Q2 2020 Ameriprise Financial Inc Earnings Call
[music].
Welcome to second quarter 2020 earnings call. My name is south <unk> operator for today's call.
At this time, all participants and I listen only mode. Later, we will conduct a question and answer session.
During the question answer session you'd be happy question. Please press Star then one and you touched a telephone.
Please note that this conference is being recorded I.
I'll now turn the call over to Alicia charity Alicia you may begin.
Thank you Silvia and good morning, welcome to Ameriprise financial second quarter earnings call.
On the call with me today, or Jim cracked yellow chairman and CEO.
Walter Berman Chief Financial Officer.
Following their remarks, we'll be happy to take your questions.
Turning to our earnings presentation materials that are available on our website on slide two you will see a discussion of forward looking statements.
Typically during the call you will hear references to various non-GAAP financial measures, which we believe provide insights into the company's operations.
Due to unprecedented external events and the second quarter.
We believe GAAP results are not comparable to the prior year period.
Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials.
Statements that we make on this call maybe forward looking reflecting managements expectations about future events and overall operating plans and for formats.
These forward looking statements speak only as of today's Dave and involve a number of risks and uncertainties.
Sample lift the factors and risks that could cause actual results to be materially different from forward looking statements can be found in our second quarter 2020 earnings release, and our 2019 annual report to shareholders.
And these maybe supplemented in our second quarter 2020 tend to report we make no obligation to update publicly or revise these forward looking statements.
On slide three you see our GAAP financial results at the top of the page the second quarter below that you'll see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis.
Many of the comments that management mix on the call today will focus on adjusted operating results.
And with that I'll turn it over to Jim.
Good morning, and thanks for joining us.
The mirror pros the live it another good quarter, given the market headwinds on the challenging operating environment, the strength and stability of our diversified business continues to help us serve clients exceptionally well I'm very proud of our team how well we're operating during this time in the results were generating.
Clearly the fed decision to low interest rates in March and the volatility in the equity markets affected all business in the second quarter.
Markets will continue to experience a love a little volatility based on the shape of the recovery, but we're well positioned to manage through this uncertainty.
Today I'll provide an update on our second quarter results and how the business is performing importantly, I will discuss these results from the contracts of the key themes and long term priorities that we spoke to you about our Investor day presentation in November.
Burst further strengthening our position as a leading wealth manager with a great reputation compelling capabilities in deep client relationships second continuing to transform our global asset management business to meet client needs for active management evidenced by our on net inflows in the quarter.
Third managing our insurance in annuity books of business thoughtfully and strategically and finally, we're driving shareholder value to our combination of businesses free cash flow and capital management, our financial strength positions us well to continue managing ongoing volatility and economic uncertainty.
Our balance sheet and liquidity, a very strong and we generate a high return for shareholders.
As I reflect on the quarter and the first half of the year I feel good about our strategic direction, how we're executing and the results with generating.
We're focused on our clients and delivering good organic growth in client flows with navigating this climate well.
Regarding financials on an adjusted operating basis ex auto and home.
Net revenues were $2.8 billion down 6% compared to last year, reflecting significant pressure from interest rates and lower average equity markets that I highlighted.
For the quarter adjusted operating EPS was $2.64 and was substantially impacted by the reversal of the tax benefit realized in the first quarter and the fed cuts. Excluding these items EPS growth would have been 12%.
And although we was 35.6% which remains among the best in the industry.
As you review our financial results, you'll see that we were able to mitigate some of the revenue pressure true good expense management and strong capital management in fact, adjusted for the impact of the tax item.
EPS growth is good and our ROI, we use near the top of the industry and our assets under management and administration ended the quarter at 947 billion up 3%, reflecting strong client flows and point to point market appreciation.
Now I'll discuss advice and wealth management, we're delivering good growth in assets and flows and absorbing market pressures well total client assets were up 4% to $630 billion in the quarter. We had strong client flows with nearly $5 billion and wrap net inflows, which is consistent with our strong stock.
To the year and very good when considering the volatility and ease in the markets clients brokerage cash balances remain high but came down a bit on sequential basis as clients started putting money back to work as market stabilized.
Our goal base value proposition is resonating with clients as they navigate these markets, we're seeing good uptake and foundational advise and much greater use of our digital capabilities, including online gold tracking and record engagement on our websites and mobile apps. In fact site visits are up 50% over last.
Year and traffic to the Ameriprise App increased 70%.
And clients are highly satisfied with the Ameriprise advice experience, 96% say their advisors provided advice that addressed in needs and that they were highly satisfied with the outcome of their experience with their advisor, 92% say they are likely to recommend the experienced a friends or family.
Additionally, our CRM platform as an important component of the Ameriprise client experience, particularly in this remote working environment as advisors leverage these capabilities to attract and act on client that are in activity.
We're consistently invested in our technology, which is leading to continued strong client satisfaction engagement and growth and advisor productivity.
In fact net revenue per advisor increased 5%, which is quite good considering the weight of low interest rates on the business as well as lower average equity markets and the change in methodology of billing based on beginning of the month asset levels.
On the recruiting front, we welcome 75 productive advisors to the firm in the quarter across all channels advisor movement in the industry slowed considerably in April due to market dislocation. We quickly moved to an all virtual recruiting program and activity picked up in May and June many.
Advisors have more time to evaluate options and the taking advantage of our video sessions Webinars virtual VIP meetings and open houses to get to know Ameriprise. It is a very efficient way to showcase our effective advised the value proposition.
These experienced highly productive advisors are attracted to our client first culture and they've been particularly impressed with our technology as well as how we've been supporting our advisors during a challenging time.
We're very well positioned on the recruiting front in the pipeline looks good.
With regard to Ameriprise Bank. This is an important growth area for us that we continue to ramp up we're beginning to invest out the cash that we moved to the bank. We're also building out our capabilities. We just launched on mortgage product in July and we will be rolling out a pledge loan capability in the fourth quarter.
So in terms of ADW in financials margins remained quite strong at nearly 18% and thats after the significant impact of the fed interest rate reduction.
We have consistently had strong sustained margins in a WFM that compares very favorably to peers and that remains true today.
And as we grow the business, we are closely managing expenses, given the revenue environment, while still investing to drive future growth.
In insurance and annuities, we've been very deliberate in how we're managing these businesses, we've adjusted our products beaches and pricing consistent with our risk management approach and the environment.
In annuities total variable annuity sales were down 17%, reflecting client concerns about the pandemic and market volatility as well as the mix shift we are driving we continue to see very good uptake of our structured annuity. We launched earlier this year. When you combine these sales with a flagship Rob VA.
Products more than 50% of new Riversource annuity sales in the quarter, where in products without living benefit guarantees as we progressed through the year, we should increase even further consistent with our plan.
I'd also add that due to rate environment, we stopped new sales of fixed and fixed index annuities.
And protection life sales were also down however, we've been focused on shifting from well to view well, where we have been a leader.
Ooh wealth sales was stable.
And the decline was in our UL as with our variable annuities, we continue to make pricing them benefit adjustments, including cap rate reductions and adjustments to our underwriting as appropriate.
Like others, we have seen has slowed down and long dated products and we're working hard to help advisors serve their clients and grow their books would insurance and annuity solutions in this largely virtual world.
Overall, we will continue to manage this business prudently and it continues to be a good source of free cash flow.
Moving to asset management, we had a good quarter that reflects the momentum in the business that we've been building and discussing with you the trends in the business a quite positive, especially in North America.
At the end of the second quarter, a U.M. was $476 billion up 2% from a year ago, even after reflecting lower weighted equity markets.
It was also up 12% sequentially, reflecting the recovery in the us equity markets in the quarter in our improved flow picture. Our AUM growth was driven by on North America business. We are generating good earnings in asset management, and while pre tax adjusted operating earnings with down that was largely.
Due to lower performance fees, and lower average equity markets compared to a year ago.
The success with driving in outflows as a result of our focus and progress in a number of key areas first and foremost strong investment performance.
Our short and longer term equity performance has remained strong through this volatile period would around 70% of iphones above median beating benchmarks on an asset weighted basis performances, especially good and key strategies like income oriented equities and asset class that we believe we'll continue to be critical.
For years to come and in fixed income we saw a bounce back from underperformance in March that impact the short term numbers long term numbers across equities fixed income and asset allocation remained strong in both us and EMEA.
In addition to good investment performance, we're concentrating even more on strategies that align with investor needs and also improve the effectiveness at our distribution.
Columbia Threadneedle was a net inflows in May and June and ended the quarter with 2.6 billion those and net inflows for the quarter, a more than 4 billion, though improvement from a year ago.
This is a nice continuation of the improving trends that we've seen over the last year.
Regarding global retail net inflows North America retail was a net inflows of 3.1 billion X X parent with 400 million of outflows in EMEA.
US retail had very good results across distribution channels, including large broker dealer firms independence and DCIO, we're generating good results from our effective segmentation and targeting as well as the benefits of our data strategy.
In fact, North America was a net inflows and for the first six months of the year led by strong flows in equity income and complemented by certain fixed income asset allocation and other strategies. In addition to these north America retail inflows I spoke about we continue to build out on model delivery business and had 315.
Million of assets under administration flows in the quarter.
In EMEA retail we were in net outflows as the equity market environment, there is more challenging and investors remain cautious.
That said overall flows improved nicely from a year ago, particularly in key markets, including the UK, Germany and Italy.
And then global institutional excluding former parent assets, we had net inflows of 211 million a nice improvement from last year and that includes outflows of $900 million of low fee assets from an insurance client that we expected.
We were able to offset that by winning higher fee mandates, including improved traction in Asia, and with nice diversity across equity and fixed income.
Key to these strong results as our excellent virtual engagement with intermediary and an institutional clients that reflects the benefits of the technology investments that we've made across the firm.
Going forward, our teams will operate using both in person and virtual engagements, which should further improve efficiency and cost of acquisition.
So to wrap up asset management with delivering good results and improving trends and the team is focused on continuing our progress going forward.
Now, let's turn to our ability to return capital to shareholders, which is underpinned by excellent free cash flow generation and balance sheet strength.
The business continues to generate good free cash flow that we invest for future growth and returned to shareholders.
Our balance sheet remains very strong would approximately $2.2 billion liquidity that we held at high levels since increasing it early in the year, given the volatility and the market an economic uncertainty.
Excess capital remained strong at $1.9 billion and as we have noted we have a high quality diversified investment portfolio. When an average rating of double a minus and limited exposure to industries that are currently under pressure.
And we restarted our buyback program in may reflecting the strength of our free cash flow generation and capital position.
In closing, we continue to focus on our clients and helping them navigate this environment.
As I've discussed we're getting good traction in advice and wealth management and the trends in asset management a positive.
Overall, the company remains strong and were able to return to shareholders at a differentiated level two an increase in our dividend and restarting our share repurchases.
Regarding our team while the vast majority of our employees in advisors continue to work from home during the second quarter, we have begun to gradually initiate a return to office.
As you expect we've taken a thoughtful phased approach we're beginning to open a number of corporate sites and our branches and franchise offices around the use of starting to reopen safely.
Throughout this period, our top priorities have been serving our clients as well as the health and safety of the Ameriprise team.
Our people are collaborating well into highly engaged and it's getting noticed I am pleased that we were named once again as the best place to work by the Minneapolis Saint pull business Journal.
I feel good about how we're executing and operating through this pandemic.
Uncertainty remains in the environment, but we're very well positioned now I'll turn it over to Walter and then I'll take your questions.
Thank you Jim.
As you are aware, we're operating in a challenging environment weve interest rates.
Equity market volatility.
And then pandemic continuing to create significant headwinds.
Ameriprise delivered adjusted operating EPS of 2064 cents in the quarter has strong underlying business performance.
Was negatively impacted by a $1.90 from the reversal of the first quarter tax benefit.
And the full impact of the federal reserve cuts in March.
Strong momentum in flows continue during the quarter.
With nearly 5 billion of wrap net flows and over $2 billion of net inflows in asset management.
Balance sheet risk fundamentals remain strong.
We have successfully maintained strong engagement with clients.
Risers and sales teams to deliver exceptional service.
While nearly 95% of our workforce continues to work remotely.
Excess capital ended the quarter strong at $1.9 billion.
As we continue to generate substantial free cash flow.
Let's turn to page six.
The market dislocation in March related to covert 19 continue to adversely impact financial performance.
We realized the full impact of the fed rate cuts in March.
As wells, a 3% lower average equity market.
Additionally.
Reduce sales and longer dated insurance and annuity products.
Negatively impacted transaction activity in the quarter.
Our underlying business trends remained solid in the second quarter.
Close were very strong in both wealth management and asset management.
We are managing expenses very tightly in this environment.
And we have returned nearly 90% of earnings to shareholders. So far this year as.
It's a resuming our share repurchase program.
Let's turn to page seven.
As we continue to navigate this operating environment.
Balance sheet strength and risk management Foundation will remain keys to our success.
We ended the quarter with $1.9 billion of excess capital and substantial liquidity.
Year to date, we have generated free cash flow of nearly 100% of earnings.
Our investment portfolio continues to remain defensively position.
And performed well in the quarter.
We are currently in a 2.1 billion unrealized gain and less than $4 million of impairments and loan reserves in the quarter.
We continue to manage the business prudently from a risk perspective.
Effective hedging and as you would expect.
We are making appropriate product changes to address the interest rate environment.
From an operational risk perspective.
We continue to meet client and advisor needs, while ensuring the safety of our employees.
And our business has performed well during the pandemic as demonstrated by flows in wealth management and asset management.
Life mortality remained stable despite pandemic, reflecting new unique characteristics of our client base and approximately 70% of our block this reinsurer.
In the quarter, I'll close LTC blocks or fewer clients entry nursing homes.
And increased mortality related terminations from clients on claims.
As you can see on page eight.
Financial results were clearly impacted by headwinds from rates markets and client behavioral changes related to the pandemic.
Advice wealth management adjusted operating net revenues declined 7% absorbing the expected 122 million impact of lower revenue.
From a precipitous decline in short term interest rates as well as 37 million from lower transactional activity associated with the pandemic.
And 27 million from lower average equity markets.
We are navigating this market environment as we have demonstrated during previous downturns.
Importantly, organic growth remained strong with solid client flows.
Including nearly 5 billion of wrap net flows.
9% growth and wrap assets and improved advisor productivity.
And as Jim has mentioned advisor recruiting in the quarter was very good.
And that momentum continues.
These business metric trends will continue to support good organic growth as we move through this are uncertain period.
Revenue in the quarter did not fully reflect the growth in BRAF assets because of our methodology of billings based upon beginning of the month assets.
While markets were down 3% on average.
The impact of markets based upon our billing implies an impact of markets being down 5% on average.
As a result equity market appreciation in the second quarter will benefit third quarter revenues.
Benches were well managed in the quarter down 1%.
DNA expenses increased 1% inline with expectations as we continue to invest for future growth where appropriate including the bank.
Excluding the bank gene a expenses were down 1%.
We were continuing to prudently manage our expense base and adjust accordingly based upon the environment.
Pre tax adjusted operating margin was 18% in the quarter.
A strong result in this environment.
Turning to page nine asset management delivered strong net inflows of.
A continuation of the favorable trends over the past several quarters.
We remain optimistic in our continued traction on flows.
And favorable fee mix shift.
We will continue to leverage global operational capabilities.
And provide diverse product for France with strong investment performance.
We are encouraged by the progress the business is making and how that will contribute to revenues over time.
Adjusted operating revenues decreased 6% is 2.6 billion of net inflows, partially mitigate the impact of lower average equity markets.
Lower performance fees and the impact of net outflows from prior quarters.
Adjusted operating expenses improved 4%.
Gionee expenses declined 2%.
Collecting disciplined expense management reengineering initiatives funding target investments for growth.
Pre tax adjusted margin remained strong at 35%.
Turning to page 10.
Annuities and protection results continue to perform in line with expectations in this market environment.
Variable annuity pretax adjusted operating earnings increased 32 million to 151 million, primarily as result of lower surrenders and withdrawals that reduced the amortization deferred acquisition cost.
As well as lower sales and higher ending markers levels.
Fixed annuity pretax adjusted operating earnings were $4 million, reflecting continued lower interest rates and net outflows.
Protection, continuing delivered stable earnings during the quarter at $70 million, reflecting favorable claims.
Well variable annuity sales declined overall.
We are seeing desired mix shift in sales to products without living benefit guarantees.
We recently launched our structured variable annuity product and over half a variable annuity sales during the quarter would those without living benefit guarantees.
We expect this trend to continue. Additionally, we discontinue new sales are proprietary fixed annuities and fixed index annuities, given the low interest rate environment.
Now, let's move to the balance sheet on slide 11.
I've already highlighted many of the elements of our balance sheet fundamentals are strong liquidity position substantial excess capital.
Effective hedging.
And a defensive position to investment portfolio.
Our adjusted operating return on equity in the quarter remained strong at 36%.
We resumed buy back in early May.
And through the first half of the year have returned nearly 90% of earnings to shareholders.
With that we will take your questions.
Thank you we will now begin to question answer session you'd be happy question. Please press Star then one and you touched telecom.
If you wish to be removed from the King. Please press the pound signed by the Heskey.
If you can you speaker phone you may need to pick up they can't Super Super pressing the numbers.
So again you have your question. Please press Star then one how do you tend to talk about.
Your first question comes from Erik bass telemetry. Thanks.
Hi, Thank you I'm, just hoping you could provide some more color on the outlook for expenses in the advice and wealth segment and are you, making any adjustments to the plan you talked about previously given the revenue headwinds in the business.
Yes. This is water so let me.
So Jim you want to do.
Okay.
Yes. So if you look at our expenses, we are targeting right now for amped totally you'd be down about a $125 million a year over year and when you consider that normally you have a volume increases and certainly our.
Investments being made thats, a substantial savings of over 200 million and we so we've looked at the situation, we've evaluated and Weve put that in play as it relates to.
Hey, WFM, we are certainly continuing to invest.
For growth, but we will still monitored the situation as it relates to the revenue generation and keep in proportion certainly looking at the expenses that we have.
So the answer is we are and we have implemented programs.
Got it May I guess, it does that imply that <unk> expenses are gionee ex the bank could continue to be down year over year.
Yes, you should expect that they will certainly track.
And the level of down as we as we move into the balance through the year period, yes.
Thank you and then just two quick.
Thanks for annuities, you mentioned the favorable benefit from DAC amortization. This quarter. So just hoping you could help us think about the earnings run rate for that business going forward and then there's the decision to stopped selling fixed annuities have any implication for how youre thinking about the enforced block.
Well, Okay. So let me start with latter on the fixed annuities, we decided because we felt from a standpoint. It was not meeting our shareholder projectors and we certainly other products that are available and we still intend to pursue our reinsurance of the fixed annuity block as situations evolve so from that stand.
Pointed out I think it's totally aligned with the objectives that we've said before on the VA certainly we have seen our elapses improved from that standpoint, and that was part of the benefits we will set the big lift relating to the.
The equity markets and a shortfall in sales so as sales improve we will see some denigration, but we certainly.
We see that we got a lift in this quarter because of those items and we should be.
Be back to a more moderate pattern as we go into a two down the third quarter in the fourth quarter, but still very good performance.
Got it so should we sort of average the first two quarters of the year.
It's sort of think about the run rate would that be reasonable.
Actually it's yes, it's been interestingly approaching but it is probably going to be in that range you.
Okay. Thank you.
Youre welcome.
And following question comes from Suneet Kamath setting.
Thanks, Good morning, just sticking with advice and wealth management first on the transactional revenues I guess down I think you said 37 million versus last year can you just talk about what the strategies are in terms of trying to turn that around or does it require sit in new products that are more competitive.
Or.
Just what's the strategy behind that.
So all time Jim.
First obviously in this whether it's very difficult to sell some of the laws long dated product when you're not face to face and so they are adjusting on that so.
Certainly that has caused a bit of a dislocation as it relates to the ability and certainly the environment as people see this sort of environment the pause so.
As it relates to products, we are adjusting to products, where the environment and certainly we launched a news structure project, which seems to be doing very well.
And meeting our expectations.
So I think it's a combination that Jim I don't know if you want to add anything on it.
Suneet I think it's you would imagine after the tremendous market volatility and.
Market depreciation that occurred at the end of the first quarter and then moving to virtual.
You know advises will very much focused on engaging clients keeping them on track to what they needed to achieve longer term managing their various portfolios and.
Having types of conversations remotely regarding protection in life insurance and longer term contracts wasn't necessarily their priority and they find that probably a little more difficult to do I think you didn't see that across the industry. So we do believe it will come back sort off point.
We have a whole range of products on the shelf. It has nothing to do at our individual products for them to sell.
But imagine they're not really locking in some longer term fixed type of contracts like are you well in insurance right now with a lower rates.
But our structured annuities are are really doing well and we just launched that so that will ramp up.
And I do believe this will come back in time, but you got to look at the dislocation and working remotely and where advisors how to keep their focus.
Okay got it and then the second question is just as we think about like there's a lot of moving pieces and advice and wealth management, but when we think about that sort of earnings basis. I think it was 271 million pretax or the margin.
How should we think about those two things trending over the balance of the year I know you don't give guidance, but just any color to try to get a sense of all these moving pieces would would be really helpful.
Yeah, I would say this I think overall listen we're we really have been impacted as others have with the short term interest reduction the almost the full effect is in our numbers right now, but if you look at where our margins were probably you know when the fed rates was this low.
So back to two or three years ago, you'll find that on margins have continued to improve this regarding the spread revenue I think as I look at it you know we have built we do bill our wrap up accounts at the beginning of the months. So we didn't get the full benefit of the market recovering there.
Our wrapped flows continue to be quite strong of 5 billion. We brought in just as much in new client business. During that time, we have good productivity improvements in our advisor base, there up taking our technology really well even through this pandemic, we have really great engagement.
Absolutely.
And I do believe that we're making good progress in getting more invasive based relationships that will both cause more growth and deepening.
The clients, we are serving now as I mentioned in my talking points to satisfactions really high so that will mean good flows for the future and good referrals.
And I think we'll continue to work on getting that for productivity as we continue to work through the pandemic. So I feel good in the last point very clearly is.
We invested in the bank for good reason, we believe that overtime, we will get good spread and the bank.
As we invest and as we grow the banking institution, we don't really have.
Any bad credit on the bank right now and so it's a positive for us as we start to invest in grow.
And I think all those things will come to fruition, but I feel like we're still very much on track to where we were and how but you know you're going to have some impacts based on the market volatility in the interest rate environment.
But I don't feel any different I actually would say I feel really great about the type of.
Results, we got in the second quarter through this pandemic.
Alright, thank Jim.
Our next question comes from Humphrey Lee from Delhi and partners.
Good morning, I think of it taking my questions just to follow up on MWM. So you talk about devices focus in during the second quarter was kind of engaging customer to focus on launching objectives in selling Sunday insurance products were not their priority, but do you see any change kind of throw the quarter and maybe into July.
As any any change in terms of transactional activities and maybe how should we think about ending the quarter.
The transaction activity is improving.
Gradually but it is really we have to we're watching that because as it evolves, but it's it's beginning to show some signs, but again, it's we're monitoring right now.
Okay.
Shifting gear in asset management on very good.
Net flows for the quarter I think in retail is probably the first time, we've seen positive net new sales for quite some time can you talk about like what you saw in a quarter and how should we think about the momentum that you're seeing in asset management in general.
Yes, I would say.
As I looked at the number of manages reporting so far we're one of I don't know three so far that I saw in positive inflows during the quarter a significant improvement for us.
In a continuation of the improvement we've seen over the last few quarters.
We're getting good results I mean, we've been a nice inflows in our equity business, which is different than what you'll see in the industry.
And we feel very good about our activity levels, particularly in the U.S.
Across our distribution channels.
So that continues to do well for us.
And.
As a blip up that we saw in redemptions in March and beginning of April have backed come back down to more than normal normalized levels. So on a sales have really increase tremendously year over year.
In Europe, it's still a bit weaker it's improved nicely from where it was a year ago, but it's still a bit weaker based on the European risk off markets, but thats starting to recover and we see some of that improving continuing improving as we go through.
So overall, we're feeling good about the asset management business people have been able to really engage remotely.
And we're continuing to have a good lineup of funds. The investment performance is a really good so far and we're hoping that we can even gain a bit more traction on into the fixed income that will be complementary for us.
And then you in your prepared remarks, you talked about you're able to win some higher fee mandate in Asia I can you talk about like what does the potential in that particular market.
Yes, so we've been focused really is.
One of our big outflows in the quarter was a very low fee insurance mandate that we expected based upon you know some changes in the business that we were supporting from from the outside client, but we are bringing in a bit better in the mandates on both in some fixed income as well as.
With the product.
And some of those are from our institutional.
International clients both in 88.
As well as in EMEA.
And so we feel that we can continue to improve that pipeline and.
Yes, some good mandates that have some good fees.
Got it thank you.
Your next question comes from and you Craig Schmidt from Credit Suisse.
Hey, good morning, I wanted to go back to advice and wealth and talk a little bit about the sweep accounts, which which were very high still at about 31 billion and then the bank deposits declined I think from.
<unk> point 2 billion down to 5.3 so.
The question is.
Why did the bank trying to go backwards, a little bit in terms of deposits and.
How can you can you.
A good chunk of those sweep assets over to the bank overtime.
Yes, so Andrew let me answer that obviously.
There are two two programs that work within the bank. One is from the sweep accounts itself, which ever more of a permit nature, which were starting to now built the other is a program that we transfer enough money for our two the bank from managed account activities, which is obviously has pretty high velocity in and out and that's what you saw or at the end of the.
At the end of the first quarter of a lot of managed activity came in in cash and we obviously that as some of that got redeployed in the quarter. So that was the drop with now you'll be seeing starting to build more of the sweep balances of coming over to the bank as part of moving from.
Away from a third party on the promontory and that would be a building event. So was it was dusty aberration of that some of that short term cash that went in and out.
End of the first quarter and started getting redeployed in the second quarter.
I see and Walter could you I mean and that makes a lot of sense could you, possibly put numbers around your expectations for bank deposit growth.
Yes, we again, if you took a look appears look at us and so we see a very large opportunity of the.
Of the mix that we have of funds deployed a promontory third party banks versus being redeployed at the bank as Jim said, it's a big opportunity for us to take advantage since the sweep accounts are at their certainly low earning point to start swing and so you will see from our standpoint, we haven't worked into our plans now but.
So.
In the ranges of $3 billion to $5 billion coming out over between now and the end of next year that seems like it's at reasonable as we work through our plans. That's the sort of numbers that we can see and we certainly have the capacity to do.
And then Walter with regard to share repurchases. You know you know this quarter was great. You started in May 251 million I think you're targeting somewhere in the 90% to 100% of earnings range do you see a path to getting back to kind of that normal.
One more normal level, maybe more than 400 million a quarter in share repurchases.
But again Andrew.
We have the capacity there's no question about it as we evaluated we are certainly one of the few that are actually redeploying.
Capital back to shareholders through repurchase so we're going to continue to monitor but certainly it's going to be one of the areas that will certainly continue to return I'm not exactly sure at this stage.
Where's the levels will be but certainly.
With the strength in capacity, we have that will be an opportunity for us as we look forward idle again, I'm not going to quote what we've got 400 million whatever but we're certainly one of the few that are actually buying back.
And just lastly are there any M&A is out there that you could deploy capital toward right now they did seem more M&A.
Andrew.
Mhm.
Well, Andrew we we have flexibility and I think as opportunities arise we continue to sort of look at things appropriately. We feel however, we have a good organic hand that we continue to play.
But you know what they're a complementary things and let's say advice and wealth or in some of the sectors of the and asset management World. We have the ability and we've been very successful in the past so.
Those are the things that depending on the environment may come come come out.
Thanks, a lot.
Our next question comes from John Barnidge from Piper Sandler.
Thank you given world sheltered employees and I know how much travel factors in for the asset management and pretty broadly both on the buying sell side can you talk about saving you've seen from lack of travel and how much you see that remain on and maybe semi permanent permanent basis. Thank you.
Yes, So I think we certainly as we looked at our our Cheney and our.
Our meetings as as the World has changed.
From that standpoint, we that is part of the savings that when I spoke about that we will have as the difference versus last year.
Teeny Cross Wi Fi meetings.
Is it reasonable I would say.
Of the savings maybe.
In the area of about 25% and then with the redeployment is going to be based upon we how we reassess our ability to do business in this environment and so we've not really exactly sure. We're working through plans about how we.
We do face to face or would you virtual and as we changed the way our business model works in this environment. So thats an open switch right now, but certainly we are getting a good savings coming from that's going to you know certainly increase as we go through but this first quarter was basically a freeze and then we'll start evaluating of that hybrid model.
Of how we operate going forward.
Yeah, I would say that we will going forward have a hybrid model, we see good opportunity to engage virtually that will be complemented by face to face. We don't think that face to face will go away. We think that may be important than certain new types of business activities and engagement.
And as well as for more deeper engagement, but we do believe that we can complement that with the virtual capabilities that we haven't that we've been learning from.
And we think that will be embedded in the way, we do business moving forward.
Yeah.
Great. Thank you for your answer.
Our next question comes from Alex <unk> from Goldman Sachs.
Great. Thanks, Thanks for taking my questions good morning.
A couple of follow ups in the bank I guess, one more exports is I guess near term question I walked Ricky tells what the and I are at the bank was in the second quarter.
And then if I may gets bigger picture strategy related hurt your comments about moving $3 billion to $5 billion.
I guess that's through the end of next year from third party banks, we too.
Through the Ameriprise bank, but that doesn't seem particularly aggressive I guess given that it's you guys are sitting on 22 plus billion dollars.
Third party costs Weve, so so why not move a little bit faster.
It feels like you could pick up anywhere from 50 to 70 basis points on cash right now.
Is that something Klein related meaning you guys need clients you actually opt in to go to the Ameriprise bank or what is sort of the constraints are dealing with there that's preventing you from going a little faster.
Yes, I think there's two things that let me deal with that pottery question. One is we have arrangements where promontory.
Banks, and we said, we we honor those arrangements it is not a customer restricted element from that standpoint at all and also it's a matter of ensuring we have and this is where it becomes.
Trying to gauge the investment opportunities that we want to make that has the right return, but also has the right risk elements to it. So I'll give you a range, we certainly have flexibility within that and it depends on again deploying that cash effectively that meets our return.
And risk characteristics is probably a gating factor as we are evaluating this environment that is one of the factors that.
That will go into the evaluation.
All right and I and I had the bank in the second quarter.
Yes.
The next.
I'm trying to the net interest margin from.
Interest income in the bank.
Trying to see from I don't actually have that Fermi I will have to get that too. Okay. Im sorry about that are nowhere.
And then just a follow up question against thinking whatever younger second.
Again near term into longer term piece, there, but I guess in the near term anyway. You can just give a DNA guidance for third quarter and fourth quarter and give us a sense of how much of that is still related to the bank build out and when you expect that you've laid out and then bigger picture question for both you and Jim I guess, when you think about the experience in that.
Segment over the last several months in the ability to silver crude pretty aggressively despite people working from home.
What is sort of be Q lessons learned that we might take away from that that could improve upon the profitability of recruiting going forward.
All right so.
As far as the expenses as I said the expenses, we are anticipating certainly that it will build as you take a look what we saw what the expense differential was in the first half as we go to second you'll see a bills there as it relates to savings as we get towards that talking to being a $125 million under for the company.
And the bank does play a big role in the expense base that we have of in a WMS.
It's in $50 million range as we build through it so it's a factor, but again, we're making investments for our growth and the bank is an important part of that.
And now on on the recruiting side I think we've seen a good recovery the teams have gotten and really developed it take the ability of virtually meeting with.
Perspective.
Experienced advisors and now they're evaluating again, certainly seeing a lot of advisors now. The question is the close rate and how to handle it and I think we are feeling confident that we are getting a good trend line as we adjusted this hybrid model.
And I think thats, we've been quite effective not only in.
Arrangement this meetings with them and then coming to closure, but also on Onboarding. It's been extremely effective so we're feeling quite good about our situation right now.
Great. Thanks very much.
Well.
Our next question comes from Tom Gallagher Evercore.
Good morning.
Yet another question on a wm to start with the.
If I just look at Eni in this segment it dropped from around 100 million last quarter to 77 million this quarter.
Sequentially.
What why did it dropped so much of those floating rate assets and would you expect that eni to stabilize.
Yes, so we have a combination and what's been taking place in on net interest income and distribution as you look at the bank and everything.
We have certainly in the bank of had the majority of the assets that we had in bank were floating rate and then we started augmenting them in the third quarter at the end excuse me at the end of the first quarter beginning of the second quarter with fixed maturities. So you've been getting a combination but clearly the investments that we've had into bank art, we're totally floating rate.
Uh huh.
Agency high quality paper that obviously has gone down and then we started now investing add on fixed maturity. So thats the combination that you're saying.
You know from that standpoint that is an impact and we've adjusted our transfer pricing. Okay. So as relates to the market, but that's between the institutions, but that's what's taking place is primarily.
Floating assets dropping off us now starting to add fixed maturity assets, which are yield.
Being very prudent about half of what investments we look at and that is the main driver.
And Walter where would you expect incremental pressure or do you feel like that that you'd be more stable going forward.
I think what we had a pretty good point of stable from this the floating rate side listen I can't I'm, not predicting but certainly as it relates to it and as we now started investing out on the fixed maturity curve, you're going to start seeing that incremental.
Especially as we add as repositioning the portfolio and we add new liabilities and to invest out on.
Got just so that that could actually go up a little bit then yes, yes, yes. It is.
Again, it depends on we're being very very measured and trying to be certainly there is opportunities out there, but we want to make sure as we do our investments that is meeting our yield curve objectives yield objectives, but also meeting our risk objective. So were the team is doing a great job, but again, it's you have to be careful to paper out there.
Got it and I guess, just a follow up so broadly the.
Cash sweep.
Looks it looks like.
The margin compression there should be behind you and then when you think about spread income, whether that's bank name or otherwise.
Would you say.
If you look out assuming rates remain where they are over the next few quarters. The would you expect any incremental rate pressure.
Adding all these things up or do you would you expect that to be behind you.
I would say that as we start implementing their strategy for fixed maturity investments and we youre going to start seeing that that's spread income, giving us a lift and I do believe this the floating side again I can't tell you where rates are going to go but certainly.
I believe.
That's probably more behind us.
Versus headwinds, but who knows where we're in the environment is but certainly us taking out positive action to start investing out on fixed maturities, we will start to feel and improve our yield.
Gotcha and then that's a that's that's helpful.
Then just my final question is.
Just on long term care. One one question is that's clearly trending favorably right now would you just given I guess the big bold.
No well call it mortality related plus lower submitted claims incidents would you expect that to remain.
Hi.
Similar profitability level or at least at Ed at a higher than normal profitability Weber for.
The next couple of quarters.
Yeah, so listen outcome, we have seen.
Unfortunately improvement because obviously as it has impacts to our clients.
Certainly from our standpoint, we don't know if that's a long term trend, but it on and on the short term and you know with what's going on the various states I certainly is it looks like it did.
Continues to be problematic I don't know, it's been spill over to the nursing homes. The the actuaries us a looking at it and but we are seeing the benefit so far I can't really tell you if it's going to continue I certainly.
It's not going to get worse for us from that standpoint.
But I can't really tell you where is that trend is going to continue but it's it's one that we benefited in this quarter for sure.
Okay. Thanks.
Right.
Our last question will be from Ryan Krueger from KBW.
Hi, Thanks, good morning.
While there Chris I just wanted to clarify your comment that expenses were expected to be down 125 million year over year on a consolidated basis was that total expenses or specific DNA expenses.
That was DNA that was I was talking about Gina.
Thanks, and then.
On fixed annuity reinsurance.
I guess should we.
I guess or you would you still consider doing a transaction in the current interest rate environment. If you can get acceptable pricing or should we think about that as more off the table in the near term contingent on on rates rising.
Our objective is not changed it certainly is something that we intend to do we are getting inbounds and we are evaluating them, but there is a challenge with the interest rate environment, but certainly we are getting inbound coming in and we're evaluating it so it's something that.
It's not if we can do it it's one we're going to do it and and what is going to be appropriate balance our shareholder bases, but it's still our objective set.
Got it thank you.
Okay.
We have no further questions. Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
Okay.
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