Q2 2019 Earnings Call

July 25, 2019

Operator: Center. Please be prepared to provide the confirmation number or host and company of the conference you wish to attend. Please stand by, and an operator will be with you shortly. Thank you for your patience. Please stay on the line for the next available operator.

Centre, please be prepare to provide a confirmation number or hosting company of the conference you wish to attend please standby and an operator will be with you shortly.

Thank you for your patience. Please stay on the line for the next available operator.

Operator: Thank you for holding. Your confirmation number?

Thank you for all their confirmation number.

For 883.

[Analyst] (Aira): 48836770.

Bryan Healey: 48836770.

Six 770.

Operator: Your first name?

Your first name?

Brian BR why again.

[Analyst] (Aira): Brian, B-R-Y-A-N.

Bryan Healey: Brian, B-R-Y-A-N.

Operator: Last name?

Last name.

[Analyst] (Aira): Healey, H-E-A-L-E-Y.

Bryan Healey: Healey, H-E-A-L-E-Y.

Really H.D.A.R. you why.

Operator: Your company?

[Analyst] (Aira): Aira, A-I-E-R-A.

Bryan Healey: Aira, A-I-E-R-A.

Era eight IDR eight.

Yeah.

Operator: Okay. One moment.

<unk>.

[Analyst] (Aira): Thank you.

Bryan Healey: Thank you.

James Cracchiolo: For advisors to engage clients through personalized contact. We're also taking steps to fully integrate our investment advisory platform. Later this year, we're introducing our customer advisory relationship program, moving from multiple different programs to one cohesive program where our various strategies can work better together, freeing up time and effort for advisors to serve clients. We launched the bank in Q2, and in June, brought more than $2 billion of money market cash sweep balances on our balance sheet. Later this year and in 2020, we'll add new deposit-based products, credit cards, mortgages, as well as pledge lending. Ameriprise is a well-established diversified leader with an excellent reputation. I'm energized about what we have today and what we're doing to further strengthen our position as a leading wealth manager.

Our advisors to engage clients, who personalized content.

We're also taking steps to fully integrate our investment advisory platform.

Later this year, we are introducing our customer advisory relationship program moving from multiple different programs to one cohesive program, where our various strategies can work better together freeing up time and effort for advisors to serve clients.

And we launched the bank in the second quarter and in June brought more than $2 billion of money market cash sweep balances on our balance sheet. Later this year and in 2020, we will add new deposit base products credit cards mortgages as well as plates lending.

Ameriprise is a well established device leader with an excellent reputation I am energized about what we have today and what we're doing to further strengthen our position as a leading wealth manager.

James Cracchiolo: Now I'll turn to asset management, where we continue to deliver competitive profitability and focus on targeted growth opportunities. Overall, we have a high-performing lineup across equities, fixed income, and asset allocation strategies. Where we had pockets of underperformance, we've seen good improvement this year, which bodes well. Our overall investment track records remain competitive and strong. In terms of flows, we're seeing an improvement in the level of outflows that we experienced from the last two quarters. Our market share in North America improved at several of our top intermediary firms with good flows into strategies where we're placing more emphasis, such as our dividend income, strategic income, mortgage opportunities, and municipal income. In fact, we saw a meaningful reduction in our outflows each month of the quarter.

Now I'll turn to asset management, where we continue to deliver competitive profitability and focus on targeted growth opportunities. Overall, we have a high-performing lineup across equities, fixed income, and asset allocation strategies. Where we had pockets of underperformance, we've seen good improvement this year, which bodes well. Our overall investment track records remain competitive and strong. In terms of flows, we're seeing an improvement in the level of outflows that we experienced from the last two quarters. Our market share in North America improved at several of our top intermediary firms with good flows into strategies where we're placing more emphasis, such as our dividend income, strategic income, mortgage opportunities, and municipal income. In fact, we saw a meaningful reduction in our outflows each month of the quarter.

Now I will turn to asset management, where we continue to deliver competitive profitability and focused on targeted growth opportunities.

Overall, we have a high performing lineup across equities fixed income and asset allocation strategies, and where we had pockets of underperformance. We've seen good improvement this year, which bodes well our overall investment track records remain competitive and strong.

In terms of flows we're seeing an improvement in the level of outflows that we experienced from the last two quarters.

Our market share in North America improved that several of our top intermediary firms with good flows into strategies, where we're placing more emphasis such as our dividend income strategic income mortgage opportunities Amendment miscible income.

In fact, we saw a meaningful reduction in our outflows each month of the quarter. We think we can gain even more traction in fixed income both in the strategies I've mentioned and a number of others, where we have good investment performance, we're beginning to position these strategies even more prominently.

James Cracchiolo: We think we can gain even more traction in fixed income, both in the strategies I've mentioned and a number of others where we have good investment performance. We're beginning to position these strategies even more prominently. The risk off-trade in Europe and the ongoing uncertainty of Brexit impacted our flows. That said, outflows have stabilized with improvement in the UK, Benelux, Italy, and Spain. You may have also seen that we won a $2 billion UK equities mandate, with the majority of the funding occurring in Q3. In institutional, we were in net outflows, reflecting the market environment where investors were a bit more cautious. That said, we're making progress in our global investment solutions business that we've invested in. We're building a good pipeline, and we won some mandates in the quarter.

We think we can gain even more traction in fixed income, both in the strategies I've mentioned and a number of others where we have good investment performance. We're beginning to position these strategies even more prominently. The risk off-trade in Europe and the ongoing uncertainty of Brexit impacted our flows. That said, outflows have stabilized with improvement in the UK, Benelux, Italy, and Spain. You may have also seen that we won a $2 billion UK equities mandate, with the majority of the funding occurring in Q3. In institutional, we were in net outflows, reflecting the market environment where investors were a bit more cautious. That said, we're making progress in our global investment solutions business that we've invested in. We're building a good pipeline, and we won some mandates in the quarter.

The risk off trade in Europe , and the ongoing uncertainty of Brexit impacted our flows that said outflows have stabilized with improvement in the UK, Benelux, Italy and Spain.

You May have also seen that we won a $2 billion UK equities mandate with the majority of the funding occurring in the third quarter.

In institutional we were in net outflows, reflecting the market environment, where investors were a bit more cautious that said, we're making progress in our global investment solutions business that we've invested in.

With building a good pipeline and we won some mandates in the quarter.

James Cracchiolo: We're also working to grow our SMA model delivery business, where the fee levels are in line with institutional mandates. We now have more than $10 billion in assets under advisement. In addition, we won a new $800 million mandate in the quarter. And as you know, these mandates are not included in our flows. These are a few areas where we're seeing good progress. And as you know, industry headwinds for active managers continue. Despite these pressures, earnings overall for Columbia Threadneedle remain strong, and we ended the quarter with $468 billion in assets under management. Our net adjusted operating margin in this business of 37.1% remains very competitive and within our targeted range. We're investing where we see long-term growth opportunities and benefiting from our re-engineering to help offset higher Brexit and regulatory expenses that we and others are experiencing in the UK and Europe.

We're also working to grow our SMA model delivery business, where the fee levels are in line with institutional mandates. We now have more than $10 billion in assets under advisement. In addition, we won a new $800 million mandate in the quarter. And as you know, these mandates are not included in our flows. These are a few areas where we're seeing good progress. And as you know, industry headwinds for active managers continue. Despite these pressures, earnings overall for Columbia Threadneedle remain strong, and we ended the quarter with $468 billion in assets under management. Our net adjusted operating margin in this business of 37.1% remains very competitive and within our targeted range. We're investing where we see long-term growth opportunities and benefiting from our re-engineering to help offset higher Brexit and regulatory expenses that we and others are experiencing in the UK and Europe.

We're also working to grow our SDMA model delivery business, where the fee levels are in line with institutional mandates, we now have more than $10 billion in assets under advisement.

In addition, we won a new 800 million mandate in the quarter and as you know these mandates are not included in our flows.

These are a few areas, where we're seeing good progress and as you know industry headwinds for active managers continue. Despite these pressures earnings overall for Columbia Threadneedle remains strong and we ended the quarter with $468 billion in assets under management.

Our net adjusted operating margin in this business of 37.1% remains very competitive them within our targeted range, we're investing where we see long term growth opportunities and benefiting from our reengineering to help offset higher Brexit and regulatory expenses that we and others are experiencing in the UK and Europe .

James Cracchiolo: Keep in mind, we run this business as part of Ameriprise with a long-term perspective. With regard to insurance and annuities, these are well-managed books. These businesses provide earnings diversification and stability. They are seasoned books of businesses that replenish with client flows, generating strong free cash flows for our company. With regard to the quarter, our variable annuity flows were down from last year. And while VUL and UL sales were down year-over-year, we saw improvement from the first quarter, driven by a pickup in VUL. Given the environment, these results are what we would expect. We've built a business to serve Ameriprise clients and therefore have differentiated risk characteristics. We effectively hedge variable annuity guarantees. In fact, our net amount at risk as a percent of account value is one of the lowest among major variable annuity writers.

Keep in mind, we run this business as part of Ameriprise with a long-term perspective. With regard to insurance and annuities, these are well-managed books. These businesses provide earnings diversification and stability. They are seasoned books of businesses that replenish with client flows, generating strong free cash flows for our company. With regard to the quarter, our variable annuity flows were down from last year. And while VUL and UL sales were down year-over-year, we saw improvement from the first quarter, driven by a pickup in VUL. Given the environment, these results are what we would expect. We've built a business to serve Ameriprise clients and therefore have differentiated risk characteristics. We effectively hedge variable annuity guarantees. In fact, our net amount at risk as a percent of account value is one of the lowest among major variable annuity writers.

Keep in mind, we run this business as part of Ameriprise with a long term perspective.

With regard to insurance and annuities. These are well managed books. These businesses provide earnings diversification and stability. They are seasons books of businesses that replenished with client flows generating strong free cash flows for our company.

With regard to the quarter, our variable annuity flows were down from last year, and while the well and UL sales were down year over year, we saw improvement from the first quarter driven by a pickup in the UL.

Given the environment. These results are what we would expect.

We've built the business to serve Ameriprise clients, and therefore have differentiated risk characteristics, we effectively hedged variable annuity guarantees in fact on net amount at risk as a percent of account value is one of the lowest among major variable annuity writers with regard to a long term care business. We continue to be proactive in managing our book in fact, this current year, we saw greater rate increases and benefit adjustments than we did in past years.

James Cracchiolo: With regard to our long-term care business, we continue to be proactive in managing our book. In fact, this current year, we sought greater rate increases and benefit adjustments than we did in past years. The auto and home business continues to show improved results, and we're on track to close the transaction in Q4. That brings me to our capital strength and flexibility. Both are clear differentiators. We're generating substantial free cash flow that we reinvest for growth and return to shareholders. You can expect us to continue to build on our track record of strong capital management. As we've grown, we've consistently returned about 100% of our adjusted operating earnings to shareholders through steadily increasing dividends and buybacks annually. In this last quarter, based on freeing up additional capital, we began to take up our buyback consistent with what we shared with you.

With regard to our long-term care business, we continue to be proactive in managing our book. In fact, this current year, we sought greater rate increases and benefit adjustments than we did in past years. The auto and home business continues to show improved results, and we're on track to close the transaction in Q4. That brings me to our capital strength and flexibility. Both are clear differentiators. We're generating substantial free cash flow that we reinvest for growth and return to shareholders. You can expect us to continue to build on our track record of strong capital management. As we've grown, we've consistently returned about 100% of our adjusted operating earnings to shareholders through steadily increasing dividends and buybacks annually. In this last quarter, based on freeing up additional capital, we began to take up our buyback consistent with what we shared with you.

The auto and home business continues to show improved results and we're on track to close the transaction in the fourth quarter.

That brings me to our capital strength and flexibility.

Both are clear Differentiators were generating substantial free cash flow that we reinvest for growth and return to shareholders. You can expect us to continue to build on our track record of strong capital management as we've grown we've consistently returned about 100% of our adjusted operating earnings to shareholders through steadily increasing dividends and buybacks annually.

In this last quarter based on freeing up additional capital we began to take up our buyback consistent what we shared with you.

James Cracchiolo: We are in an excellent position to continue to generate shareholder value. Our priorities on the capital front are clear: continue investing in the business, evaluating inorganic opportunities, and maintaining our return to capital shareholders at attractive levels. Lastly, I'm pleased to share that in June, Ameriprise reached 125th anniversaries. Very few public companies in the US have reached this milestone. We're proud to have been in business for more than a century, and I believe it's because we've always put clients' needs first and have constantly evolved. As we look to the future, we're energized about the growth opportunity ahead, the strength of our business, and our financial foundation. Now, Walter will take you through the numbers.

We are in an excellent position to continue to generate shareholder value. Our priorities on the capital front are clear: continue investing in the business, evaluating inorganic opportunities, and maintaining our return to capital shareholders at attractive levels. Lastly, I'm pleased to share that in June, Ameriprise reached 125th anniversaries. Very few public companies in the US have reached this milestone. We're proud to have been in business for more than a century, and I believe it's because we've always put clients' needs first and have constantly evolved. As we look to the future, we're energized about the growth opportunity ahead, the strength of our business, and our financial foundation. Now, Walter will take you through the numbers.

We are in an excellent position to continue to generate shareholder value.

Our priorities on the capital front, the clear continue investing in the business evaluating inorganic opportunities and maintaining our returning capital shareholders at attractive levels.

Lastly, I'm pleased to share that in June Ameriprise reached a 125th anniversaries very few public companies in the US has reached this milestone we are proud to have been business for more than a century and I believe it's because we've always put clients need spurs and have constantly evolve.

As we look to the future we're energized about the growth opportunity ahead, the strength of our business and our financial Foundation now Walter will take you through the numbers.

Walter Berman: Thank you, Jim. Ameriprise achieved another solid quarter of financial results, with earnings per diluted share up 14% even with marginal equity market appreciation compared to a year ago. This was led by strong performance in advice and wealth management, and continued stable results in our other businesses. We delivered an industry-leading return on equity of 37%, which reflects a 670 basis point improvement. We are generating substantial free cash flow and maintaining excellent balance sheet fundamentals to underpin our businesses, with excess capital of $1.9 billion to the end of the quarter. I'll take you through the details beginning on slide 6. First, I'd like to note that our weighted equity index was up only 3% versus last year, much lower than the growth seen in the S&P 500 year-over-year.

Thank you Jim.

Ameriprise achieved another solid quarter of financial results.

With earnings per diluted share up 14%.

Even with marginal equity market appreciation compared to a year ago.

This was led by strong performance in advice and wealth management.

And continued stable results in our other businesses.

We delivered industry, leading return on equity of 37%.

Which reflects a 670 basis point improvement.

We are generating substantial free cash flow and maintaining excellent balance sheet fundamentals to underpin our businesses with excess capital of 1.9 billion to the end of the quarter.

I will take you through the details beginning on slide six.

First.

I'd like to note that our weighted equity index was up only 3% versus last year.

Much lower than the growth seen in the S&P 500 year over year.

Walter Berman: Typically, our WEI trends similarly to the S&P 500, and the disconnect of 4% this quarter is much larger than usual, primarily due to underperformance of European indices. Ameriprise's adjusted operating net revenue was up 3% to $3.2 billion. Driven by revenue growth and advice wealth management, the impact from marginal market appreciation was offset by strong growth in RAP assets and improved transactional activity. Asset management revenue was on target given the cumulative impact of net outflows, as well as lower market appreciation than we've seen in recent quarters. Annuities and protection are stable businesses with limited revenue growth. We continue to manage expenses well across the firm, with total expenses up only 2%. We returned over 100% of adjusted operating earnings to shareholders through increased share repurchase and dividends. This results in very strong EPS growth of 14% and ROE of 37%, as I mentioned.

Typically, our WEI trends similarly to the S&P 500, and the disconnect of 4% this quarter is much larger than usual, primarily due to underperformance of European indices. Ameriprise's adjusted operating net revenue was up 3% to $3.2 billion. Driven by revenue growth and advice wealth management, the impact from marginal market appreciation was offset by strong growth in RAP assets and improved transactional activity. Asset management revenue was on target given the cumulative impact of net outflows, as well as lower market appreciation than we've seen in recent quarters. Annuities and protection are stable businesses with limited revenue growth. We continue to manage expenses well across the firm, with total expenses up only 2%. We returned over 100% of adjusted operating earnings to shareholders through increased share repurchase and dividends. This results in very strong EPS growth of 14% and ROE of 37%, as I mentioned.

Typically.

Our W E trend similarly to the S&P 500.

And the disconnect to 4% this quarter is much larger than usual.

Primarily due to underperformance of European indices.

Ameriprise as adjusted operating net revenue was up 3% to $3.2 billion.

Driven by revenue growth in advice <unk> wealth management.

The impact from marginal market appreciation was offset by strong growth in rap assets and improved transactional activity.

Asset management revenue was on target given the cumulative impact of net outflows.

As well as lower market depreciation than we've seen in recent quarters.

And.

Annuities and protection are stable businesses with limited revenue growth.

We continue to manage expenses well across the firm.

We have total expenses up only 2%.

And we return to over a 100% of adjusted operating earnings to shareholders through increased share repurchase and dividends.

This results in very strong EPS growth of 14%.

And our OE of 37% as I mentioned turning to slide seven.

Walter Berman: Turning to slide 7, you can see that our business mix continues to evolve, with Advice and Wealth Management generating over half of the company's earnings, up from 36% just three years ago. We've seen a consistent trend over the past few years, and it should continue as we focus substantial growth investments on areas where we've seen opportunity within the wealth management business. Additionally, wealth management sources the majority of the company's revenue, 80% over the past 12 months. Let's turn to Advice and Wealth Management beginning on slide 8. AWM continues to perform well across all dimensions. Advice and Wealth Management adjusted operating net revenue and pretax adjusted operating earnings grew 7%. This growth rate was impacted by the marginal growth in the WEI from last year.

Turning to slide 7, you can see that our business mix continues to evolve, with Advice and Wealth Management generating over half of the company's earnings, up from 36% just three years ago. We've seen a consistent trend over the past few years, and it should continue as we focus substantial growth investments on areas where we've seen opportunity within the wealth management business. Additionally, wealth management sources the majority of the company's revenue, 80% over the past 12 months. Let's turn to Advice and Wealth Management beginning on slide 8. AWM continues to perform well across all dimensions. Advice and Wealth Management adjusted operating net revenue and pretax adjusted operating earnings grew 7%. This growth rate was impacted by the marginal growth in the WEI from last year.

You can see that our business mix continues to evolve with advice and wealth management generating over half of the company's earnings.

Up from 36% just three years ago.

We've seen a consistent trend over the past few years.

And it should continue as we focus substantial growth investments on areas, where we see opportunity within the wealth management business.

Additionally, wealth management sources, the majority of the company's revenue.

80% over the past 12 months.

Let's turn to advise wealth management beginning on slide eight.

ADW and continues to perform well of course, we'll we'll dimensions.

Advice and wealth management adjusted operating net revenue.

And pretax adjusted operating earnings grew 7%.

This growth rate was impacted by the marginal growth in the Wi from last year.

Walter Berman: That said, the quarter benefited from underlying organic growth that was quite strong, with RAP assets up 13%, with net inflows of $4.8 billion in the quarter, and 6% improvement in transactional activity sequentially. Higher interest earnings on brokerage sweep balances, and expenses were well controlled. In addition, we launched a bank in the quarter and continued strong advisor recruiting, both of which benefit revenue and earnings going forward. Expenses remain well managed when you factor in the following. We had higher volume-related expenses due to the increased transactional activity I mentioned. We continue to make substantial investments for growth, including the bank. There was a mark-to-market impact on our advisor deferred compensation program, and there was an additional payroll day on a sequential basis. We anticipate expenses will remain in this range for the remainder of the year. Finally, our margin remained very strong at 22.7%.

That said, the quarter benefited from underlying organic growth that was quite strong, with RAP assets up 13%, with net inflows of $4.8 billion in the quarter, and 6% improvement in transactional activity sequentially. Higher interest earnings on brokerage sweep balances, and expenses were well controlled. In addition, we launched a bank in the quarter and continued strong advisor recruiting, both of which benefit revenue and earnings going forward. Expenses remain well managed when you factor in the following. We had higher volume-related expenses due to the increased transactional activity I mentioned. We continue to make substantial investments for growth, including the bank. There was a mark-to-market impact on our advisor deferred compensation program, and there was an additional payroll day on a sequential basis. We anticipate expenses will remain in this range for the remainder of the year. Finally, our margin remained very strong at 22.7%.

That said.

The quarter benefited from underlying organic growth that was quite strong with.

Wrap assets up 13%.

With net inflows of 4.8 billion in the quarter.

And 6% improvement and transactional activity sequentially.

Higher interest earnings on brokerage sweep balances.

And expenses were well controlled.

In addition.

We launched the bank in the quarter and continued strong advisor recruiting both of which benefit revenue and earnings going forward.

Expenses remain well manage when you factor in the following.

We had higher volume related expenses due to the increased transactional activity I mentioned.

We continue to make substantial investments for growth, including the bank.

There was a mark to market impact on our advisor deferred compensation program.

And there was an additional payroll day on a sequential basis.

We anticipate expenses will remain in this range for the remainder of the year.

Finally.

Our margin remained very strong at 22.7%.

As I indicated we have strong organic growth trends in advice <unk> wealth management that you can see on slide nine.

Walter Berman: As I indicated, we have strong organic growth trends in advice wealth management that you can see on slide 9. Total client assets were up 7% to $608 billion, with RAP assets up 13%, both of which have benefited from the solid trend of continued RAP net inflows over many quarters. Advisor productivity continues to trend upward, reaching $638,000 per advisor on a trailing 12-month basis. Strong, experienced advisor recruiting, new digital tools and capabilities, and serving more of our target client market are key drivers of this trend. Lastly, brokerage cash balances came down $1 billion sequentially to $24 billion. We earned 210 basis points, up 157 basis points from a year ago, but down a couple of basis points sequentially.

As I indicated, we have strong organic growth trends in advice wealth management that you can see on slide 9. Total client assets were up 7% to $608 billion, with RAP assets up 13%, both of which have benefited from the solid trend of continued RAP net inflows over many quarters. Advisor productivity continues to trend upward, reaching $638,000 per advisor on a trailing 12-month basis. Strong, experienced advisor recruiting, new digital tools and capabilities, and serving more of our target client market are key drivers of this trend. Lastly, brokerage cash balances came down $1 billion sequentially to $24 billion. We earned 210 basis points, up 157 basis points from a year ago, but down a couple of basis points sequentially.

Total client assets were up 7% to 608 billion.

With rap assets up 13%.

Both of which have benefited from the solid trend of continued wrap net inflows over many quarters.

Advisor productivity continues to trend upward.

Reaching 638000 per advisor on a trailing 12 month basis.

Strong experienced advisor recruiting.

New digital tools and capabilities.

And serving more of our target client market are key drivers of this trend.

Lastly, brokerage cash balances came down $1 billion sequentially to $24 billion.

We earned 210 basis points up 157 basis points from a year ago.

But down a couple of basis points sequentially.

Walter Berman: As other firms have mentioned, we too are monitoring potential Fed announcements and intend to pass along a portion of a Fed rate cut to our clients while remaining competitive. Let's turn to asset management on page 10. Revenue and pretax adjusted operating earnings performed well. Similar to AWM, we had a marginal benefit from equity market appreciation. In addition, the year-over-year growth rate was impacted by cumulative outflows and unfavorable foreign exchange translation, which was offset by the timing of performance fees. Additionally, Jim mentioned several recent mandates won, and the benefits from those will be seen in future quarters. We remain focused on tightly managed expenses while making targeted investments in appropriate areas for future growth and managing required regulatory changes. Margin in the quarter increased to 37%, returning to our targeted range of between 35% to 39%.

As other firms have mentioned, we too are monitoring potential Fed announcements and intend to pass along a portion of a Fed rate cut to our clients while remaining competitive. Let's turn to asset management on page 10. Revenue and pretax adjusted operating earnings performed well. Similar to AWM, we had a marginal benefit from equity market appreciation. In addition, the year-over-year growth rate was impacted by cumulative outflows and unfavorable foreign exchange translation, which was offset by the timing of performance fees. Additionally, Jim mentioned several recent mandates won, and the benefits from those will be seen in future quarters. We remain focused on tightly managed expenses while making targeted investments in appropriate areas for future growth and managing required regulatory changes. Margin in the quarter increased to 37%, returning to our targeted range of between 35% to 39%.

And as other firms had mentioned.

We too are monitoring potential fed announcements.

And intend to pass along a portion of the fed rate cut to our clients while remaining competitive.

Let's turn to asset management on page 10.

Revenue and pretax adjusted operating earnings performed well.

Similar to AAMC.

We had a marginal benefit from equity market appreciation.

In addition.

The year over year growth rate was impacted by cumulative outflows.

And unfavorable foreign exchange translation, which was offset by the timing of performance fees.

Additionally, Jim mentioned several recent mandates won.

And the benefits from those will be seen in future quarters.

We remain focused on tightly managing expenses, while making targeted investments in appropriate areas for future growth.

And managing required regulatory changes.

Margin in the quarter increased to 37%.

Returning to our targeted range of between 35% to 39%.

Turning to page 11.

Walter Berman: Turning to page 11, results in annuities and protection are solid. Annuities earnings were up 6% to $129 million, primarily from lower sales and higher living benefit rider fees. While sales remained down year-over-year, we saw a 19% increase in variable annuity sales sequentially, which supported the improved transactional activity I described in advice and wealth management. Protection earnings were up 3% to $65 million. Claims continue to be within our expected ranges, and the underlying business is performing well. Clearly, interest rates remain a headwind for these businesses. We are currently completing our unlocking review, and we'll discuss the outcome of the review in Q3. It is likely that interest rates will have a negative impact on our unlocking. However, there are numerous factors that contribute to our unlocking. Let's move to the balance sheet on slide 12.

Turning to page 11, results in annuities and protection are solid. Annuities earnings were up 6% to $129 million, primarily from lower sales and higher living benefit rider fees. While sales remained down year-over-year, we saw a 19% increase in variable annuity sales sequentially, which supported the improved transactional activity I described in advice and wealth management. Protection earnings were up 3% to $65 million. Claims continue to be within our expected ranges, and the underlying business is performing well. Clearly, interest rates remain a headwind for these businesses. We are currently completing our unlocking review, and we'll discuss the outcome of the review in Q3. It is likely that interest rates will have a negative impact on our unlocking. However, there are numerous factors that contribute to our unlocking. Let's move to the balance sheet on slide 12.

Results in annuities and protection are solid.

Annuities earnings were up 6% to $129 million.

Primarily from lower sales and higher living benefit rider fees.

While sales remain down year over year.

We saw a 19% increase in variable annuity sales sequentially.

Which supported the improved transactional activity I described and advice and wealth management.

Protection earnings were up 3% to $65 million.

Claims continue to be within our expected ranges.

And the underlying business is performing well.

Clearly interest rates remain a headwind for these businesses.

We are currently completing our unlocking review and we'll discuss the outcome of the review in the third quarter.

It is likely that interest rates will have a negative impact on our unlocking however.

There are numerous factors that contribute to our unlocking.

Let's move to the balance sheet on slide 12.

Walter Berman: We continue to generate substantial free cash flow, and our balance sheet fundamentals are excellent. Our excess capital reached $1.9 billion, and we expect this to grow further when we close the sale of our auto and home business later this year. Our investment portfolio is well positioned, diversified, and high quality. Our hedging program remained extremely effective. These factors, combined with strong financial performance across our businesses, support a differentiated return of capital to shareholders. In the quarter, we returned $570 million to shareholders through buyback and dividends, which was 102% of operating earnings. We expect to have nearly $2.5 billion of excess capital at year-end 2019 while targeting to return 110% of operating earnings to shareholders for the full year. With that, we'll take your questions.

We continue to generate substantial free cash flow, and our balance sheet fundamentals are excellent. Our excess capital reached $1.9 billion, and we expect this to grow further when we close the sale of our auto and home business later this year. Our investment portfolio is well positioned, diversified, and high quality. Our hedging program remained extremely effective. These factors, combined with strong financial performance across our businesses, support a differentiated return of capital to shareholders. In the quarter, we returned $570 million to shareholders through buyback and dividends, which was 102% of operating earnings. We expect to have nearly $2.5 billion of excess capital at year-end 2019 while targeting to return 110% of operating earnings to shareholders for the full year. With that, we'll take your questions.

We continue to generate substantial free cash flow and our balance sheet fundamentals are excellent.

Our excess capital reached $1.9 billion and we expect this to grow further when we closed the sale of our auto and home business later this year.

Our investment portfolio is well positioned diversified and high quality.

Our hedging program remain extremely effective.

These factors combined with strong financial performance across our businesses.

Support our differentiated return of capital to shareholders.

In the quarter, we returned 570 million to shareholders through buyback and dividends.

Which was 102% of operating earnings.

We expect to have nearly $2.5 billion of excess capital at year end 2019, while targeting to return 110% of operating earnings to shareholders for the full year.

With that we'll take your questions.

Thank you we will now begin the question and answer session.

Operator: Thank you. We will now begin the question-and-answer session. If you have a question, please press star, then one, on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you have any speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then one, on your touch-tone phone. And our first question comes from Eric Bass from Autonomous Research.

If we have a question. Please press star one on your touched come from.

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And our first question comes from Erik bass from Thomas Research.

Hi, Thank you.

[Analyst] (Autonomous Research): Hi. Thank you. Can you talk about the outlook for advice and wealth margins, especially if short-term interest rates do move to being a headwind? And related, how much were expenses elevated this quarter due to the investments you're making in higher comp? And can you talk about how you see the investments flowing through to the bottom line over time?

Erik Bass: Hi. Thank you. Can you talk about the outlook for advice and wealth margins, especially if short-term interest rates do move to being a headwind? And related, how much were expenses elevated this quarter due to the investments you're making in higher comp? And can you talk about how you see the investments flowing through to the bottom line over time?

Can you talk about the outlook for advice and wealth margins, especially if short term interest rates do move to being a headwind and related how much where expenses elevated this quarter due to the investments you're making in higher comp.

Can you talk about how you see the investments flowing through to the bottom line over time.

Sure. This is Walter from margin standpoint, again, assuming the fed does cod.

Walter Berman: Sure. This is Walter. From the margin standpoint, again, assuming the Fed does cut, from that standpoint, it will affect them, but we still believe that the margins will stay in the approximate range. But again, we have good revenue growth and good profitability coming through, so it's difficult to take the full exact estimate. But certainly, we believe that the margins will remain in this range. As it relates to the investment, the investment spending is a large portion of the expense increase. And as we indicated, we continue to expect that that will factor through for the remainder of the year. And they are generating good returns. I don't have the quantification of that, but they certainly are giving us the paybacks as we see strong revenue growth.

Of the assembly will affect them, but we still believe that the margins will stay in the approximate range, but again, it's what we have good revenue growth and good profitability coming through so it's difficult to say.

Take the full as of.

Zach to estimate.

But certainly we believe that the margins will remain in this range.

As it relates to.

The investment investment spending is a large portion of the.

Expense increase and as we indicated we continued to expect that that will come out of active through for the remainder of the year and they are generating good returns I don't have the quantification of that but they certainly are giving us the paybacks as we see strong revenue growth.

[Analyst] (Autonomous Research): Got it. I think you had mentioned a couple of higher comp expense items, though, as well. Are those things that could recur, or are those more one-off expenses in the quarter?

Erik Bass: Got it. I think you had mentioned a couple of higher comp expense items, though, as well. Are those things that could recur, or are those more one-off expenses in the quarter?

Got it I think you had mentioned a couple of.

Higher comp expense items, so as well are those things that could recur or those more one off expenses in the quarter.

The.

Walter Berman: The comp, are you talking about in AWM?

The comp area. If you are talking about an AAMC.

[Analyst] (Autonomous Research): Yes.

Erik Bass: Yes.

Yes.

Walter Berman: In AWM, that was really on deferred comp and is related to basically we hedge portions, and some portions we can't hedge, and that was the differential that impacted us. So it's really subject to markets, and we are certainly mitigating some of that.

In India in the ADW and that was really have on deferred comp and is related to basically.

We head fortunes some portions we can hedge and that was the differential that impact us. So it's really subject to markets, but and we are certainly mitigating some of them.

Got it and then finally can you provide an update on your targets for the bank and the timeline for bringing on the credit card portfolio and other products you've talked about.

[Analyst] (Autonomous Research): Got it. And then finally, can you provide an update on your targets for the bank and the timeline for bringing on the credit card portfolio and other products you've talked about?

Erik Bass: Got it. And then finally, can you provide an update on your targets for the bank and the timeline for bringing on the credit card portfolio and other products you've talked about?

Walter Berman: The credit card portfolio will come on the balance sheet in the latter half of this year, and the rest of the products will start coming through beginning in 2020, going through the year. But the credit card will come on in probably the third quarter, beginning of the fourth quarter.

The credit card portfolio will come on balance.

The latter half of this year and the rest their products will start coming through in.

Beginning in.

2020 going through the year, but the credit card will come on in.

Probably the third.

Beginning in the fourth quarter.

Got it is there any.

[Analyst] (Autonomous Research): Got it. Is there any way we should think about the earnings kind of building from here? I think it's probably neutral to a slight drag this quarter, and you've talked about being profitable by the end of the year. But with those products coming on, how should we think about the buildout?

Erik Bass: Got it. Is there any way we should think about the earnings kind of building from here? I think it's probably neutral to a slight drag this quarter, and you've talked about being profitable by the end of the year. But with those products coming on, how should we think about the buildout?

We should think about the earnings kind of building from here I think it's probably neutral to a slight drag this quarter, you've talked about being profitable by.

The end of the year, but with those products coming on how should we think about the buildout.

Walter Berman: Okay. Well, what you're going to see for the bank came on basically in June, and so very little of the sweep balance that was moved over impacted the profitability. You'll see that obviously impact the Q3 and Q4. And with targeting, with certainly a change in interest rate, will probably be a small positive for the year as it relates to us. We're building out the bank, and the credit card portfolio will really be a slower build on that in 2019 and start building in 2020.

Okay, well what are you going to see for the bank came on in basically in June and so.

Very little of the Sweet balance that was moved over was impacted the profitability you will see that obviously.

Impact the third and fourth quarter, and we're targeting with certainly a change and trade will probably be a small positive for the year.

As it relates to US we're building out the bank and the credit card portfolio will really be a slower build on that front in 2019 to start building and 20.

Okay. Thank you.

[Analyst] (Autonomous Research): Okay. Thank you.

Erik Bass: Okay. Thank you.

Our next question comes from Humphrey Lee from Dowling and partners.

Operator: Our next question comes from Humphrey Lee from Dowling & Partners.

Good morning, and thank you for taking my questions.

[Analyst] (Credit Suisse): Good morning, and thank you for taking my questions. Walter, just to follow up on the cash sweep, how should we think about the difference in terms of economics between sweeping to a third party versus keeping them on your balance sheet?

Humphrey Lee: Good morning, and thank you for taking my questions. Walter, just to follow up on the cash sweep, how should we think about the difference in terms of economics between sweeping to a third party versus keeping them on your balance sheet?

Walter just to follow up on the.

The cash sweep on how should we think about the difference in terms of economics between sweeping to third parties versus keeping them on your balance sheet.

Walter Berman: Sure. Okay. As related to the initial funds that we moved over, that was basically that full benefit. It was being realized by us because it came out of basically money markets on that basis. So that is a full benefit to us, picking up the majority of that from the investment, less the amount that we're crediting to the client. As we go into the transferring additional sweep balances, obviously, from that standpoint, the differential becomes much less because it's the investment trade-off of the sweep account versus what we then gap onto the balance sheet. But there will be a positive element of incremental earnings relating to monies that are moved over. This environment, we just have to gauge the impact of it, obviously, the interest rates where they are.

Sure.

Okay as related to the initial funds that we moved over that was basically that full benefit will it was being realized by us because came out of them have basically a money markets on that basis. So that is a full benefit to us of picking up majority of that from the investment of less the amount is over credit into the the client as we go into the transferring additional sweep balances obviously from that standpoint, the differential becomes much less because thats the investment trade off of in the sweep account versus what we then GAAP onto the balance sheet.

But there will be a positive element of incremental earnings relating to a monies that are moved over this environment. We just have to gauge the impact of it obviously the interest rates where they are.

[Analyst] (Credit Suisse): Okay. Got it. And then you talked about with the Fed cut or potential rate cut. You will be looking to pass along some of the impact to clients. How fast can you pass along that? Or is there anything that's preventing you to move the impact directly to the clients?

Humphrey Lee: Okay. Got it. And then you talked about with the Fed cut or potential rate cut. You will be looking to pass along some of the impact to clients. How fast can you pass along that? Or is there anything that's preventing you to move the impact directly to the clients?

Okay got it.

And then you talked about with the SEC.

All potential kind of rate cuts you will be looking to pass along some of the impacts to two clients.

How fast can you pass along that or is there kind of like anything preventing you to to move the impact directly to the to the clients. So this is this is Jim if those if it's one rate, let's say 25 basis point, we'll be able to pass along a piece of that just like we took a piece and gave it to the client as the rate came in.

Walter Berman: So this is Jim. If it's 1 rate cut, let's say 25 basis points, we'll be able to pass along a piece of that just like we took a piece and gave it to the client as the rate came in. As that rate, if the Fed cuts more than that rate, we'll again adjust, but the bulk of that will just be absorbed by the firm similar to what we did on the uptake. So what I would say is the first cut, part absorbed by the client, part absorbed by the firm, and we're able to handle that as we continue to make our adjustments or shift with the bank, etc. But it depends on the number of rate cuts. Just like we increased our margin because of the rate cuts, the margin will be adjusted down to some extent based on it in the short term.

James Cracchiolo: So this is Jim. If it's 1 rate cut, let's say 25 basis points, we'll be able to pass along a piece of that just like we took a piece and gave it to the client as the rate came in. As that rate, if the Fed cuts more than that rate, we'll again adjust, but the bulk of that will just be absorbed by the firm similar to what we did on the uptake. So what I would say is the first cut, part absorbed by the client, part absorbed by the firm, and we're able to handle that as we continue to make our adjustments or shift with the bank, etc. But it depends on the number of rate cuts. Just like we increased our margin because of the rate cuts, the margin will be adjusted down to some extent based on it in the short term.

As that rate if the fed cuts more than that rate, okay, and we'll again adjust but the bulk of that will just be absorbed by the firm's similar to what we did on the uptake.

So what I would say is the first hot pot absorbed but a client part absorbed but affirm and we'll be able to handle that as we continue to make our adjustments a shift with the bag et cetera, but it depends on the number of rate cuts just like we increased our margin be cost at a rate cuts.

Well the margin will be adjusted down to some extent based on it in the short term now.

Walter Berman: Now, aside from the margin increase from interest rates, we've gotten nice margin improvements from the core business. So we still expect us to continue on that path. But remember, when we moved from the high teens into the 20s, part of that was due to the increases in the Fed rate, and therefore, some of it will come back down in a similar fashion. Yeah. It's Walter. Let me just amplify one thing as your question frequency. It's fairly quick because the majority of money is invested in Fed funds, and so the crediting rates are adjusted as so are our earning rates.

Now, aside from the margin increase from interest rates, we've gotten nice margin improvements from the core business. So we still expect us to continue on that path. But remember, when we moved from the high teens into the 20s, part of that was due to the increases in the Fed rate, and therefore, some of it will come back down in a similar fashion. Yeah. It's Walter. Let me just amplify one thing as your question frequency. It's fairly quick because the majority of money is invested in Fed funds, and so the crediting rates are adjusted as so are our earning rates.

Aside from the margin increase and on margin on interest rates.

We've gotten nice margin improvements from the core business. So we still it still expect us to continue on that path, but remember when we moved from the high teens into the Twentys part of that was due to the increases in that the the fed rate and therefore some of it will come back down in a similar fashion. It's Walter let me just amplify one thing as your question frequency. It's fairly quick because majority of money is invested in fed funds and so the crediting rates are adjusted as so we are earning rate.

[Analyst] (Credit Suisse): Got it. Thank you.

Humphrey Lee: Got it. Thank you.

Got it thank you.

Our following question comes from John needle from Libya.

Operator: Our following question comes from John Nadel from UBS.

Hey, good morning.

[Analyst] (UBS): Hey. Good morning. I have a couple of questions, but Walter, I wanted to come back to a statement. I think it was in one of your final slides thinking about the capital return. I think you mentioned that you're targeting 110% of operating income for the full year, not just for the second half of the year. So if I'm calculating it correct, I think you're running it just south of 100% in the first half of the year. I think what you're indicating to us is that the pace in the back half of the year is going to be substantially above the 110% to get to a full year, 110%. I just wanted to make sure I have that right.

John Nadel: Hey. Good morning. I have a couple of questions, but Walter, I wanted to come back to a statement. I think it was in one of your final slides thinking about the capital return. I think you mentioned that you're targeting 110% of operating income for the full year, not just for the second half of the year. So if I'm calculating it correct, I think you're running it just south of 100% in the first half of the year. I think what you're indicating to us is that the pace in the back half of the year is going to be substantially above the 110% to get to a full year, 110%. I just wanted to make sure I have that right.

I have a couple of questions, but Walter.

I wanted to come back to you.

Steven I think it was in Europe , one of your final slide thinking about the capital return.

I think you mentioned that you're targeting 110% of operating income for the full year.

Not just for the second half of the year so.

If I'm calculating it correctly I think you're running it just south of a 100% within the first half the year.

James I think what you're indicating to us is that the pace in the back half of the year is going to be substantially.

Above the 110% to get to a full year, one and I just wanted to make sure I have that right.

Walter Berman: You do have it correct. Obviously, it will be fact and circumstance driven, but that's our intention right now, that we will certainly have to increase that substantially to get to that 110 for the full year, approximately.

You do have a correct obviously, it's good to be back in service and driven to visit but that's our intention right now that we will certainly have to increased substantially to get to the 110 for the full year Approx got it okay. That's helpful.

[Analyst] (UBS): Got it. Okay. That's helpful. And then maybe one for Jim. I'm thinking about the fixed annuity book and your commentary about accelerating the free up of capital from various portions of the in-force block. After the transaction with Global Atlantic on the first 20% of the block, I think the message was very clear that you're looking to accelerate that free up. How much has the drop in long-term rates since then impacted the potential of moving forward with additional capital, either from the remaining fixed annuity block or from other pieces of the portfolio?

John Nadel: Got it. Okay. That's helpful. And then maybe one for Jim. I'm thinking about the fixed annuity book and your commentary about accelerating the free up of capital from various portions of the in-force block. After the transaction with Global Atlantic on the first 20% of the block, I think the message was very clear that you're looking to accelerate that free up. How much has the drop in long-term rates since then impacted the potential of moving forward with additional capital, either from the remaining fixed annuity block or from other pieces of the portfolio?

And then maybe one for Jim Im just thinking about the fixed annuity book.

And your commentary about accelerating the free up of capital from various portions of the.

In force block.

After the transaction with global Atlantic on the first 20% of the block I think the message was very clear that you're looking to accelerate that free up.

How much has the drop in long term rates since then.

Impacted the potential of moving forward with additional capital received from.

The remaining fixed annuity block or from other pieces of the portfolio. So I'll, let Walter cover a little more of the detail, but the way we think about it is.

Walter Berman: So I'll let Walter cover a little more of the detail, but the way we think about it is, as you would see, we have a good amount of flexibility. So it's not as though in this rate environment, if rates continue to go down, that we need to execute a transaction. What was really good about what we did so far, and Walter and team, is it set up that capability for us, and then we will work appropriately based on the appropriate arrangements and the time frames that we're interested in with the rate environment to execute those transactions. And so I think that gives us some more flexibility if we wanted or needed. And at the same time, we don't necessarily have to do it just based on what circumstances dictate today. So it's Walter, John.

James Cracchiolo: So I'll let Walter cover a little more of the detail, but the way we think about it is, as you would see, we have a good amount of flexibility. So it's not as though in this rate environment, if rates continue to go down, that we need to execute a transaction. What was really good about what we did so far, and Walter and team, is it set up that capability for us, and then we will work appropriately based on the appropriate arrangements and the time frames that we're interested in with the rate environment to execute those transactions. And so I think that gives us some more flexibility if we wanted or needed. And at the same time, we don't necessarily have to do it just based on what circumstances dictate today.

As you see we have a good amount of flexibility. So it's not as though in this rate environment as rates continue to go down that we need to execute a transaction what was really good about what we did so far and Walter and team is set up that capability for US and then we will work appropriately based on the appropriate arrangements in the timeframe that we're interested in what the rate environment to execute those transactions and so I think that gives us more flexibility if we wanted or needed.

And at the same time, we don't necessarily have to do with just based on what you know circumstances dictate today.

Walter Berman: So it's Walter, John. Certainly, with our excess position, we don't have to do it now, and the interest rate will impact it. We'll evaluate that. But as Jim said, we have the capability in place, and certainly, we're evaluating that. And it's our intention, in the right set of circumstances, we will then commence the remainder of it.

So its Walter John certainly with our excess physician, we don't have to do it now both annual and the interest rate will impact. It will have we will evaluate that but as Jim said, we have the capability in place and certainly are evaluating that and it's our intention in the right set of.

Walter Berman: Certainly, with our excess position, we don't have to do it now, and the interest rate will impact it. We'll evaluate that. But as Jim said, we have the capability in place, and certainly, we're evaluating that. And it's our intention, in the right set of circumstances, we will then commence the remainder of it.

Circumstance, we will then commence the remainder of him.

[Analyst] (UBS): Okay. That's helpful. And then if I can sneak one last one in on advice and wealth management. If I look at the first half of the year, G&A growth was around 8%, but revenue growth a little over 5%. That's the first time in a long time that I can recall that there's been that kind of a differentiation or disparity between G&A growing faster than your revenues. If G&A is going to stay around the same level as the Q2 for the remainder of this year, if we set aside the Fed and its actions, should we expect the operating margins going to decline from here?

John Nadel: Okay. That's helpful. And then if I can sneak one last one in on advice and wealth management. If I look at the first half of the year, G&A growth was around 8%, but revenue growth a little over 5%. That's the first time in a long time that I can recall that there's been that kind of a differentiation or disparity between G&A growing faster than your revenues. If G&A is going to stay around the same level as the Q2 for the remainder of this year, if we set aside the Fed and its actions, should we expect the operating margins going to decline from here?

Okay. That's helpful. And then if I can sneak one last one in on the advice and wealth management, if I look at the first half of the year.

She DNA growth was around 8% revenue growth of a little over 5%.

That's the first time in a long time that I can recall that there has been that kind of a differentiation or disparity.

Between Gionee growing faster than your revenues.

If DNA is going to stay around the same level as the two Q for the remainder of this year.

You know if we set aside the fed and its action you should we expect the operating margins going to decline from here.

Walter Berman: So let me start, and then Walter can continue. As you heard in my opening remarks, we're taking the opportunity, first of all. I've mentioned to you about recruiting as an example. We're bringing in much larger books of business. There's a cost in doing that, just the transition cost of people coming on board and ACATs and all that stuff. Transaction revenue has gone up. We've had some mark-to-markets on our deferred comp that's also in those numbers. So part of the 8% is having to do with some of that. In addition, I've mentioned some of the investments we're making. I'll give you an example. Putting in a new CRM platform, you got all the implementation costs. We're actually paying for two systems overlap for the year.

James Cracchiolo: So let me start, and then Walter can continue. As you heard in my opening remarks, we're taking the opportunity, first of all. I've mentioned to you about recruiting as an example. We're bringing in much larger books of business. There's a cost in doing that, just the transition cost of people coming on board and ACATs and all that stuff. Transaction revenue has gone up. We've had some mark-to-markets on our deferred comp that's also in those numbers. So part of the 8% is having to do with some of that. In addition, I've mentioned some of the investments we're making. I'll give you an example. Putting in a new CRM platform, you got all the implementation costs. We're actually paying for two systems overlap for the year.

So let me let me start in the mall to obtain continue as you heard in my opening remarks, we're taking the opportunity first of all I've mentioned to you about recruiting as an example, we're bringing in much larger books of business. Those are cost in doing that just the transition cost of people coming onboard and eight cats and all that stuff. Our transaction revenue has gone up we've had some mark to markets on other deferred comp.

That's also in those numbers so part of the 8% is having to do with some of that in addition, as mentioned some of the investments were making so I'll give you. An example on putting in a new CRM platform Youve got all the implementation costs are actually paying for two systems overlap for the year. So there are a number of things like that but we feel that in this timeframe, where where we see the growth opportunity. The strong margins, we Gavin aid WFM as well as our potential for growth. This was a time for us to increase those expenses remember in the last year I had to cut back a bit of them because of all that deal well expense and the regulatory so we wanted to shift that back to growth investments. We think those investments will pay us foods dividends moving forward, but that's part of the reason why the GNS. So if you ask me for the future outside of those investments in some of the things I've mentioned to you with that continue to answer would be no because we will firmly control.

Walter Berman: So there are a number of things like that, but we feel that in this time frame, where we see the growth opportunity, the strong margins we have in AWM, as well as our potential for growth, this was a time for us to increase those expenses. Remember, in the last year, I had to cut back a bit of them because of all the DOL expense and the regulatory. So we wanted to shift that back to growth investments. We think those investments will pay us good dividends moving forward, but that's part of the reason why the G&A. So if you're asking me for the future outside of those investments and some of the things I've mentioned to you, would that continue? The answer would be no because we will firmly control our expenses, particularly in a more difficult environment.

So there are a number of things like that, but we feel that in this time frame, where we see the growth opportunity, the strong margins we have in AWM, as well as our potential for growth, this was a time for us to increase those expenses. Remember, in the last year, I had to cut back a bit of them because of all the DOL expense and the regulatory. So we wanted to shift that back to growth investments. We think those investments will pay us good dividends moving forward, but that's part of the reason why the G&A. So if you're asking me for the future outside of those investments and some of the things I've mentioned to you, would that continue? The answer would be no because we will firmly control our expenses, particularly in a more difficult environment.

All our expenses, particularly in a more difficult environment, but we feel right now, making those investments even though DNA is up a bit remember we've been able to hold the line pretty well with its strong growth business. My margins are significantly above some of the other people that you guys look at and track.

Walter Berman: But we feel right now, making those investments, even though G&A is up a bit, remember, we've been able to hold the line pretty well with a strong growth business. My margins are significantly above some of the other people that you guys look at and track, and my returns are significantly higher. And that's fully loaded. That's not EBITDA. That's PTI. So what I would just look at is the expenses will be higher for this year, but it's based on the things I've mentioned. If for whatever reason, the market slows down, and other things, we'll clamp back on their expenses. But some of that's due to the investments we make in the overlap, the growth, and some of the other things that we covered in the activity levels. So, John, Walter, the only thing I'll add to that is, listen, obviously, we have good revenue trajectory.

But we feel right now, making those investments, even though G&A is up a bit, remember, we've been able to hold the line pretty well with a strong growth business. My margins are significantly above some of the other people that you guys look at and track, and my returns are significantly higher. And that's fully loaded. That's not EBITDA. That's PTI. So what I would just look at is the expenses will be higher for this year, but it's based on the things I've mentioned. If for whatever reason, the market slows down, and other things, we'll clamp back on their expenses. But some of that's due to the investments we make in the overlap, the growth, and some of the other things that we covered in the activity levels.

And my returns are significantly higher.

And that's fully loaded that doesn't that's not EBITDA thats PCR So what I would just look at is.

<unk> expenses will be higher for this year, but it's based on the things I've mentioned if for whatever reason the market slows down and other things will climb back on the expenses, but we'll some of that's due to the investments were making the overlap and the growth in some of the other things that we covered in the debt.

The activity levels. So John's will alter the only will add to that is listen obviously, we have good revenue trajectory, but you, but one thing is in the second quarter. We only had two weeks of the year earnings coming from the bank as related to the transfer you'll have the full impact of that starting in the third and fourth quarter.

Walter Berman: So, John, Walter, the only thing I'll add to that is, listen, obviously, we have good revenue trajectory.But one thing is in the Q2, we only had 2 weeks of the earnings coming from the bank as related to the transfer. You'll have the full impact of that starting in the Q3 and Q4.

Walter Berman: But one thing is in the Q2, we only had 2 weeks of the earnings coming from the bank as related to the transfer. You'll have the full impact of that starting in the Q3 and Q4.

[Analyst] (UBS): Yep. Yeah. That's kind of where I was going, was so the bank will be a partial offset. But then, if I could paraphrase for you, Jim, it sounds like what you're articulating is, as we turn the page to 2020, you'd expect us to be seeing revenue growth exceeding G&A growth.

John Nadel: Yep. Yeah. That's kind of where I was going, was so the bank will be a partial offset. But then, if I could paraphrase for you, Jim, it sounds like what you're articulating is, as we turn the page to 2020, you'd expect us to be seeing revenue growth exceeding G&A growth.

Yes, yes, that's that's kind of where I was going with the bank will be a partial offset but then if I could paraphrase for you Jim It sounds like what you're articulating is as we turn the page 2020.

You'd expect us to be seeing revenue growth exceeding DNA growth.

Walter Berman: Oh, absolutely. I mean, that's what we're focused on, what we've been able to deliver. But I just wanted to say to you, I mean, even with the incremental, it's not as significant based on what we've been able to do, but we think this will pay some good dividends for growth in the future, and the expenses will come back in line along those means.

James Cracchiolo: Oh, absolutely. I mean, that's what we're focused on, what we've been able to deliver. But I just wanted to say to you, I mean, even with the incremental, it's not as significant based on what we've been able to do, but we think this will pay some good dividends for growth in the future, and the expenses will come back in line along those means.

Absolutely I mean, thats what were focused on what that what we've been able to deliver but I just wanted to say to you I mean, even with the incremental it's not as significant based on what we've been able to do but we think this will take some good dividends for growth in the future and the expenses will come back in line along those those names.

[Analyst] (UBS): Perfect. Thanks for all the time. Thank you.

John Nadel: Perfect. Thanks for all the time. Thank you.

Perfect. Thanks for all the time thank you.

Our following question comes from Andrew Steinerman from Credit Suisse.

Operator: Our following question comes from Andrew Kligerman from Credit Suisse.

[Analyst] (Credit Suisse): Hey. Good morning. I want to follow up quickly on John's question about the 110%. That would imply buybacks of close to $600 million per quarter for the next two quarters. But I think about the capital position where Ameriprise sits, $1.9 billion excess capital, another $700+ incremental by the end of the year from auto and home, and then you talk about these annuity blocks. So would it be fair to consider that perhaps you could ramp up the buyback considerably more even than $600 million a quarter, or would you be thinking more about acquisitions?

Andrew Kligerman: Hey. Good morning. I want to follow up quickly on John's question about the 110%. That would imply buybacks of close to $600 million per quarter for the next two quarters. But I think about the capital position where Ameriprise sits, $1.9 billion excess capital, another $700+ incremental by the end of the year from auto and home, and then you talk about these annuity blocks. So would it be fair to consider that perhaps you could ramp up the buyback considerably more even than $600 million a quarter, or would you be thinking more about acquisitions?

Hey, good morning.

I wanted to follow up quickly on John's question about the 110%.

That would imply buybacks of close to 600 million per quarter for the next two quarters, but I think about the capital position, where we're Ameriprise says.

Billion nine axis capital, another 700, plus incremental by the end of the year from auto and home and then you talk about these annuity blocks. So.

Would it be fair to consider that that perhaps you can ramp up the buyback considerably more even than 600 million a quarter.

Where would you be thinking more about acquisitions.

So what we would say.

Walter Berman: So what we would say is we feel very good about, to your point, the ability to return. We'll be ramping up our buyback and opportunistically continuing to look at that depending on market conditions. But it also gives us a lot of flexibility moving into 2020, both from whether it's a return of capital or it could be based on some incremental acquisitions depending on the market, the climate, the valuations, and the type of business opportunities we see. So what I would say is it's a good sort of a hand to sort of play. But as Walter said, we'll be stepping up a bit towards the end of the year depending on market circumstances. If the opportunity arises, maybe more.

Is we feel very good about to your point the ability to return.

We'll be ramping up our buyback and opportunistically continuing to look at that depending on market conditions, but it also gives us a lot of flexibility moving into 220, both from a whether it's a return of capital or it could be based on some incremental acquisitions, depending on the market and the climate and the valuations and the type of business opportunities. We see so what I would say is its a good sort of up.

Handsets sorta play, but as Walter said, we'll be stepping up a bit it towards the end of the year, depending on market circumstances, if the opportunity arises maybe ballpark.

Walter Berman: On the other side of it, it gives us a lot of flexibility moving into 2020, which I think would be a positive in your thought process.

On the other side of it, it gives us a lot of flexibility moving into 2020, which I think would be a positive in your thought process.

On the other side of that it gives us a lot of flexibility moving into 220, which I think will be a positive in your thought process right and I mean, historically as I've seen ameriprise you've acquired when.

[Analyst] (Credit Suisse): Right. And I mean, historically, as I've seen Ameriprise, you've acquired when market conditions were weak, when others didn't have the capital. I mean, is that still the mentality, or do you see a lot of opportunities out there that you'd like to take advantage of with this capital?

Andrew Kligerman: Right. And I mean, historically, as I've seen Ameriprise, you've acquired when market conditions were weak, when others didn't have the capital. I mean, is that still the mentality, or do you see a lot of opportunities out there that you'd like to take advantage of with this capital?

When market conditions were weak when when others Didnt have the capital I mean is that still the mentality or do you see a lot of.

Opportunities out there that you'd like to take advantage of this capital. So there may be some opportunities come along there are opportunistic depending on strategic you know and what we think but having said that I do favorably, believing the Warren Buffett mentality.

Walter Berman: So there may be some opportunities come along. They're opportunistic depending on strategic and what we think. But having said that, I do favorably believe in the Warren Buffett mentality, and we have a lot of flexibility to do that. As you know, we are actually quite strong in a down market as well.

James Cracchiolo: So there may be some opportunities come along. They're opportunistic depending on strategic and what we think. But having said that, I do favorably believe in the Warren Buffett mentality, and we have a lot of flexibility to do that. As you know, we are actually quite strong in a down market as well.

And we have a lot of flexibility to do that as you know we are actually quite strong in a down market as well.

Okay.

[Analyst] (Credit Suisse): Okay. Two quick questions. I thought I heard Walter, you mentioned a variable annuity unlocking. Could you provide a little more color around that? Is there something coming that would be material?

Andrew Kligerman: Okay. Two quick questions. I thought I heard Walter, you mentioned a variable annuity unlocking. Could you provide a little more color around that? Is there something coming that would be material?

Two quick questions.

I thought I heard Walter you mentioned, a variable annuity unlocking could you provide a little more color around that is there something coming that would be material.

Oh, Okay. So Andrew right now we're going through the processes that we have not completed it and.

Walter Berman: Oh. Okay. So Andrew, right now, we're going through the process. We have not completed it, and so we'll do that at the end of Q3. We were just making the statement that the interest rate will have a negative impact. Right now, as we look at behavioral, the other aspects we're working through, but we don't see anything that's surprising us yet.

So we'll do that at the end of the third quarter, we were just making the statement that ill.

The interest rate will have a negative impact right now as we look behavioral the other aspects, we're working through but we don't see anything surprising us yet.

[Analyst] (Credit Suisse): Got it. So nothing overly material from this.

Andrew Kligerman: Got it. So nothing overly material from this.

Got it so nothing overly material is now from now and were seeing no. Okay. And then lastly, just great.

Walter Berman: Nothing we're seeing. No.

[Analyst] (Credit Suisse): Okay. And then lastly, just rate increases.

Andrew Kligerman: Okay. And then lastly, just rate increases.

Walter Berman: Nothing to complete, please, but nothing we're seeing.

Completely but nothing was okay. So far okay.

[Analyst] (Credit Suisse): Rate increases in long-term care, you mentioned that you're getting better than what you had anticipated. Could you give any sense of the magnitude there?

Andrew Kligerman: Rate increases in long-term care, you mentioned that you're getting better than what you had anticipated. Could you give any sense of the magnitude there?

Rate increases in long term care you mentioned that.

You're getting better than what you had anticipated could you could you give any sense of the magnitude there.

Walter Berman: No. Right now, it's on two fronts. Obviously, we have instituted appropriate rate increases, but we're also making benefit shifts that we're seeing good percentage takeups that are higher than we've seen previously. So we have not yet quantified because that's part of the unlocking also, but we are certainly seeing positive aspects both on the rate increase side and the benefit shift proposals that we've made. There's more acceptance.

No right now.

It's on two fronts, obviously, we have.

Have instituted the appropriate built the increased rate increases, but we're also making benefit shifts that we're seeing good percentage take ups that are higher than we've seen previously so we have not yet quantified because thats part of the unlocking also but we are certainly seeing positive aspects. Both on the rate increase side and the benefit shift of proposals that we have made theres more acceptance.

[Analyst] (Credit Suisse): Great. Thanks so much.

Andrew Kligerman: Great. Thanks so much.

Great. Thanks, so much.

Walter Berman: You're welcome.

Our next question comes from John Barnidge from Sandler O'neill.

Operator: Our next question comes from John Barnidge from Sandler O'Neill.

Thanks, given the risk transfer that was completed for the annuity segment can you talk about a possible reduction in stranded costs going forward for that business.

[Analyst] (UBS): Thanks. Given the risk transfer that was completed for the annuity segment, can you talk about a possible reduction in stranded costs going forward for that business?

John Barnidge: Thanks. Given the risk transfer that was completed for the annuity segment, can you talk about a possible reduction in stranded costs going forward for that business?

For the usually by the fixed annuities.

Walter Berman: You're talking about the fixed annuities?

[Analyst] (UBS): Yes.

John Barnidge: Yes.

Yes.

Walter Berman: Basically, it's been profit neutral. So technically, there's no stranded costs and implications to us from that standpoint because it's not large in its base anyway from that standpoint.

Basically it's been profit neutral so there.

Technically there's no stranded cost implications to us from that standpoint, because it is not large in space anyway from that standpoint.

[Analyst] (UBS): Okay. And then now that we're kind of 1 quarter into the bank launch, can you talk about maybe lessons learned that you can position the business for growth in the next year or so? I know when you're planning for a launch, you think things are going to go a certain way, and then it happens, and you learn some lessons from it.

John Barnidge: Okay. And then now that we're kind of 1 quarter into the bank launch, can you talk about maybe lessons learned that you can position the business for growth in the next year or so? I know when you're planning for a launch, you think things are going to go a certain way, and then it happens, and you learn some lessons from it.

Okay, and then now that were kind of one quarter into the bank loans can you talk about maybe lessons learned that you can position.

The business for growth in the next year or so I know you know when you're planning for a launch.

If you think things are going to go a certain way and then it happens and you learn some lessons from it.

Okay. It's interesting because this is our second launch so.

Walter Berman: Okay. It's interesting because this is our second launch, so we've had experience in doing it. And I can say that it's actually been quite smooth from that standpoint. And certainly, the bringing back to credit card portfolio is moving quite well. And from the transfer of the SWEEP accounts and bringing up the infrastructure, we've actually not had a lot of surprises. And like I said, we've done this before. So I think it's moving well.

Had experience in doing it and I can say that has actually been quite smooth.

So from that standpoint, and certainly the.

The bringing back to Credicorp cofo portfolio is moving quite well and from the transfer of the sweep accounts and bringing up the infrastructure, we've actually not a lot of surprises and like I said, we've done this before so.

I think it's moving well.

[Analyst] (UBS): Good. And then my final question. It sounds like there was a nice client win in the quarter for the asset management business. Can you talk about maybe where you're seeing opportunities in the market and how you're positioning the company in a fee pressure environment? Thank you.

John Barnidge: Good. And then my final question. It sounds like there was a nice client win in the quarter for the asset management business. Can you talk about maybe where you're seeing opportunities in the market and how you're positioning the company in a fee pressure environment? Thank you.

Good and then my final question. It sounds like there was a nice client win in the quarter for the asset management business can you talk about maybe where you're seeing opportunities in the market and how you're positioning the company in a fee pressure environment. Thank you.

Walter Berman: Yes. So the win was really in the UK in our equities area. As you saw, there's been some transition, some fund managers, etc., and we're well thought about. We also see some opportunities. And again, I think all of us are a little surprised, etc., with the Brexit delay, and that has caused a little more of people holding back and risk off in Europe and the UK for Brexit, as well as some of the signs on the European economy. But we're starting to see that stabilize, and we actually think that some of our activity will begin to pick up in Europe and the UK as well as we move forward, and we're starting to see some more interest come back. And the other thing we're seeing is in our solutions business institutionally. We're starting to get some mandates.

James Cracchiolo: Yes. So the win was really in the UK in our equities area. As you saw, there's been some transition, some fund managers, etc., and we're well thought about. We also see some opportunities. And again, I think all of us are a little surprised, etc., with the Brexit delay, and that has caused a little more of people holding back and risk off in Europe and the UK for Brexit, as well as some of the signs on the European economy. But we're starting to see that stabilize, and we actually think that some of our activity will begin to pick up in Europe and the UK as well as we move forward, and we're starting to see some more interest come back. And the other thing we're seeing is in our solutions business institutionally. We're starting to get some mandates.

Yes.

So the win was really in the UK in our in our equities area.

As you saw there has been some transition some some fund managers et cetera and.

We are well thought about.

We also see some opportunities and again you know I think all of US are a little to no surprise et cetera, with the Brexit delay and that has caused a little more of people holding back and risk off in Europe , and the UK for Brexit as well as you know some of the the signs on the European economy, but we're starting to see that stabilized and we actually think that some of our activity will begin to pick up in Europe , and the UK as well as we move forward and we're starting to see some more interest come back.

And the other thing we're seeing is in our solutions business sense institutionally, we're starting to get some mandates. We just got one out of the it Asia and if one or two out of Europe and the pipeline is building and it takes time for me to really get in front of people with some of your capabilities, but I think thats starting to take hold.

Walter Berman: We just got one out of Asia and one or two out of Europe, and the pipelines building. It takes time for you to really get in front of people with some of your capabilities, but I think that's starting to take hold. The other thing we see is in the US, I mentioned, but from sort of our good capability, strong performance, and income-oriented strategies, both from an equity perspective as well as a fixed income, we're seeing a pickup in sales. I actually would say if you looked at the second quarter, from an active equity, we're probably doing pretty well relative to the industry. We're not getting as strong an inflow as we should in the fixed income, and that's where we're putting more emphasis. We've always been known more of an equity shop, and equities have been a little more in the active under pressure.

We just got one out of Asia and one or two out of Europe, and the pipelines building. It takes time for you to really get in front of people with some of your capabilities, but I think that's starting to take hold. The other thing we see is in the US, I mentioned, but from sort of our good capability, strong performance, and income-oriented strategies, both from an equity perspective as well as a fixed income, we're seeing a pickup in sales. I actually would say if you looked at the second quarter, from an active equity, we're probably doing pretty well relative to the industry. We're not getting as strong an inflow as we should in the fixed income, and that's where we're putting more emphasis. We've always been known more of an equity shop, and equities have been a little more in the active under pressure.

And the other thing we see is in the us.

I mentioned, but from sort of the AR.

Good capabilities strong performance and income oriented strategies, both from an equity perspective as well as a fixed income we're seeing a pickup in sales I actually would say if you looked at the second quarter from an active equity, we're probably doing pretty well relative to the industry. We're not getting a strong inflow as we should and the fixed income and that's where we're putting more emphasis that we've always been now more of an equity shop and you know equities have been a little more on the active under pressure, but we have a really good strategies in fixed income the sales group and distribution in North America, starting to shift some of their emphasis to to include the fixed income more prominently and having more conversations around that.

Walter Berman: But we have really good strategies in fixed income. The sales group and distribution in North America is starting to shift some of their emphasis to include the fixed income more prominently and having more conversations around it. And I think we could pick up some greater share there that would help the flow picture in North America in the active space. So we're feeling good about some of those things. Having said that, the headwinds are still there. We're continuing to shift where our investments are going into things like data and analytics to better enable. We're putting emphasis around some of our research capabilities, investing in some of our new solutions, infrastructure, and real estate. We're getting some wins starting in the real estate from the firm we bought. So there are some good things on the horizon.

But we have really good strategies in fixed income. The sales group and distribution in North America is starting to shift some of their emphasis to include the fixed income more prominently and having more conversations around it. And I think we could pick up some greater share there that would help the flow picture in North America in the active space. So we're feeling good about some of those things. Having said that, the headwinds are still there. We're continuing to shift where our investments are going into things like data and analytics to better enable. We're putting emphasis around some of our research capabilities, investing in some of our new solutions, infrastructure, and real estate. We're getting some wins starting in the real estate from the firm we bought. So there are some good things on the horizon.

I think we could pick up some some greater share there that would help the flow picture in North America.

In the active space. So we're feeling good about some of those things having said that the headwinds are still there.

We are continuing to to shift where our investments going into things like data and analytics to better enable.

We're putting emphasis around some of our research capabilities investing in some of our new solutions and infrastructure and real estate, we're getting some wins starting in the real estate from the firm. We bought so there are some good things on the horizon, having said that as you know the space has been a little more difficult, but were starting to gain some traction that hopefully will reduce our outflows.

Walter Berman: Having said that, as you know, the space has been a little more difficult, but we're starting to gain some traction that hopefully will reduce our outflows.

Having said that, as you know, the space has been a little more difficult, but we're starting to gain some traction that hopefully will reduce our outflows.

Thank you.

[Analyst] (UBS): Thank you.

John Barnidge: Thank you.

Our next question comes from Ryan Krueger from KBW.

Operator: Our next question comes from Ryan Kruger from KBW.

Hi, Thanks, Good morning, I just had one follow up on thank you.

[Analyst] (KBW): Hi. Thanks. Good morning. I just had one follow-up on the bank. Can you give us a sense of the spread that you're earning on the $2.2 billion that was moved into the bank?

Ryan Krueger: Hi. Thanks. Good morning. I just had one follow-up on the bank. Can you give us a sense of the spread that you're earning on the $2.2 billion that was moved into the bank?

Give us a sense of the spreads that you're earning on the 2.2 billion of that was moved into the bank.

Walter Berman: About 250 basis points. That's AWM is earning. Okay. Look at it from that way because I'm not getting into the transfer pricing discussion. About 250 basis points from an AWM standpoint.

The 250 basis points.

That's a Wi Lan, Missouri, Okay. If you look at it from that way because.

Now getting into the transfer pricing discussion about 250 basis points from me Wm standpoint.

Okay 250 basis point, Thanks, and then.

[Analyst] (KBW): Okay. 250 basis points. Thanks. And then just how big are the credit card portfolios that you expect to move over the next couple of quarters?

Ryan Krueger: Okay. 250 basis points. Thanks. And then just how big are the credit card portfolios that you expect to move over the next couple of quarters?

Just how big are the the credit card portfolios that you expect to move over the next couple of quarters.

Walter Berman: I think it's $200 million, $220 million, something in that range.

So I think it's 200 million 220 million still in that range.

Okay, great. Thank you.

[Analyst] (KBW): Okay. Great. Thank you.

Ryan Krueger: Okay. Great. Thank you.

Our next question comes from Alex Blostein from Goldman Sachs.

Operator: Our next question comes from Alex Blostein from Goldman Sachs.

Hi, guys. Good morning, just on this last point and I had a couple of other questions on the bank, but 250 basis points, that's a pretty wide spread given where rates are today.

Alex Blostein: Hey. Hey, guys. Good morning. Just on this last point, and I had a couple of other questions in the bank, but 250 basis points, it's a pretty wide spread given where rates are today. Can you tell us where you're investing that? If you look at agency spreads available out there, it seems still a little stretchy.

Alexander Blostein: Hey. Hey, guys. Good morning. Just on this last point, and I had a couple of other questions in the bank, but 250 basis points, it's a pretty wide spread given where rates are today. Can you tell us where you're investing that? If you look at agency spreads available out there, it seems still a little stretchy.

Can you tell us where you're investing that if you look at you know agency spreads available out there it seems a little stretchy.

Walter Berman: Yeah. Basically, we're investing right now in basically in mortgage floaters and high-quality paper. And we're seeing the spread because, namely, it's coming off the money market, so therefore, that's where the difference is. There's very little earning rate that we were involved in. It's not so much we're stretching the investments. The investments are all in high-quality floaters.

No. We're basically we're investing right now in basically all in mortgage floaters and high quality for paper and are we seeing the spread because candidly, it's it's coming off of the money market. So therefore, that's where the bulk of the differences is very little are earning rate that we will.

Okay Alright.

It's not so much where stretching the investments the investments are on high quality floaters.

Alex Blostein: Gotcha. And then the yield on the credit card portfolio, the $200 million you guys are going to transfer in Q4, what is that? And I guess, what is that going to do to net interest margin at the bank in the near term? And then, I guess, bigger picture point as you kind of look out a couple of years, I know you guys talked about, I believe, pretax income within five years getting closer to something about $200 million. How is that going to evolve? So maybe talk about the size of the bank within five years, kind of aspirationally, what you're hoping that to be, what sort of the composition of the book would look like. And within the $200 million target, what are you assuming for credit costs because I do think largely that's going to be a consumer loan portfolio?

Alexander Blostein: Gotcha. And then the yield on the credit card portfolio, the $200 million you guys are going to transfer in Q4, what is that? And I guess, what is that going to do to net interest margin at the bank in the near term? And then, I guess, bigger picture point as you kind of look out a couple of years, I know you guys talked about, I believe, pretax income within five years getting closer to something about $200 million. How is that going to evolve? So maybe talk about the size of the bank within five years, kind of aspirationally, what you're hoping that to be, what sort of the composition of the book would look like. And within the $200 million target, what are you assuming for credit costs because I do think largely that's going to be a consumer loan portfolio?

Got you and then the yield on the credit card portfolio to $200 million, you guys going to transfer and Q4.

What is that and I guess, what is that going to do to net interest margin at the bank and the near term and then I guess bigger picture point as you kind of look out a couple of years I know you guys talked about I believe pre tax income within five years getting closer to something about 200 million Bucks.

How is that going to evolve so maybe talk about the size of the bank within five years kind of Aspirationally, where you are hoping not to be what is sort of the composition of the book would look like.

And within the $200 million target.

What are you assuming for credit costs could you think largely thats going to be a consumer loan portfolio.

Walter Berman: That's a lot of questions. Let me check. I can't really give you on the market because that book is now coming over from a third party where we only get a small portion of the feed. Now we're going to start getting that. So Alex, I truly don't have the exact amount on the credit card margin. So that one we can get back to you on. The issue as it relates to building the bank is really going to be in the basis. The bank is going to transfer over, as we said, a substantial amount of SWEEP accounts as we go through the period, and certainly picking up the spread on that as we look at investing differently.

That's a lot of questions let me.

I can't really give you on the markets that work is now coming over from a third party, where we only get a small portion the feet now we're going to start getting at so Alex I truly don't have the exact amount on the.

On the critical that margin.

It is so that when we can get back to you on the the issue as it relates to building. The bank is really going to be on the basis of the bank is going to.

Transfer over as we said a substantial amount of up.

Sweep accounts as we go through the.

The period, and certainly picking up the spread on that as we look at investing differently. So that is really going to be the lion share of the benefit that we're going to derive on on that basis and getting into probably the range of $567 billion. In total and then the rest is going to come from a health and certainly a higher profitability on the credit card as we have.

Walter Berman: So that is really going to be the lion's share of the benefit that we're going to derive on that basis and getting into probably the range of $5, 6, 7 billion in total. And then the rest is going to come from certainly a higher profitability on the credit card as we have that profitability since we're in the underwriting with one of our partners. And then building up, as Jim said, the pledge loans, the deposit base, and the mortgage base as we go through. But the real contribution is going to come from being able to use the balance sheet more effectively and garner more earnings versus the SWEEP.

So that is really going to be the lion's share of the benefit that we're going to derive on that basis and getting into probably the range of $5, 6, 7 billion in total. And then the rest is going to come from certainly a higher profitability on the credit card as we have that profitability since we're in the underwriting with one of our partners. And then building up, as Jim said, the pledge loans, the deposit base, and the mortgage base as we go through. But the real contribution is going to come from being able to use the balance sheet more effectively and garner more earnings versus the SWEEP.

I have that profitability since we're in the underwriting.

With one of our partners and then building up as Jim said the pledge one owns the deposit base and the mortgage base as we go through but the real contribution is going to come from a deal but to use the balance sheet more effectively of from a.

And gone or more earnings versus the sweep.

Alex Blostein: Got it. Okay. So we'll circle back on some of those other ones. Shifting gears a little bit, just thinking about the rate sensitivity within AWM broadly, I think the brokerage cash SWEEP revenues are running at around $130 million this quarter. Obviously, it's a pretty clean way to think about the flow down from lower Fed rate cuts. So that's pretty straightforward. I was hoping to get a sense on how the other piece of kind of the rate sensitivity in the model, so that net interest investment income and the net expense against that, I think it's about $65 million a quarter for you guys. How is that going to evolve? I think it's basically your certificates business with lower rates, just not so clear on the sensitivity there to Fed cuts.

Alexander Blostein: Got it. Okay. So we'll circle back on some of those other ones. Shifting gears a little bit, just thinking about the rate sensitivity within AWM broadly, I think the brokerage cash SWEEP revenues are running at around $130 million this quarter. Obviously, it's a pretty clean way to think about the flow down from lower Fed rate cuts. So that's pretty straightforward. I was hoping to get a sense on how the other piece of kind of the rate sensitivity in the model, so that net interest investment income and the net expense against that, I think it's about $65 million a quarter for you guys. How is that going to evolve? I think it's basically your certificates business with lower rates, just not so clear on the sensitivity there to Fed cuts.

Got it Okay, we'll circle back on some of those other ones.

Shifting gears, a little bit just thinking about the rate sensitivity within Ed you on broadly.

I think the brokerage cash sweep revenues are running at around $130 million this quarter obviously.

It's a pretty clean way to think about the flow down from lower fed rate cuts. So thats pretty straightforward I was hoping to get a sense on how the other piece of kind of the rate sensitivity in the model. So like that net interest investment income and the net expense against that I think it's about $65 million a quarter for you guys. How is that going to evolve I think it's basically your certificates business with lower rate just not so clear on the sensitivity there too fat cats.

The fed cuts, obviously that one is spread you know will be impacted but again, we have it I would it would be a I can't give you an exact amount because that one is really we managed through a very cautious.

Walter Berman: The Fed cuts, obviously. That one is spreading. It will be impacted. But again, it would be, I can't give you an exact amount because that one is really we manage through a very cautious program of protecting the liquidity. So the investment impact will be reduced. I just can't give you the exact amount. It's going to be reduced because that is invested out further with a barbell effect invested in certificates and different longer-term investments. But it will be impacted less because the investment earnings are, we have a large portion of that going out right now.

Program of.

Protecting on liquidity, so the investment impact will be.

Reduced I just can't give you the exact amount is going to be reduced because that is invested out further with a billboard effect invested is difficult in different longer term investments, but it will be impacted less because the investment earnings are we have a large portion of that going out right now.

[Analyst] (UBS): Yeah. It shouldn't be significant.

James Cracchiolo: Yeah. It shouldn't be significant.

It shouldn't be significant.

Alex Blostein: Yeah. It's a little more fixed, I think, on the asset side there. All right. And the last one, just to clean up around some of the G&A discussion, and just want to make sure that I'm getting the message here. So clearly, the investment spend makes sense in 2019. As we look out into 2020, G&A in AWM, is that essentially going to stabilize at kind of current run rate level, and then we should go back to more of a normalized growth, which I think historically has been kind of in a mid-single digit range for you guys? So kind of take whatever you guys are running at for 2019, that's the new run rate, and then maybe it just grows a little bit slower than it was in 2019.

Alexander Blostein: Yeah. It's a little more fixed, I think, on the asset side there. All right. And the last one, just to clean up around some of the G&A discussion, and just want to make sure that I'm getting the message here. So clearly, the investment spend makes sense in 2019. As we look out into 2020, G&A in AWM, is that essentially going to stabilize at kind of current run rate level, and then we should go back to more of a normalized growth, which I think historically has been kind of in a mid-single digit range for you guys? So kind of take whatever you guys are running at for 2019, that's the new run rate, and then maybe it just grows a little bit slower than it was in 2019.

Yes, Hello, my little more fixed I think and on the asset side there.

All right and the last one just to clean up.

Around some of the gene a discussion and just want to make sure that I'm getting the message here. So.

Clearly the investment spend makes sense in 2019, as we look out into 2020.

Gina and why is that essentially going to stabilize at kind of current run rate level and then we should go back to more of a normalized growth, which I think historically has been kind of in.

Mid single digit range for you guys. So kind of take whatever you guys are running out for 2019, that's the new run rate and then maybe just grows a little bit slower than it was in 2019 I think that's a fair estimate so those definitely.

Walter Berman: I think it's a fair estimate, Alex. That is definitely fair.

Awesome, great. Thanks, very much guys.

Alex Blostein: Awesome. Great. Thanks very much, guys.

Alexander Blostein: Awesome. Great. Thanks very much, guys.

Our last question will be from Cindy.

Operator: Our last question will be from Suneet Kamath from Citi.

City.

Hi, Thanks, good morning.

[Analyst] (KBW): Thanks. Good morning. Just wanted to come back to the A&WM margin for a second again just to make sure I am understanding what you're communicating. So is the idea here that the margin may kind of stay in this 22% to 23% range and kind of the rest of the year? You have the bank, but you have some other things going on in terms of rates, and then it'll resume what has been a kind of a steady climb higher as we move into 2020. Is that the high-level commentary that you're giving us?

Suneet Kamath: Thanks. Good morning. Just wanted to come back to the A&WM margin for a second again just to make sure I am understanding what you're communicating. So is the idea here that the margin may kind of stay in this 22% to 23% range and kind of the rest of the year? You have the bank, but you have some other things going on in terms of rates, and then it'll resume what has been a kind of a steady climb higher as we move into 2020. Is that the high-level commentary that you're giving us?

Just wanted to come back to the NW on margin for a second again just to make sure I am understanding what you're.

Communicating does the idea here that.

The margin may kind of stay in this 20, 223% range and kind of the rest of the year you have to think about you have some other things going on in terms of rate.

And then it will resume what has been a kind of a steady climb higher as you move into 2020.

The high level commentary that giving us.

Walter Berman: So what I would say, Suneet, would be, yeah, along those lines. But again, there's some variables in there depending. So the variables are very clearly how quick does the Fed cut, right? And you can do those calculations to figure out what that would look like. But let's say, hypothetically, if the Fed only cuts once, then we feel comfortable with the margins we have and the expense growth that we have incremental over the business activities, advisor growth, and stuff like that transaction. We have that extra investments in 2019 that would sort of come down thereafter. From a relative level of getting business growth, if the environment still is good, we'll start to grow back that revenue growth with the expenses being well maintained again. The interest rate is the wild card, so to speak. Some we can make up for, some we can't.

James Cracchiolo: So what I would say, Suneet, would be, yeah, along those lines. But again, there's some variables in there depending. So the variables are very clearly how quick does the Fed cut, right? And you can do those calculations to figure out what that would look like. But let's say, hypothetically, if the Fed only cuts once, then we feel comfortable with the margins we have and the expense growth that we have incremental over the business activities, advisor growth, and stuff like that transaction. We have that extra investments in 2019 that would sort of come down thereafter. From a relative level of getting business growth, if the environment still is good, we'll start to grow back that revenue growth with the expenses being well maintained again. The interest rate is the wild card, so to speak. Some we can make up for, some we can't.

So what I would say Sydney would be a along that lines, but again there are some variables in there the pending so the variables are very clearly how quick does the fed Cup.

Right and you can do those calculations to figure out what that would look like but let's say hypothetically if the fed Tony cuts ones. Then we feel comfortable with the margins we have been and the expense growth that we have incremental although the business activities CNL advisor growth and stuff like that transaction.

We have that extra investments in 19, which is sort of has come down thereafter.

From a relative level of getting business growth that the environment still is good we'll start to grow that revenue growth with the expenses being well maintained again.

The interest rate is the wildcard so to speak some we can make up for some we can suddenly offset whit as Walter said, what we're able to do as we start to move more of our sweep activity into the bank and invest differently to offset some of that spread erosion from the fed.

Walter Berman: Some we'll offset with, as Walter said, what we're able to do as we start to move more of our SWEEP activity into the bank and invest differently to offset some of that spread erosion from the Fed. But I think it all depends on market and rates and instruments at the time, so it's hard for us to predict that. But those are some of the things that would be an offset. But if the Fed doesn't cut rates dramatically, then we'll be fine and continue to grow from there. But if they do, we'll try to offset it with the bank activities and as expenses come down from the investments. But some of it will hit the margin, as you well know, in the short term.

Some we'll offset with, as Walter said, what we're able to do as we start to move more of our SWEEP activity into the bank and invest differently to offset some of that spread erosion from the Fed. But I think it all depends on market and rates and instruments at the time, so it's hard for us to predict that. But those are some of the things that would be an offset. But if the Fed doesn't cut rates dramatically, then we'll be fine and continue to grow from there. But if they do, we'll try to offset it with the bank activities and as expenses come down from the investments. But some of it will hit the margin, as you well know, in the short term.

But you know I think it all depends on market and rates and instruments at the time. So it's hard for us to predict that but those are some of the things that would be an offset.

But if the fed doesn't cut rates dramatically then we'll be fine and continue to grow from there, but if they do we'll try to offset it with the bank activity is and as expenses come down from the investments, but some of it will hit the margin as you would well now in the short term.

[Analyst] (KBW): Okay. All right. Then just two quick ones or two on asset management. First, I think the former parent outflows have moderated pretty significantly of late. So are we at a point where we're at this kind of run rate kind of going forward, and how big are the underlying assets in that category that you call former parent?

Suneet Kamath: Okay. All right. Then just two quick ones or two on asset management. First, I think the former parent outflows have moderated pretty significantly of late. So are we at a point where we're at this kind of run rate kind of going forward, and how big are the underlying assets in that category that you call former parent?

Okay.

All right then and just two quick ones or two on asset management first I think the former parent outflows have moderated pretty significantly of late.

So are we at a point, where we're at this kind of run rate kind of going forward and how big are the underlying assets are in that category that you.

Call former parent.

Walter Berman: Oh, I don't have the numbers off the top of my head, but we could get you back to that, but the balance is there. As we've always said to you, the fee revenue from our relationship with Zurich maintains pretty well. The flows will always be somewhat negative based on just how that happens. But the asset base pretty much has maintained roughly where it's been over the last number of years. There's always some ins and outs if they close a pension or other things, but market has been able to offset that. The U.S. Trust business, which is the other larger mandate, I think it's stabilized at a certain number. I don't have it in front of me. Alicia can get back that some of that information. But yeah, the outflows have slowed a bit. And with market appreciation and dividend reinvestment, etc., they've maintained certain levels.

James Cracchiolo: Oh, I don't have the numbers off the top of my head, but we could get you back to that, but the balance is there. As we've always said to you, the fee revenue from our relationship with Zurich maintains pretty well. The flows will always be somewhat negative based on just how that happens. But the asset base pretty much has maintained roughly where it's been over the last number of years. There's always some ins and outs if they close a pension or other things, but market has been able to offset that. The U.S. Trust business, which is the other larger mandate, I think it's stabilized at a certain number. I don't have it in front of me. Alicia can get back that some of that information. But yeah, the outflows have slowed a bit. And with market appreciation and dividend reinvestment, etc., they've maintained certain levels.

Oh.

I don't have the numbers off of we could get you back to that but the balances there as we've always said to you.

The fee revenue from our relationship with Zurich maintains pretty well the flows will always be somewhat negative based on just how will that mean.

Happens.

But the asset base pretty much has maintained roughly where it's been over the last number of years Theres always some ins and outs of the close of pension or other things.

But market has been able to offset that.

The U.S. Trust business, which is the other larger mandate.

You know I think it's stabilized at a certain number I don't have it in front of me Elisha can get back to you that some of that information.

But yes, the outflows have slowed a bit.

And.

With market appreciation and dividend reinvestment et cetera, as theyve maintained certain levels.

Walter Berman: But Alicia can give you that.

But Alicia can give you that.

But elisha can give you that.

[Analyst] (KBW): Okay. And then just my last one on asset management. And I appreciate the improvement in flows that you're seeing, but also, you've cited numerous pressures facing all companies in that industry. So I guess, how top of mind is doing something more significant there, be it a sizable acquisition or a joint venture? Thanks.

Suneet Kamath: Okay. And then just my last one on asset management. And I appreciate the improvement in flows that you're seeing, but also, you've cited numerous pressures facing all companies in that industry. So I guess, how top of mind is doing something more significant there, be it a sizable acquisition or a joint venture? Thanks.

Okay, and then just my last one on asset management and I appreciate the improvement in flows that you're seeing.

But also you cited numerous pressures facing all companies in that industry.

So I guess, how how top of mind is doing something more significant there.

A sizable acquisition or joint venture thanks.

Walter Berman: So again, we feel very good about the asset management business that we have and what the team has been able to put together. And some of the areas, we feel like we're quite strong and able to continue to proceed well even in this difficult environment. Having said that, we do have capabilities for acquisition. We've proven that. We've been very successful in integrating. So it has to be the right property. We're open for the way that we would work with partners and thinking about that. And if something did come along or the market in some way felt a little stressful for others more so than us, we'll have the opportunity to work in some fashion. But again, it's not something we're needing to have to do.

James Cracchiolo: So again, we feel very good about the asset management business that we have and what the team has been able to put together. And some of the areas, we feel like we're quite strong and able to continue to proceed well even in this difficult environment. Having said that, we do have capabilities for acquisition. We've proven that. We've been very successful in integrating. So it has to be the right property. We're open for the way that we would work with partners and thinking about that. And if something did come along or the market in some way felt a little stressful for others more so than us, we'll have the opportunity to work in some fashion. But again, it's not something we're needing to have to do.

So again.

So we feel very good about the asset management business that we have and what the team has been able to put together and some of the areas. We feel like were quite strong and able to continue to proceed well even in this difficult environment.

Having said that we do have capabilities for acquisition, we've proven that we have been very successful in integrating so it has to be the right property opened four way that we would work with partners and thinking about that.

And if something did come along or or the market in some way of felt a little stressful time for others more so than us.

We will have the opportunity to work in some fashion, but again, it's not certain when needing to like have to do and we're really continuing to fine tune our business manage expenses re gear our activities to generate a good return.

Walter Berman: And we're really continuing to fine-tune our business, manage expenses, regear our activities to generate a good return in this environment. But I think we've proven our capability. We've proven our financial strength, and we've proven our ability to look at alternatives in the right way strategically. And that's what we'll try to do.

And we're really continuing to fine-tune our business, manage expenses, regear our activities to generate a good return in this environment. But I think we've proven our capability. We've proven our financial strength, and we've proven our ability to look at alternatives in the right way strategically. And that's what we'll try to do.

In this environment, but I think you weve proven our capability, we've proven our financial strength and we've proven our ability to look at alternatives in the right way.

Just strategically and that's what we'll try to do.

Okay. Thanks.

[Analyst] (KBW): Okay. Thanks.

Suneet Kamath: Okay. Thanks.

This concludes today's conference. Thank you, ladies and gentlemen, thank you for participating you may now disconnect.

Operator: This concludes today's conference. Thank you, ladies and gentlemen. Thank you for participating. You may now disconnect.

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