Ameriprise Financial Inc. Q1 2023 Earnings Call
Question and answer session. During the question and answer session. If you do have a question. Please press star one on your Touchtone phone and as a reminder, the conference is being recorded I will now turn the call over to Alicia charity Alicia you may begin.
Thank you and good morning, welcome to Ameriprise Financial's first quarter earnings call.
On the call with me today are Jim Cracchiolo, Chairman and CEO and Walter Berman, Our Chief Financial Officer. Following their remarks, we'd 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 specifically.
Specifically during the call you will have references to various non-GAAP financial measures, which we believe provide insight into the company's operations.
Conciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website.
Some statements that we make on this call may be forward, looking reflecting management's expectations about future events and overall operating plans and performance.
These forward looking statements speak only as of today's date and involve a number of risks and uncertainties a.
A sample list of factors and risks that could cause actual results to be materially different from forward looking statements can be found in our first quarter 2023 earnings release, our 2022 annual report to shareholders and our 2022 10-K report, we make no obligation to publicly update or.
Revise these forward looking statements.
On slide three you see our GAAP financial results at the top of the page for the first quarter below that you 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 makes on the call today will focus on adjusted operating results and with that I'll turn it over to Jim.
Good morning, everyone and thanks for joining today's call as you saw in our release Ameriprise had an excellent first quarter building on a strong year in 2022.
As you know equity markets were choppy up for the quarter, but still down 9% from a year ago and interest rates were up strongly year over year.
However questions around whether we will see a hard or soft landing continues to play in the background and the failure of certain regional banks and another large financial institution caused investor concern.
To confirm Ameriprise has no exposure to the recently affected banks with regard to our bank. Our deposit base is extremely stable our investment portfolio is high quality with a short duration and its all held as available for sale. In addition, all of our client cash sweep deposits and wealth management and the bank or FDIC.
Or civic insured.
As we reflect on the quarter I'd like to reinforce some important points.
Ameriprise remains strong and stable, we navigate environmental uncertainty extremely well for our clients in the business and we've demonstrated that again ameriprise has a diversified business with wealth management, representing two thirds of the firm's earnings complemented by our retirement and protection solutions and asset management businesses. This day.
<unk> enables us to generate strong results and multiple revenue streams across market cycles, and offset pressures. We can also quickly capitalize on opportunities and deal with risk.
Last and importantly, our financial foundation risk management and expense discipline are all excellent we're able to consistently invest in business growth across market cycles and return to shareholders at attractive levels.
With that as background I'll discuss the strong adjusted operating results, we achieved in the first quarter <unk>.
Revenues grew 3% to $3 $7 billion, driven by double digit growth in advice <unk> wealth management.
Earnings were up nicely with pre tax adjusted operating earnings up 20% and EPS up 25%, which is significant and the return on equity excluding <unk> was 50% our return on equity continues to be among the best across financial services.
Our assets under management and administration ended the quarter at one two trillion.
It's down from a year ago due to lower markets and a negative impact from foreign exchange translation, which was partially offset by our strong client flows.
Let's turn to business highlights.
In advice <unk> wealth management, we delivered another excellent quarter with bringing in strong flows as we focus on providing more advice to more clients and deepening our relationships climb.
Client inflows continued to be robust more than $12 billion in the quarter up 18% and very close to an all time high.
And this builds on a record year in 2022.
But wrap flows and transactional activities were impacted due to market volatility.
We expect to see a pickup in Iraq, and other solutions as markets and the environment settle over time.
The Ameriprise client experience helps drive leading client engagement, our advisors are supporting clients with our excellent market volatility resources and advice based client experience. Even during this period of heightened uncertainty client satisfaction remains very high of $4 nine out of five stars.
Our advisor value proposition is another differentiator ameriprise advisor retention as among the best and productivity continues to grow nicely, increasing 5% to $847000.
<unk> continue to tell us that they love our technology tools and support.
For example, we are rolling out a great new capability called E meeting that reduces advisor meeting prep time down to just a matter of minutes and generates a highly personalized professional presentation focused on client goal achievement.
In addition to our legacy advisors, our experienced advisor recruits appreciate our client and advisor value propositions as well as the firm's financial strength.
Another 83 experienced advisors joined us in the first quarter.
Quality of the people, we're bringing in and continues to build in terms of practice size and productivity and we're seeing a nice recruiting pipeline ahead.
As you know we began building the Ameriprise financial institutions group channel a few years ago. Since then we partnered with a number of quality financial institutions, who want to work with a firm like Ameriprise that can provide excellent client and advisor service.
In the quarter, we announced a new bank partner Comerica Bank.
This partnership will bring approximately 100 financial advisors, an $18 billion in assets by the end of the year.
Regarding our bank, it's growing nicely, we're adding additional deposits have grown to $20 billion in just a few years.
It's an attractive complement to gain spread revenue in this rate environment and.
And we had strong growth in our certificate business with assets now close to $12 billion as well as good growth in our pledge loan business at the end of the quarter, we launched a new savings product and we'll follow that with our own brokerage CD in may as well as preferred savings vehicle later in the year.
As we grow in the marketplace, we continue to build on our strong brand awareness in the quarter. We launched the next phase of our advertising to further promote our referral advice value proposition and the excellent client satisfaction, we consistently earn.
And the Ameriprise team and I are also immensely proud to be recognized for how we operate and do business. Some of our recent awards include being ranked as one of the most trusted wealth managers by investor's business daily.
Ameriprise is also ranked number two in trust from Foresters U S customer Trust Index. In addition, we were named one of America's Best customer service companies for 2023 by Newsweek and for the fourth consecutive year J D powers recognized ameriprise for providing outstanding.
Ending customer service experience for our phone support for advisers.
Overall for our wealth management business earnings were up strongly again, 58% year over year, and our margin was 36% a new record for Ameriprise.
Turning to retirement and protection, we continue to perform nicely, while adding value and stability in this environment.
This business consistently generates good returns and strong free cash flow.
We maintained solid books in our investment portfolios are high quality.
With the improved interest rate environment, we're able to reposition our portfolio and as investments mature, we're able to reinvest and generate better returns.
In terms of priorities as you know we were very much focused on asset accumulation products that align with our client needs and our risk profile, which results in a very solid liability base. Our structured annuity product is our best seller combined with our rather annuities without living benefits and <unk>.
In our life business, we've shifted to concentrate on the UL and disability products that are appropriate for clients in this environment and generate strong returns sales are down but were similar to the industry.
Even with slower sales, we continue to generate good earnings up 11% from a year ago. In fact last year. Our life company was ranked as the second highest returning company in the industry.
Now, let's turn to our asset management business, we have been impacted by market volatility and industry wide sales pressure. However, the business continues to perform well and generated good returns and margin.
Assets under management was $608 billion at the end of the first quarter down 13% from a year ago, largely driven by lower markets and the impact of negative foreign exchange translation.
Regarding flows total outflows were $1 7 billion, excluding legacy insurance partner flows.
In U S retail like others in active management, we remain in net outflows as gross sales were pressured from market volatility.
That said redemptions are better sequentially in.
In EMEA, our flows improved a bit from a year ago.
In institutional we had another good quarter, we had inflows of $2 8 billion, excluding legacy insurance partner flows driven by wins in fixed income real estate and LDR, expanding our turnover capability as a long term priority, including global real estate, where we are building out the business.
And earned a large mandate in the quarter.
With regard to investment performance, we continue to have stronger long term performance across equities fixed income and asset allocation strategies, while our one year numbers were impacted by market volatility primarily in certain fixed income strategies, we're starting to see those numbers come back this year as interest rates.
And given our strength in credit.
And we maintain 118 four five Morningstar rated funds globally across regions, we're earning important recognition, including recent Lipper awards and other accolades.
In addition to focusing on investment performance, we continue to work through our EMEA integration, we plan to complete much of it by the latter part of the year and look forward to deriving additional synergies.
In asset management, we also continue to manage G&A tightly.
So overall I feel very good about the firm how we're engaging clients and the results we're driving.
We have not had to divert from our charter cost and we're generating strong growth and returns in a rocky climate.
We continue to have strong free cash flow as well as the ability to return to shareholders.
In the quarter, we returned another $641 million in buyback and dividends and we just announced another dividend increase up 8%, our 19th to increase since going public in 2005.
To close Ameriprise delivered an excellent quarter, and we are well positioned to continue to navigate the environment manage expenses well, while investing for growth now.
Now Walter will provide further detail on our financials and we will answer your questions. After his remarks Walter.
Thank you as Jim said results this quarter continue to demonstrate the strength of the American price value proposition as adjusted EPS increased 25% to $7 25.
Wealth management business momentum.
Our interest rates and.
And expense discipline more than offset the equity and fixed income market dislocation over the past year.
This reinforces the value of our diversified business model.
Wealth management earnings grew 58% and represented 66% of the firm's adjusted operating earnings a new record.
This is up from 49% a year ago.
Asset management was challenged with industry flow pressures as well as substantial market impacts to AUM.
And retirement and protection solutions delivered a good 11% growth primarily from Opportunistically repositioning the investment portfolio as well as from the lower sales levels given the environment.
Across the firm we are continuing to manage expenses tightly relative to the revenue opportunity within each segment.
As a result, we continue to make investments in the bank and other growth initiatives, particularly in wealth management.
While prudently managing overall firm wide expenses.
In the quarter G&A was down 1%.
Our balance sheet fundamentals remain strong and we saw limited impact from the significant market disruption in the quarter.
Our portfolio is positioned well and no assets are accounted for as held to maturity.
Our strong capital and liquidity positions as well as effective hedging.
This allowed us to returned $641 million of capital to shareholders.
<unk> returned at 80% of our operating earnings.
Let's turn to slide six.
Assets under management administration ended the quarter at one two trillion.
Down 8%.
While <unk> benefited from strong client flows.
We experienced significant market impacts.
Equity and fixed markets were down, 9% and 5% respectively year over year.
In addition asset management AUM levels were substantially impacted by weakening of the pound and euro.
<unk> and non U S AUM down to approximately 36% of the total.
The portfolio effect of our business mix garnered robust earnings growth with pretax earnings up 20% from last year with meaningful benefits from strong client flows and interest rates more than offsetting significant negative equity and fixed income markets and foreign exchange impacts.
Free cash flow generation remained strong.
Let's turn to individual segment performance, beginning with our strongest growth business wealth management on slide seven.
Wealth management client assets declined 3% to 799 billion.
Strong organic growth and client flows was more than offset by significant market depreciation over the past year.
Total client net flows remained strong at $12 3 billion up 18% from last year.
Evenly split between wrap accounts and non advisory accounts.
Our flexible model and broad offering allow advisors and clients to pivot as markets and client preferences shift.
While keeping money within the system.
Revenue per volume reached 847000 in the quarter.
5% from the prior year from.
From higher spread revenue enhanced productivity and business growth.
Turning to slide eight I'd like to provide some additional insights into the sustainability of our client cash.
The safety of these deposits in our investment approach managing cash that is at our bank certificates companies.
Our cash balances are relatively stable in total at $44 3 billion in the quarter and about five 5% of total client assets.
While there was some seasonality with cash levels.
Particularly with tax payments in March and April .
Cash has always been a component within declines asset allocation and generally remained above 4% of client assets Sweet cash specifically has an average size of $7000 per account and over 60% of the cash is in accounts with less than $100000.
As I mentioned, we have a broad set of product offerings to meet our clients' needs across environments.
From a cash perspective.
<unk> cash and certificate offerings with many options for clients seeking yield and looking to ladder their liquidity.
In the quarter, we launched a new savings account option within the bank and we will be adding a preferred savings account and broker CD later this year.
Lastly, we have no assets that are accounted for as held to maturity and our portfolios are constructed under the rigor of our asset liability modeling approach.
Our bank portfolio is AAA rated with three one year duration.
The overall yield on the portfolio is four 3% and the yield on investments made in the first quarter was over 6%.
A certificate company portfolio is highly liquid with over 55% of the portfolio and cash governments and agencies.
It is double AA, plus rated and on average with a eight year duration.
The yield on this portfolio was five 3%.
Purchases in the quarter.
At a yield of five 2%.
On slide nine we delivered extremely strong results in the wealth management on all fronts.
Profitability increased 58% in the quarter.
With strong organic growth and the benefit of higher interest rates offsetting the impacts from market depreciation.
Pre tax operating margin reached nearly 31% up over 910 basis points year over year and up 70 basis points sequentially.
Adjusted operating expenses declined 2%.
With distribution expenses down, 5%, reflecting lower transactional activity and asset balances.
G&A is up 7% in the quarter.
As we continue to invest for growth, including the bank.
Let's turn to asset management on slide 10.
We are managing the business well through a challenging market.
Total assets under management declined 13% to 608 billion, primarily from equity and fixed income market depreciation and negative foreign exchange impact.
Asset management like the industry was in outflows in the quarter.
Continued strength in our global institutional business offset a meaningful portion of retail outflows.
Like others, we experienced pressure from global market volatility.
Our risk off investor sentiment.
And continued geopolitical screen in EMEA.
As a reminder flows in the prior year included $2 6 billion related to the U S asset transfer associated with BMO acquisition on Slide 11, you can see asset management financial results reflected the market environment as anticipated earnings declined to $165 million, reflecting market dip.
Appreciate it.
Foreign currency weakening in outflows as well as lower performance fees than a year ago.
Importantly, we continue to manage the areas we can control.
Expenses remain well managed total expenses were down 13% aided by a 11% decline in G&A.
Which benefited from lower performance fee compensation.
We continue to make market driven trade wars and discretionary spending.
And we remain committed to managing expenses very tightly and the current revenue environment.
Margins in the quarter improved sequentially to 31%.
Returning to our targeted range of 31% to 35%.
Let's turn to slide 12.
Retirement and protection solutions continued to deliver good earnings and free cash flow generation.
Reflecting the high quality of the business.
As you are aware.
The long duration targeted improvements accounting change went into effect in the first quarter.
Our current period and historic results are now being reported under this framework.
While this accounting change impacts GAAP equity and earnings it does not impact our dividend capacity excess capital or cash flow generation.
Which are based upon statutory accounting framework.
In the quarter pre tax adjusted operating earnings was $194 million up 11% from the prior year.
Primarily as a result of higher investment yields from the portfolio repositioning we executed over the past six months.
We estimate that <unk> will reduce rps earnings by approximately $50 million for full year 2023 versus the $62 million impact in 2022.
As it relates to the year.
We remain comfortable with the 800 million run rate taking into consideration the impact of the LTI and.
And to benefit from portfolio repositioning and higher rates.
Sales in the quarter similar to the industry declined as a result of the volatile market environment.
As well as management action to discontinue sales of variable annuities with living benefits to further reduce the risk profile of the business <unk>.
Protection sales remain concentrated in higher margin asset accumulation of the UL.
Which now represents over one third of the total insurance in force.
Annuity sales in the quarter were in lower risk products without guarantees and structured variable annuities.
These products represent over 40% of our total VA account value.
Now, let's move to the balance sheet on slide 13.
Our balance sheet fundamentals remain strong and our diversified high quality investment portfolio remains well positioned.
In total the average credit rating of the portfolio is double a.
With only one 3% of the portfolio and below investment grade Securities.
Despite significant market dislocation in the quarter.
Hedging effectiveness remains very strong at 95%.
Our diversified business model benefits from significant and stable free cash flow contribution from all business segments.
This supports the consistent and differentiated level of capital returned to shareholders.
Even during periods of market depreciation.
In light of the <unk> accounting change.
We incorporated a new non-GAAP disclosure in our earnings release of available capital for capital adequacy.
This represents how we manage capital and is unchanged as a result of the L. DTI.
During the quarter returned $641 million to shareholders.
And still ended the quarter with $1 3 billion of excess capital and $1 6 billion of holding company liquidity.
With that we'll take your questions.
Thank you we will now begin the question and answer session. If you have a question. Please press.
Star one on your Touchtone phone, if you wish to be removed from the queue. Please press the pound key and if you are using a speakerphone you may need to pick up the handset before pressing the numbers again, if you have a question star one please.
Our first question. This morning from Brennan Hawken of UBS. Please go ahead.
Good morning, Thanks for taking my questions I'd love to start on cash and the outlook for rate earnings in PWM. So you've seen growth in certificates you mentioned day.
High yield offering in the bank that you just launched and then further brokerage Cds.
And certainly this will satisfy demand for yield that we see for cash equivalents, but.
Do you think that the current level of NII can be maintained going forward.
Is the increasing deposit costs.
<unk> to offset the shift to the bank or are you able is the shift to the bank able to to.
To keep things steady here at the current levels.
Okay. So yes, the answer is yes.
What we are seeing and that is certainly we are looking at the way. The sweep accounts performed that we have the opportunity to ship more into the bank and we will be evaluating to add because basically.
The way, it's performed right now and that will give us additional yield as it relates to that and also we also see on the search that we will based on timing. We will also see that the spread will increase in that so we yes. The answer is absolutely yes, both of them shifting additional funds into the bank, which is.
Higher profitability and also the search as we look at the spread increase earnings from a timing standpoint as you addressed so yes. The answer is yes.
Okay. Thank you for that and then.
At this point through April you've moved $3 billion, which I believe you previously indicated as you plan for the year do you plan to move further balances into the bank and then beyond the balance transfers do you expect that these new savings offerings could allow you to actually see organic non.
Transfer oriented growth coming out of the bank as well.
So on the first one yes, so as we look at the sorting and certainly.
In the first quarter, you always have the tax but clearly it is performing the way we go in and is slowing and that gives us the opportunity we're evaluating that but we do have additional opportunity with the borrowers and everything we have in our sweep accounts to move more in and that's what we're evaluating that.
That is a distinct possibility.
Yes, and I'll take your second question. So we just.
<unk> launched a savings product will be launching a brokered CD in may and then high yield savings account a bit later in the year.
And we see the opportunity to garner more cash from clients, bringing it in from the banking institutions now that will have some of these products.
But in addition to what we're holding ourselves and whether it's a sweep or even our certificate.
We have much more cash that our clients are holding externally in brokerage Cds. They put money in that came into the firm or in money markets and so we think we can garner some of that cash back in so in total there's about 66 billion of cash we have about $44 billion, we actually.
By offering the brokered Cds and things like that that will go on as some of that has gone out to banking institutions that our clients have put money in that would feel much more comfortable having them at ameriprise. So we think there is an opportunity there for us.
As we continue to build out the bank.
And we're also holding a lot more cash as general so that our sweep activities is only about 4%, which is really always been around that level for transactional Florida, 5%.
So we feel very good that there is opportunity for us.
Okay. Thanks for taking my questions.
Yes.
Thank you <unk> Erik bass with autonomous research.
Hum.
Hi, Thank you I guess, maybe a broader question for advice and wealth and just how youre thinking about the margin from here do you still see potential upside to margins or is your goal more to maintain them at the current kind of 30% level.
Well I think the way we look at says listen.
<unk> one of the highest margins out there in the industry, including the big wires that have had banking activities for a long period of time.
But money as I said still sitting on the sidelines and cash we're holding up upwards of 66 billion some of that money and not necessarily from transactional activity that they will hold for expenses and other things some of that money will go back into wrap I mean, what's a positive as we brought in 12 billion of client flow.
We've been bringing in record numbers for us over the last so many quarters and that hasnt been deployed yet so as they put money back into transactions and contracts and wrap a business that will also earn outs fees. So I can't tell you exactly what that margin is but I would say, it's an excellent margin.
And our business has some good opportunity to continue.
And so from my perspective, I think it was a very positive quarter building on a very positive year last year.
Got it makes sense and then maybe building on your comments about organic growth I mean, it has accelerated and they've been running at over 6% annualized for the past couple of quarters.
Wealth management can you talk a little bit about what's driven that acceleration in inflows and given the pipeline that you have in.
Clients and advisers coming in do you see that as a sustainable run rate.
We think so because we are our advisors are engaged with help them with a lot of tools and capabilities and support even in this climate, we give them a lot of information on appropriate.
Communications for their clients on market volatility, we help them really helped.
Clients that hit our goals and what they need to achieve over time balancing out the volatility.
We are engaging and bringing in a lot of good new client flows.
And deepening and we're also adding highly productive advisors. We added another 83 in the quarter would have very good books of business. We have a good pipeline. So yes, we see it continuing we're adding new capabilities like our E meeting things thats going to help our advisors actually conduct even more meetings very efficiently.
So we feel good about how we're situated in this climate.
Thank you.
Okay.
Thank you. We'll go next now to Craig Siegenthaler at Bank of America.
Thanks, Good morning, everyone.
So on the back of the Comerica win can you update us on your pipeline for additional financial institution group wins.
And how should we think about the frequency of these wins going forward and also the size range.
Yes, so we've added a number of financial institutions over the last year now.
It was a bit larger so it.
It was a little bit longer to orchestrate a more comprehensive based on the nature of that they had their own broker deal et cetera, but we've been winning business for other banks out there that financial institutions I think now we're open in it so that we can work with a bit larger institutions like for America.
And I think.
We are in a good situation, where we bring a lot of good capability.
They like US service they like the ability of what we can do to support their advisors. They liked the goal based solution we provide for their clients.
This is something we think we can build upon as we move forward. So again I can't sit here to tell you exactly when deals get orchestrated but we have a good pipeline and we think we will be adding more business there as we move forward.
Great and.
Just had a follow up on recruiting.
Advisor count was down very modestly on the franchise side.
And up here on the employee side, but down on a total basis from last quarter. So I'm. Just wondering if you could provide any perspective on this downward trend, including reminding us of any first quarter seasonality and then I wanted to hear how the bank failures in March impacted both your ability to recruit new advisors, but also.
Routine existing advisors in March and now April could persist.
Look pretty robust.
Yes, so no our numbers in franchisee is very strong and stable retention is very strong as with anything I mean, we have.
7000, 8000 advisors. There. So you have some turnover in some of their.
Assistant advises you also have some retirements that occur in the first quarter, but there is nothing different than what we've seen in the retention rate is quite strong.
And the assets are here. So we're not concerned about that as we go through succession planning et cetera.
As far as the pipeline, we feel a very good one of the things that people have told us they value very much what we do and what we provide but they also value the strength and the integrity of the firm.
And how we're positioned I've mentioned, a few accolades about how clients trust us, but when you have a very stable institution like ameriprise that is able to really navigate these market circumstances, when I would stand by their clients. That's what advisers are looking for as well.
Thank you.
Okay.
Thank you well go next to Ryan Krueger of Keyw.
Okay.
Thanks. Good morning, My first question was on the Comerica.
Partnerships can you give us what type of asset.
Of the $18 billion that are coming over into your platform.
Okay.
So it's a mix of assets.
Example, advisors hold various assets that are invested in the market. There is a combination of wrap type of assets. There's funds other things like that there is an insurance concept. So it's the end, but what we've been able to do is show of what we can do to help those advisors and <unk>.
That client deepening and expand that base.
And add more clients to that base for the bank. So we feel very good that the 18 billion will transfer with that there is an opportunity for us to help them grow that and that's what they are looking to do.
Okay.
Got it thanks, and then on your initiatives to introduce new savings product within the bank do you see the earnings characteristics of that similar to the certificate balances or do you have a preference from a profitability standpoint within the bankers.
We believe actually it will be higher based on the investment strategy and the other elements within it so we will actually pick up yield on that.
Thanks, and then just one last quick one the 66 billion of total client cash you mentioned.
Does that include.
Cds from outside of Ameriprise, as well as money market funds or was that predominantly.
Yes. So it would include our clients are.
<unk> is putting their clients.
In brokered Cds, we have on the platform from financial institutions.
Yeah.
Okay, great. Thank you.
We will go next to Alex <unk> of Goldman Sachs.
Hey, guys. This is Michael on for Alex.
I was wondering if we could maybe get an update on cash balances so far in <unk> and maybe how that's trended on a monthly basis.
All else equal I am trying to figure out what the seasonal impact might be on taxes. It sounds like you guys might have seen that in March and April already but it looks like historically that might be a 2% to 3% sequential impact. So any update on cash balances that you can give us so far in the quarter I think the best we can give you from that stand looking at to sweep. It is totally it is the base.
Sony is totally slowed from that standpoint, and so and as I indicated.
We have now 400000 under its move if you look at the end of the fourth quarter. It was something like 52% of the percentage of it now its almost 60% of it so basically very stable at that time, when we feel very comfortable from.
That standpoint that it's performing the way we thought it would.
And so on that basis. The sorting is there and we are growing on <unk>.
Upon that and certainly as I mentioned before we are strongly considering transferring more and back into the bank once we finish our analytics on it.
Great that's helpful.
Oh go ahead I'm sorry.
No no no as I just mentioned it is a seasonal element when you go from the fourth quarter to the first quarter that because of the taxes I can't give you the exact 2% whatever but it certainly is.
There is outflows relate to that.
Thanks, and then maybe for the follow up can you help us maybe think through the NIM impact at the bank from the upcoming maturity roll on roll off yields maybe.
Maybe the mix of assets between fixed and variable at the bank and what the duration profile of those might look like.
Yes, so that's an interesting point because as we mentioned we have somewhere in the area of two 5 billion rolling off and certainly that is going to to the previous question increase are basically spread as it relates to it and right now as we assess it and certainly looking at this is why we continue with that same strategy of mix that we will we currently have.
Was the $3 one year duration, so we feel very comfortable with that and but that redeployment of the maturing will certainly increase the yield.
Thank you.
Thank you we'll go next to Jeff Schmidt William Blair.
Hi, Thank you.
I may have missed it but I think you had mentioned the reinvestment rate of the bank was around six 5% at the end of last year, what was it in the first quarter and do you continue to invest mainly in MBS or is that strategy shifted at all.
The reinvestment in the bank.
Yes.
From that standpoint.
Not sure I understand the question.
The reinvestment rate I think you'd mentioned was around over 6% at the end of last year.
Essentially the new money yield.
Okay.
Just not getting your question I'm, sorry is there any preference in the first quarter.
The end of last year.
Yeah, what was it in the first quarter.
The reinvestment yield.
The reinvestment yield in the quarter was 6% I believe in the in the first quarter as I indicated.
We're tracking and six.
Sorry, I didn't get the question of <unk>.
Okay.
And then.
When you look at client allocations of the certificates as interest rates go up.
It's around 25% of the mix now I think when we look back.
In 2019 at reached a similar level.
With interest rates higher for longer in this cycle do you have any sense on where that could go or what's your expectation there.
Yeah. So listen you are seeing it certainly increase from that same because it basically gives the clients as you get into the three and six primarily in the three and six months. It gives them that opportunity to basically meet their objective set so we.
We see still increasing there, but as Jim mentioned, we are certainly be offering that brokerage products in the bank, which will certainly provide us additional yields so.
I would think it will still grow and from that standpoint.
So I think it's tracking what youll see based on all the alternatives that we provide to our clients, yes, it's going to grow because we're bringing in more client assets right and not all of it is going to be deployed directly in the market. So theres going to be some that go into cash type of holdings. So some of that the clients will use for.
Transactional activity and holding for emergency expenses will be kept in the type of sweep accounts and others positional cash will be put into things, earning some of the yield that they are looking for.
And a lot of these Cds are not necessarily long term Cds brokered Cds as well, so that's where the cash will grow and some of it has been coming from the regional bank activity I would imagine so so I feel like the certificate program can grow that's why we're also going to offer our own broker CD to Ghana.
Some of that cash that clients want to move into the <unk>.
Into the firm and we've clearly seen a pattern from basic what we call. The cash reserve, which is a short term and more cash basically going into the three and six months. So people are taking advantage of that opportunity because of the competitiveness of the rates.
Simply.
Okay. Thank you.
Thank you. We'll go next now to sneak in math at Jefferies.
Yes. Thanks, just a couple more on cash. So you had mentioned that $66 billion number of which I think you have 44 billion. So as we think about the $22 billion balance I guess, what would you think is a realistic expectation in terms of how much of that you could bring onto your platform.
And over what time period.
The need I think the way I would think about it is the.
That's roughly around 8% of the total assets now which is a bit higher for our clients right usually its around the 5% mark or something like that.
So there's more cash being held right now so I think as we go through this cycle and people are looking for some alternatives coming from their banking institutions et cetera, We think that we can garner some of the other cash coming in as well from bank or even as some of the Cds and other things roll over.
That will holding.
Pingo into our own banking institution, but I also think over time that some of that cash will be deployed back into rep type programs et cetera, as the market volatility settles or as people feel more comfortable so it's not as though money isn't being deployed into the market. It is right we had over $6 billion going.
And to wrap up.
Every quarter, but that could pick up as well in other transactions can pick up. So so it's hard for me to say exactly but the idea is how we're helping to bring more client.
Flows in and then some of that goes into cash type products, which we can go on our piece and then others will over time be deployed back in the market.
So we think it's an opportunity for us.
Understood.
And then I guess, if we think about just the cash sweep balance I don't know if you've commented on this but it was down I guess 6 billion quarter over quarter to around $10 billion.
Can you give us some help in terms of how you see that 10 billion trending maybe over the next couple of quarters and.
And I guess of that $6 billion decline I think some of it went into the bank. Some of it went into search but can you give us some help on in terms of where the sort of the rest of it went because I'm, having a little bit of trouble seeing exactly where where that cash win. So obviously as Jim mentioned the cash result in total and so yes, you're exactly right we pulled in.
Into the bank.
And certainly a portion of that went into the search. So the issue is some of that went into a brokerage but the point is we have it its been within our basic overall its cycle cycling through so I would say, we feel there and indicating again is clearly as we see the pattern is that sorting is.
Basically slowing and it is basically within the range and the base of the fact that we have 60% in the 100000 below.
Average account balances dropped from 8000 to 7000 is an important factor for us as we reevaluate.
Yes so.
You had I think 46 go into 44 pilot 3 billion from the 10 went into the bank and then you had I don't know a few billion went into <unk>, but you also had some use of cash the tax payments others. Okay. It's hard for us to but we have more client flow coming in and then some of it might have went into broken.
These are other things. So overall I think we've held pretty well compared to what we've seen in the industry.
And we had a positive of more client flow coming in as well, so and as I said.
Thank you.
You can't necessarily.
Box a number ideally but.
It's a fluid situation regarding well clients use that money as well, so, but it's pretty stable overall, so it's about 4% and total sweep.
And the $10 billion is mainly from a shift for the bank and other things so.
I wouldn't look at that in isolation.
It makes sense and maybe just one last one on comerica as we think about that opportunity should we walter be expecting any incremental cost associated with that platform as we kind of move through the year.
I think again this is a short pay.
Payback for US as you look at from a P&L standpoint. So the answer is obviously there'll be some cost, but certainly the revenue we'll do it and we have a very quick payback on it but it's a good economic relationship for us and for <unk> America.
Yes, I mean, you got onboarding expense and stuff and moving the clients and the advisors and stuff, but overall, we think it's a good arrangement and one that will work for both parties.
Okay. Thank you.
Yeah.
Thank you we'll go next to Stephen <unk> at Wolfe Research.
Hey, good morning, it's Michael <unk> on for Stephen.
I wanted to touch on I know you guys gave the cash per account metric of $7000 for the quarter certainly a helpful metric to have.
Where are we for that metric relative to the trough you had seen last cycle just trying to gauge the potential downside relative to cash as a percentage of AUM I really can't give but I would say, it's always been stability factor for us that portion of that working capital and the balance there. So I can't give you an exact.
As I said it just dropped from if you look at the previous quarters. It's dropped by 1000. So it is from that standpoint, we feel very good about its been stable element within it and it did increase a lot as certainly as we went through the cycle coming through and that was again in the heart of balances. So.
I just can't give you the numbers going back that far.
Got it no worries.
Okay. So I did want to touch on asset management too.
<unk> expenses very well controlled you reached 31% low end of the target range I guess, assuming stable markets is the 31% sustainable run rate given the efficiency efforts youre continuing to look to deliver on or.
Is there some downside to that just any color there would be helpful. Thanks, I think this downsides answer it's a lot of variability in it as you look at rates and look at mix and looking at them, but certainly the expenses of being extremely well managed from that standpoint. So that's the controllable factor in it as we look at it and certainly as we look at hopefully that we start getting back on a better pattern.
But we are certainly aligned with the industry, where that is and we certainly moving into that 31% to 35 is basically you feel comfortable but again a lot of variability.
Thanks, so much.
Thank you we'll go next now to Tom Gallagher of Evercore.
Okay.
Good morning, Walter just a follow up on the customer cash balances I think one of the earlier questions.
Asked you whether or not you would expect the earnings contribution from customer cash balances to be stable. Let me ask it in a different way what do you expect the earnings contribution to be for the next couple of quarters.
Do you expect it to be stable or up.
Higher just some kind of range.
Can't give you an exact range, but let me be clear the drivers of it clearly as we indicated.
The maturity element as it relates in the bank and shifting in there so as we get to maturity selling those being risks and thats going to take the interest rate, we certainly see disorder really slowing down at the bank transfer will certainly take that up again as we get more comparable to serve its looking at the timing from the standpoint with the rates increasing we.
Do see an opportunity that the net spread will increase there. So I would say certainly to look at stable to all as we look at the elements, but did please now you have rate movements in the area of different elements, but instead stability factor of what is embedded today. So if everything got frozen, yes, you should feel stable top.
Got it stable, but that's not what I was looking for thanks.
Now in terms of the 6% new money yields I would definitely be getting questions on that like what are you buying exactly is it still more MBS is at floating rate.
We have a combination of floating rate, but it is really structured and thats, where we basically are and it's the highest quality. So we are being very selective there, but the yields are there and we just we.
We are patient and Thats.
Like I said, it's in the bank, especially it's AAA and we feel very comfortable especially in this environment sticking there, but those are the levels. We are finding we're certainly having the benefit of having CGI manage that and help us work through that so it is strictly you should look at it the majority is in the structure.
And then the crediting rate on that we'll call. It $1 7 billion of net deposits into the bank was that consistent with the cash we like 50 basis points or what would the incremental credit.
Basically a part of AWS and that is its cost of funds and that's why we feel comfortable with that and certainly is right. If rates go up and down we will evaluate.
Positive data <unk>, but yes that is you're exactly spot on.
So the incremental spread is over 500 basis points right now.
Asset Youre shifting again.
So, let's yes, because the source of those deposits as the spring is coming out of the suite.
Thanks, and then just one final one on comerica.
I heard what you said to sue need but the.
Is that going to just be a revenue share or is there some upfront cash payment that will be made to them that's going to use up excess capital at the end of the year, how is that going to work no I do not believe again. This is like any deal would like to ask you basically upfront and you then get the payback that it worked through it and we feel very comp.
All of the content combination and so it will as I said make certainly from a P&L standpoint, a contribution then we'd look at the cash breakeven. So we feel very good as Jim said, we'll have some upward.
Upfront expenses, but it's a good economic deal for both of us.
Okay. Thanks.
Thank you well go next to John Barnidge of Piper Sandler.
Good morning, Thank you very much for the opportunity. My question is on the asset management segment can.
Can you talk about fee rates on the flows believing versus coming in and then institutional tends to have a longer sale cycle.
The building of the pipeline there would be helpful. Thank you.
Yes, so if we have retail outflows there always are a bit higher margin than the fee rate than the institutional side. The good thing on the institutional some of the flows we got in where real estate, which is very good fee rate.
Rates.
That looks like we have a decent pipeline as well going forward, but of course in retail is you're a bit higher fee rates. So that's where on the outflows were probably.
On net net.
A bit negative there.
And so but hopefully the retail will turnaround we looked like Europe has actually slowed or is almost neutral in the quarter, which is good.
And if that picks up that has positive fee rates, even more than the U S. So that would be positive for us.
But the U S is still a bit weaker on the growth side, but the redemptions has come down so hopefully we will see a turnaround and.
So I think that we see more stabilization occurring and hopefully that will pick up as we go through the year.
Great. Thank you and then my follow up question you were talking about additional synergies and naphtha management with integration to be completed.
By end of 'twenty three.
Synergies I know some time in Europe .
The notice period, maybe longer when you're talking about those synergies being in now or at least slowing through earnings.
We ended the year. Thank you.
So we should garner about as it relates to it.
And not realize but certain garner around 57% of that range, 50% in this year.
So it's tracking and you're right. It's certainly what's going on but we feel confident we're on track.
Thank you to answer your question.
I was talking about the additional synergies you get done talking about BMO synergies right now if you're talking about so we are tracking we were getting some of them. This year and then more of them as we close out the year into next year, because we're going through.
A lot more of the technology integration now and then from that we can then continue to do the middle and back office.
And so.
And to your point it does take a bit longer in the <unk>.
In Europe , and the U K as we go through different legal entities et cetera, So, but we're on target to what we originally thought so.
Basically as we talked about we talked about in the 85 range, we will have 57% 50.
<unk> $57 million, we think will probably be the number that we will certainly not realize but certainly even by the end of this year.
Thank you very much.
Thank you and the next now to Andrew <unk> of Credit Suisse.
Good morning.
So.
Couple of quick follow ups.
Comerica.
So with the $18 billion in assets that you bring and how should we think once you get finished.
Finished with the Onboarding, how should we think about margins on that $18 billion relative to the $350 billion plus some of your other non wrap assets would be materially better or will it be in line, how should we think about that.
I would say.
Looking at direct contribution margin there is certainly within our range and we feel very comfortable with it.
Like I say I distinguish the P&L and the cash because certainly from that standpoint, but the P&L side of this direct.
Fusion is totally acceptable within all of that.
As we look at this channel and it's strong it's good and like I said, but it's good because it's balanced between for them and for us and certainly what the what will add to and the ability to grow that activity. So it's the contribution margins will not be integrating to anything we have how's.
How's that got it.
Perfect and then and then with respect to the 83 advisors you brought in could you give us a sense of maybe the.
AUM per adviser relative to the AUM per adviser that you have now and maybe a little color on their sweet spot or are they in that 500000 to 5 million networks.
And what end of the spectrum do they do they come in at.
Yes, I would say less that we are continuing to have that track pattern of really the quality of the.
AUM in the BDC the trailing GTC is stronger and we keep on growing that so we feel very good about that we're being very selective to ensure that they fit into basically a relationship an approach that we have and so it's very much aligned on that so we feel very good about the quality of them.
So Walter so net net assets per advisor or a little better than your average.
I would tell you it continues to be better than our average you.
Got it and then lastly, just on the.
Capital management, it looks like your payout ratio as a percent of operating earnings is coming in around 80 ish percent, maybe a little less historically you were at 90% or maybe even better and I guess with the bank having grown why should we expect something in that sort of set.
<unk>, 5% to 80% payout range going forward anything likely to change there.
So as we said we've talked about we have from our standpoint, we are building organically and yes, theres cap, but we have the capacity and we feel that.
We've given an indication that it will be in that 80% range.
We really have the ability to.
As we look at Opportunistically to basically ticked it up but we just we will evaluate the market and everything from that standpoint, but the 80% is a reasonable number at this stage as we've indicated and most people who have built that into their projections set.
Yes, we have thanks a lot.
Yeah.
Thank you and we have no further questions at this time, ladies and gentlemen, this will conclude today's conference. Thank you for participating.