it in the near future.

Okay, and then -- and Charlie, just as a follow up, am I correct in saying the biggest hedge outlay cost would be interest rate-related based on your product design? So I presume that's where you get squeezed on the margins here, if rates remain low, would be hedging your long-term interest rate risk, as it relates to that product. Is that the right way to think about it?

Tom, in terms of the mix of risk, you're right. The bulk of the risk in this HD products is an interest rate risk. But that's also a relatively less expensive risk to hedge than some of the more exotic equity market exposures. So you're right in terms of thinking about the risk mix, but the cost of that is pretty low because those are very efficient markets and more plain vanilla-type hedges.

Yes, got it, okay. And then just on -- shifting gears to Japan. The absolute sales number was quite strong, up 30% x Star/Edison. Can you comment a little bit about -- what do you think is actually happening there? I guess my question is geared at do you think -- is this a market improvement situation where post the earthquake, you're seeing a pick-up in demand for insurance products in the industry or is this more of PRU-specific in terms of the strength?

I think it's more of the latter, Tom. This is Ed speaking. And I say that because this is not isolated. This is part of a trend that we've seen going on, as I mentioned earlier for the last 6 to 8 quarters. And it's, I think, coming from several areas and for several reasons. Let me go into each of them. As far as the Life Planner organization, specifically POJ, I believe this is the result of the steady shift into the retirement because we are seeing growth in the average premium there that's making up the bulk of the increase in sales. Then of course, the second contributor is the band channel, which are again 2 years now. We have seen very steady growth in that quarter-over-quarter. And the vast bulk of that continues to be insurance with the smaller amount in the fixed annuity area. But again, this is heavily retirement-oriented. And then the final third one, which I would temper slightly is the -- both organic growth, as well as the acquisition growth in the independent agent channel. And of the $118 million that was reported there, $34 million of that is coming from the Gibraltar channel, which we just started a year ago, and that was only about $6 million this time last year. So we've got strong organic growth in that channel, which is well priced. And then we have the additional growth that came from the new Star and Edison IA channel, whereas Mark pointed out earlier, I would want to temper your expectations on that because we will revisit some of the pricing and commissions on that to ensure that it has the same margins that we get out of our traditional Gibraltar IA channels. So long-winded way of saying one of the encouraging aspects of the growth here is that it's very broad-based. We're getting it from our traditional Life Planner, which is mostly through growth and average premium, and I believe that's driven by this long-term shift to retirement. We continue to get steady growth in the bank channel. And what's encouraging about that is it's less concentrated. If you recall, in the past, almost 90% of it was coming out of the Bank of Tokyo-Mitsubishi. That's now down to about 60%, as we steadily grow the number of banks, which is still currently out of Gibraltar. Only -- about 37, I think, 32 of them are active. We have scores more where we picked up relationships, but not new business, as a result of Star and Edison. So that's the second contributor and then the third will be the IA. So I think these 3 legs of this stool that is supporting the growth that you're observing.

Got it. That's helpful, Ed. And so, Ed, you're not seeing necessarily any meaningful change in the industry sales momentum as far as you know?

Well, as far as the industry, as you know, the large domestic have been steadily losing market share of new business. That trend has been going on for about 5 years. And while I've not looked at the most recent quarter, I think it will evidence that we continue to grow our market share of new business for some of the reasons I just mentioned that are driven partly by strategic product shift and partly by the expansion of distribution.

We will go next to Jimmy Bhullar with JPMorgan.

The first question, just following up on the International business. Just wondering if you could address whether you feel you've got more room through expansion through the bank channel, or is that -- and are you adding any more outlook? So is that mostly done and related to that, just your thoughts on production at Star and Edison and how much potential you believe you have to improve the sales results there? And then I have one on the Disability business after this.

Sure. Let me -- this is Ed. Let me take your bank question first. On the bank side, given the numbers I just mentioned about the number of banks we're dealing with, I think we still have quite a way to go in terms of growth. I want to be cautious about this because the historic growth has been so dramatic. Obviously, that cannot continue indefinitely. But if you look at the fact that through Gibraltar, which is producing over 90% of our distribution on the banks right now, being specifically the PGLS subsidiary as opposed to the acquisitions, we only have 32 active banks. To Star and Edison and their relationships, which are more than double that, we are producing very little. And that's understandable because their capacity for production was severely impaired as a result of the prior ownership and the situation they were in. I'm hopeful that as we rehabilitate those relationships, we will be able to expand the footprint. To be specific in terms of new relationships, we just started with the Citibank relationship in the last quarter, and that has started to be productive. So I'm optimistic that as a result of adding additional number of banks, particularly the more powerful regional banks, we have 3 or 4 of those relationships, which I believe have future opportunities. Now as far as the Star and Edison life adviser opportunity, I think what you'll see there will probably be akin to what we went through when we took over the keyway but this situation will be easier. The keyway was a situation where those -- that company was bankrupt, but we did introduce some credentialization, if you will, in terms of strengthening the management, as well as the training of the organization, then left to a short term reduction in the number of sales people. But that, in turn, was offset by a steady improvement in the productivity. Now granted, the situation we have here with both Star and Edison is a far more positive situation. These are, by no means, bankrupt organizations. Nonetheless, I anticipate that as we begin to introduce some of our core competencies and sales management of captive agency system, it is possible you will see some reduction in the numbers. But I think that will be offset through improvements in the productivity. Long-term, I'm quite sanguine about it, particularly when one keeps in mind that an evaluation of this, I believe we attached 5% or less of the value to this to growth in new business. So I think relative to the expectations in the pricing is, there's lot more upside opportunity here than there is downside risk.

All right, that's helpful. And then for Charlie, on the Disability business, your margins have kept declining in the last few quarters even as other companies' results for the most part have stabilized. So just wondering how much of this you feel is related to the economy and whether you feel you've got a pricing issue in your book?

Okay, well the benefit ratio is certainly up from the first quarter, but it's actually down from 270 basis points from the third quarter of last year. So it is bouncing around. It's higher than we want, clearly. But I do think it reflects the economic conditions that are out there. Having said that, in the first quarter, there was kind of -- or it was rather the second quarter, there was good news and bad news. And that is that -- the good news was that the rate of incidents decreased and terminations actually increased. But what happened, this was a severity issue. And the severity is up in most part because industries with the increase in the number of claims are the ones we have the full compensated employees. So we'll see what happens going forward, but we think we understand the reason why the benefit ratio was up. And we'll monitor it carefully.

We'll go next to Jeffrey Schuman with KBW.

I'm probably forgetting or missing something I should remember, but maybe Rich can humor me. I think you said, Rich, that the holding company had $4.5 billion of net liquidity and that the target was $1 billion. So I guess the question is, why isn't $4.5 billion minus $1 billion equals $3.5 billion? Why is it not that -- not the amount of readily deployable capital at this point?

There's this $900 million of that, that's operating debt. There's $900 million of that cash, but that's with operating debt.

Okay, that is straightforward enough. And then I was just curious, you announced the share repurchase program on June 9. And obviously, had plenty of liquidity and interest, and didn't see any purchases in June. Was there a technical reason why you are out of the market in June?

Sure, we were in blackout.

And we have time for one final question. That will come from Jay Gelb with Barclays Capital.

I want to follow up on two things. First, once the expense efficiencies are realized in Star and Edison, what do you think the normalized return on equity could be for that business? And then I have a follow up.

Yes. First, let me recap what the expectations are there. You'll recall that we expected that we'll have one-time expenses of $500 million will incur 80% of that over the next couple of years that we will reap $250 million in terms of improvement in AOI coming out of that, and that about 80% of that will be reaped over the same period at the time. But this was priced during the evaluation to come in on a levered ROE-basis in the mid-teens. And so far, as we've indicated a couple of times, every indication, admittedly very early, is that this is performing consistent with those expectations.

So mid-teens levered ROE just for Star and Edison. What about for the entire international operation?

Well that has consistently performed in the high teens, near 20. Because this Star and Edison numbers that we've just talked about are lower than the traditional 20%. It will pull that overall number down into the high teens. But I think it's reasonable to expect performance for a total PII international organization in the high teens.

And then my follow-up question is to what extent might there be consideration to moving to a quarterly shareholder dividend rather than annual?

Well, the payment of the annual dividend reflects the history of a shareholder base that included a lot of small shareholders coming out de-neutralization. And that question has come up, and it is something that we will consider and we'll discuss it if necessary when we announce our dividend later this year.

Okay, and we do have time for one more question. That will be Chris Giovanni with Goldman Sachs.

Can you guys maybe just comment a little bit on sort of the regulatory front, what you guys are thinking related to the SIFI and maybe other ancillary regulatory matters

Yes, Chris, this is Mark. There haven't been a lot of new developments in terms of stunning revelations in Washington. Let me reiterate a couple of points that we've made in the past. One is that financial strength is part of our value proposition. And being well-regulated is important to us and can play a role in that. So we don't go into the consideration of the regulatory environment looking for loopholes or trying to lean hard against anything that anybody thinks of that might be regulatory in nature. Secondly, we believe that it's more important that we be viewed as an insurance company with the financial dynamics that are actually part of our business models as opposed to viewed as a bank and regulated as a bank. And then it's more important that, that distinction be drawn than that we argue about which label or bucket or tag we wind up with, with respect to consideration of things like systemically important or not. On July 21, we became regulated by the Federal Reserve. That was part of the Dodd-Frank Bill, where we move from the OTS, the Office of Thrift Supervision to Federal Reserve regulation. We're encouraged by our engagement with the Fed at this point. And more broadly, we look forward to constructive engagement with the Federal Reserve and Treasury and others involved in Washington and the NAIC and the state regulators, as this overall regulatory picture falls into place. It remains right now fairly fragmented and uncertain but so far, we think we're going to have the opportunity as I said for constructive engagement and we'll see where it goes.

Okay, I appreciate the thoughts there. And then just lastly, You made the decision to get into the CMBS market in terms of originations per securitization, but you decided to go about it was sort of with the JV. Can you talk around that decision maybe to get back in and then why the JV route?

Sure. Just to be clear, we're not re-entering the CMBS market in terms of taking any kind of warehouse risk going forward, right? We are not warehousing any assets. We have an interest in the JV and that's amended to about $10 million. And our interest in getting back in is so that we can originate loans and service those loans and create additional fee income. So it helps our potential borrowers or clients because it means we offer another product to them i.e. the CMBS product, along with our general account products. So it expands the suite of our offerings to potential borrowers. So it helps there. And it also increases fee income, which is one of the main goals of the Asset Management business.

But without the principal risk that we've taken in the past.

Exactly.

Thank you. Then ladies and gentlemen, that does conclude our Q&A session. And just a reminder, this conference will be available for replay after 1:30 p.m. today through midnight, Thursday, August 11. You may access the AT&T Executive playback service at any time by dialing 1 (800) 475-6701 and entering the access code, 194715. International callers, dial (320) 365-3844 using the same access code 194715. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.