阿默普萊斯金融 (AMP) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the fourth quarter 2007 earnings call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question and answer session.

Please note that this conference is being recorded.

I will now turn the call over to Miss Laura Gagnon, Vice President of Investor Relations.

Miss Gagnon, you may begin.

Thank you, welcome to the Ameriprise Financial fourth quarter earnings call.

With me on the call today are Jim Cracchiolo, Chairman and CEO, and Walter Berman, Chief Financial Officer.

After their remarks we would be happy to take your questions.

During the call you you'll hear various non-GAAP financial measures, like adjusted earnings, which we believe provide insight into the underlying performance of the company's operations.

Reconciliation of non-GAAP numbers to the respective GAAP numbers can be found in today's materials available on our website.

Some of the statements that we make on this call may be forward-looking statements, reflecting management's expectations about future events, and operating plans, and performance.

These forward-looking statements speak only as of today's date, and involve a number of risks and uncertainties.

A sample list of factors and risks that could cause actual results to be materially different from forward-looking statements can be found in today's earnings release, our 2006 annual report to shareholders, and our 2006 10-K report.

We undertake no obligation to update publicly, or revise these forward-looking statements.

With that, I'd like to turn the call over to Jim.

Good afternoon, everyone.

Before I get started, I know it's been a tough few weeks for everyone, given what is happening in the markets, and I'm sure all of you have been pretty busy, so I appreciate you joining us for this call.

This was another good quarter for Ameriprise Financial despite some tough market conditions.

Our operating results demonstrate to show the strength and diversity of our business.

While we would obviously like to see some stability and strength in the capital markets, and while we're not immune, I feel good about our solid position.

For the quarter and the full year, we generated good operating performance, our balance sheet remains solid, and we delivered on our growth goals.

For the quarter net revenue grew 8% to $2.3 billion, adjusted earnings per diluted share increased 14% to $1.16, and adjusted ROE finished the year at 12.6%.

There are some disclosed items, and investment gains in those numbers, which all tolled, net out to a benefit of $0.13 per diluted share.

These items are detailed in the press release, but I want to make sure we do not lose the underlying message here.

Our operating results were solid in the quarter.

Maybe most important of all, in this environment, our balance sheet continued to perform well.

We have always taken a conservative approach to managing our balance sheet assets.

We've maintained a strict risk discipline, and while that leaves some mooney on the table during rising equity markets and more favorable credit markets, it also means we've been able to avoid any material investment write-downs, during this time of extraordinary volatility.

Now let me review some highlights of our results during the quarter.

We served the mass affluent, and affluent market in personalized financial planning relationships, and the 10% growth in assets from this group of clients, demonstrates that our strategy is working.

We believe consumers need financial planning across market cycles, but perhaps most of the markets are challenging.

More people already come to us for financial planning than any other firm, and we believe that the current demographics give us a great opportunity to build on our lead.

Revenue per advisor increased 11%, though it slowed somewhat from the third quarter due to market conditions as clients move to higher cash positions.

Our advisors continue to be focused on serving more affluent and mass affluent clients, and deepening existing relationships.

Meanwhile, we're focused on providing improved marketing advisor support, and technology tools, as well as innovative and broad product offerings.

In fact we're in the early stages of our largest training effort ever.

We're bringing the vast majority of our branded advisors to Minneapolis over the next several months, to help them implement their new marketing tools, or enhance client experience and financial planning focus, and the new desktop technology we're rolling out.

Cap, Jim, and I have said, we have the leading knowledge tools in the industry for financial planning focused advisors, and we're bringing the advisors here to make sure they get the most out of the investments we're making for them.

Our overall advisor satisfaction continue to be quite strong.

In fact our franchisee advisory retention, remains very strong at 93%.

And as you know, this is our largest, most seasoned, and most productive group, of advisors.

Consistent with the past several quarters, we're continuing to the re-engineering of a employee advisor platform, which is the reason for our lower total advisor number.

We're reducing the number of employee advisors we're hiring, and focusing on advisors who are more likely to succeed.

At the same time, we're further developing our efforts to recruit more experienced advisors.

Owned, managed and administrated assets increased 3% over a year ago, to $480 billion.

However, coming off a 12% increase for the third quarter, we saw assets decrease on a sequential basis due to market declines, foreign currency translation, and continued outflows of lower margin Zurich related assets at Threadneedle.

In terms of overall flows, the performance of our RAP business continued to be strong.

We now have $94 billion in total RAP assets, which are up 23% from a year ago, with $1.8 billion in net inflows in the quarter.

For the third consecutive quarter, and despite some market related slowing, RiverSource funds net flows were positive, and we recorded net inflows of $500 million for all of 2007, the first year of many that we've been in net inflows.

We reached this milestone sooner than we expected, primarily because of the strength of our new innovative goal-based solutions.

Our investment performance is another key contributor to these flows.

And while we faced some challenges during the quarter, when you look at our short-term performance on an asset weighted basis, it remains competitive.

In addition, our three and five year track records remain solid, with 68% of equity funds above the median on an asset weighted basis for three year performance, and 58% above the median for five year performance.

In the annuities business, we continue to realize good variable annuity inflows with $1.1 billion of net inflows in the quarter, and inflows of $4.4 billion for the year.

At the same time, like many other annuity providers, can we continue to manage outflows and fixed annuities based on the interest rate environment.

As we have said we expect these fixed annuity outflows to continue over the near term.

Threadneedle's investment performance has been quite strong.

In fact, their equity performance for all of 2007, were the firm's best ever.

They continue to experience asset outflows, but as I mentioned, most of those driven by outflows are low margin Zurich assets, partially offset by asset growth and higher margin products.

Threadneedle continues to provide valuable geographic diversity to our results, and that diversity is increasing.

In 2007, the majority of Threadneedle sales were in continental Europe.

Our insurance businesses are also producing another solid quarter, with life insurance in force growing 8% compared to last year, and reaching $187 billion.

Total protection segment premiums increased 4% in a slow growth environment.

Overall cash sales, returns, and margins were solid in the protection segment.

So in total, I think you can see that the underlying measures for the business are strong.

Now I'd like to give you some brief insight into our balance sheet and expense management.

As we shared in detail on last quarter's call, we have very little exposure to the subprime market, and as a result we have not taken any material write-downs.

While the problems in the credit market have clearly expanded recently, our balance sheet remains strong, and we feel good about it.

Walter will take you through this in more detail shortly.

We told you last quarter that we would be in the market buying back our shares, and returning capital to shareholders, and we did that.

We bought back 4.8 million shares at the cost of $283 million, and for the year we returned $948 million through buybacks.

We continue to believe this is an effective use of our capital in the current environment.

It goes without saying that we're in a market sensitive business.

And we believe we have established the flexibility necessary to navigate through this difficult environment.

We are prepared to pull the expense levers necessary to maintain earnings.

We plan to be more aggressive in our re-engineering efforts, and while we'll continue to invest in long-term growth, we're slowing our level of new investments in the business.

In addition we're in the process of implementing a flexible expense plan, where identifying the expenses we can cut, or defer, to manage the company through a longer term weakening of the markets in the economy, and we'll implement these plans relative to the depth and breadth of the market impact.

We're confident that we have a compelling long-term opportunity, and we're going to keep pursuing that opportunity.

But we're going to do so prudently, so overall the business performs well in the quarter, and quite well for the full year.

I feel good about the foundation we've put in place, including our strong balance sheet.

And in particular, our ability to weather the current markets.

We've delivered on our financial targets and we're in a solid position.

Now Walter will take you through some more of the detail from the quarter, and after that we'll take your questions.

Thank you, Jim.

Before I go into the details of the quarter, I would like to reinforce Jim's overall view of our results.

It was a good, solid quarter given the markets we operated in.

We reported adjusted earnings of $1.16 per share.

That represents a 14% increase over last year.

There were several disclosed items in the quarter that positively impacted our earnings by a net $0.13 per share.

Based on normalized operating performance for both periods, we still met our growth targets.

Through the disclosed items I've described in detail in our release and supplement, so I'm not going to go into detail here.

To make sure you understand the impacts, we had two large benefits, plus net investment gains.

And these were partially offset by increased legal and contingency reserves, as well as the impact of the extraordinary market movements.

All of these impacts net to a benefit of $0.13 per share.

Now I'll move on to discuss our operating results.

In the quarter, reported net revenues were up 8%.

We had strong growth in management and financial advice fees, which were up 25% over a year ago.

This fee growth was driven by strong RAP net flows, variable annuity flows, and hard yields on our managed assets, including higher Threadneedle hedge fund performance fees.

This increase was partially offset by lower distribution fees, due to the unusually high fees from resales recorded in the fourth quarter of last year.

And lower net investment income from declining fixed annuity balances.

On the expense side, total expenses before cost increased 8% over the fourth quarter of 2006, reflecting increased business activity, and market impacts.

Our general administrative expenses were up only 3%, compared with a year ago.

These expenses included higher hedge fund performance compensation, higher cost associated with the build out of Ameriprise bank, and the technology investments in the fourth quarter of 2007 These increases were partially offset by the impact of consolidations under EITF04-5.

The technology investments, which we do not expect to continue at this level, were primarily occurred in the advice and wealth management segment.

And while I won't go through every segment, I would like to spend more time on our results in advice and wealth management.

The segment generated pretax income of $34 million for the quarter, down 8% from last year.

This was driven by three key factors.

Lower distribution fee income due to clients reinvesting proceeds from re-liquidations in the fourth quarter of 2006, and lower earnings in the bank and certificate line due to start-up investments.

These were offset by decreased legal and regulatory and contingency reserves, allocated to the segment.

Adjusting for these items I just mentioned, our normalized PTI growth rate would be in the 15% to 20% range.

Looking at the sequential trends, there is a season impact on G&A expenses in the segment.

These expenses tend to be higher in the fourth quarter, and this seasonality was exacerbated by this year's higher level of investments in technology.

For the full year, on a reported basis, PTI margin in the segment was 7.5%, up from 5.9% in 2006.

Primarily driven by top line growth.

So that's what happened during the quarter.

Given the market conditions, we did-- what didn't happen is equally important.

The balance sheet remains very sound.

During the quarter, our total impairments were less than $3 million on a base of $35 billion.

There are four important elements that comprise our strong balance sheet position.

Asset quality, investment in risk management abilities, capital position and liquidity.

I'll go into some detail on these.

In case you miss anything, remember that our remarks will be posted on our website.

I'll start with asset quality.

We continue to have a very high quality portfolio that has performed well under these market stresses.

First, our exposure to financial guarantors is limited to guarantees provided on investment assets on our balance sheet.

We have no RAP transactions, no counter-party exposure and no back up liquidity facilities.

At end of the year, within our tolled $35 billion portfolio, we had $722 million of enhanced securities, $597 of which is in municipals and $125 million in asset-backed securities.

Keep in mind that about half of the municipal bonds are enhanced securities.

It is important to note, as we evaluate securities, we base our investment decisions on the integrity of the direct investment cash flow.

We do not rely on the guarantee.

Next, I want to update you on our mortgage and asset backed portfolios.

All of which are performing within acceptable ranges, given the current market conditions.

Our structured asset portfolio totals $10.4 billion, with $6.3 billion of residential mortgage backed securities, $3 billion of commercial mortgage backed securities, and $1.1 billion of asset backed securities.

Our residential mortgage back securities of $6.3 billion, is 96% triple A rated.

This portfolio is seasoned, and has a shorter duration, and better convexity than the mortgage index.

Over 70% of the portfolio, $4.5 billion, is agency backed.

They are Jenny Mae, Freddie Mac, and Fannie Mae securities which carry an explicit, or implicit guarantee of the U.S.

government.

Our nonagency mortgage exposure totals $1.8 billion, 85% rated triple A.

These include our all day exposure of $1.2 billion, which I discussed with you before.

As of last week, our all day portfolio had a market value of 96% of book.

That covers our residential mortgage backed exposure.

Now let's move to our commercial mortgaged back securities portfolio.

Our commercial mortgage back securities portfolio totals $3 billion.

Over 99% triple A rated.

These bonds have seasoned collateral, predominantly 2005 and earlier vintages.

The underlying credits we hope continue to perform very well, with delinquency rates well below the overall CMBS market.

As of last week, these bonds had a market value of 101% of book.

Next, I'll cover asset back exposure.

Our asset backed securities portfolio of $1.1 billion is 95% triple A rated.

$449 million are securitized small business loans, back by the full faith and credit of the U.S.

government.

$378 million are other assets, primarily credit cards, automobile loans, and student loans.

89% of which are triple A rated.

In addition, this category contains $241 million of securities backed by subprime residential mortgages.

93% of this book is triple A rated.

Last quarter we reviewed this portfolio with you.

The characteristics of this high quality portfolio remain the same.

As of last week, the portfolio had a market value of 94% of book.

Now let's turn to our traditional real estate loan portfolio of $3.1 billion.

It is also a very high quality.

We look at the underlying cash flows of the properties, and assessing these loans.

Cash flow coverage ratios average 1.83 times, and there have been no delinquencies in the past 12 months.

Loan-to-value ratios continue to be conservative, averaging 54%.

This portfolio is diversified both by property type, and geography.

We are continuing to monitor our corporate credit exposures of $13.9 billion carefully.

The investment grade portfolio is highly diversified and it's position with a preference towards non-cyclicals and a bias toward regulated industries and asset-rich companies.

The below investment grade bonds of $1.7 billion, and bank loans of $0.3 billion, combine to perform our high yield portfolio which comprises 6% of our invested assets.

This part of the portfolio is highly diversified from an industry standpoint, with a focus on credits that's are generating free cash flow-through economic cycles.

The home builder sector is the component that is currently experiencing the most dislocation.

Our exposure to home builders is limited to $181 million, or just over one and a half-- over one-half of 1%.

As of December 31, unrealized losses on these holdings were $31 million.

So overall, our asset quality remains strong, and the portfolio is performing as expected.

There have been no surprises.

We will continue to monitor our balance sheet very closely as market conditions change.

Moving to our investment and risk management capabilities.

We've built a very strong infrastructure, and believe our investment team is one of the best in the industry.

We also just completed building our enterprise risk management team, and believe we have the resources, people, and tools, necessary to manage our balance sheet and market risk exposures.

You recall last quarter reported and after-tax loss related to living benefits of $21 million.

Driven in part by our incomplete GMB hedge program.

With our hedge program essentially complete, our after-tax losses related to living benefits dropped to $9 million.

This negative impact was offset by the impact of SOP03-1.

The third component of the balance sheet strength is capital.

Our overall capital position remains strong.

Even with the repurchase of well over $900 million in shares in 2007, we continue to holdover $1 billion in excess capital.

At the end of the year, our debt to capital ratio was 20.5%, or 16.6% excluding non-course debt, and including (inaudible) credit for hybrid notes.

Finally, our liquidity position is also very strong with over $3.8 billion in cash and cash equivalents at the end of the year.

I know that's a lot of details on our balance sheet, but we think it is important in our-- in the current market conditions to clearly communicate our balance sheet strength.

To reiterate, the underlying business message remains solid, and we have met our goals for revenue and EPS growth, and ROE.

We're pleased with pleased with this performance, and with our balance sheet, and we are committed to taking the actions necessary to manage through the current market environment.

Thank you.

Okay.

We're now-- would like to take any questions that you may have.

So we're open.

Thank you.

We will now begin the question and answer session.

(OPERATOR INSTRUCTIONS).

Our first question comes from Jeff Schuman, from KBW.

Please go ahead with your question.

Good afternoon.

Jim, given the difficult markets, I was wondering if you could talk a little bit more about your ability to adjust expenses in the near term in the-- in advice and wealth management business.

And then second question, I had for Walter, a little bit of clarification on the disclosed items, I'm not sure how the tax effected, if you take the $63 million in tax effects, I don't think we come out to $0.13.

Apparently some of the items are not tax affects, and also I'm not clear what the mean reversion items are that are that are referred to in the disclosed items.

That's it.

Thank you.

Okay.

Let me start with the expenses.

We do have the ability to manage the expenses and flexibility around it.

As we've mentioned over the last two years, we upped our level of investment, we think was critical to take advantage of some of the opportunities that we saw, and close some gaps that we had in our infrastructure.

A significant part of those investments, particularly were in the advice and wealth management, and particularly in places like the technology area, for what we've been implementing over the over the course of this year-- I mean of last year.

So we do have the ability to did he ever some of the incremental expenses if necessary.

But our overall investment agenda, we have actually brought down anyway, because we always planned to do so as we moved into 2008.

From an expense perspective, we've also upped our focus on re-engineering and so we have even a more aggressive plan for re-engineering opportunities in 2008, over 2007 and we were quite successful in 2007, and we have the ability to manage some of the near term expenses for various programs, depending on market conditions.

And we have already put in place flexibility spending plans today, and we'll be able to pull those levers depending on market conditions.

So we feel our-- we are able to navigate and generate some savings there, and reduce our costs moving forward, and depending on how long the markets stay the way they do, and impact our revenue, we can even make that more aggressive, and cut investments further.

So that's in that area.

And I would also say, in the advice and wealth management, as I said, some of the investments clearly were in that area in 2007, and to a heavy extent.

We've also made some changes in the management and structure of that business, and some of the slowing of the new P1s, and the activities of how we reduce some of the costs will give us some benefits in 2008.

And we're looking at-- continuing for some productivity improvements, and that's why we're going through some of this aggressive training right now, in the first quarter of this year.

On the second part of your question, the tax rate, for any item that you basically increment that you're taking off, we use the statutory tax rates, 35%.

So we've been doing that.

And I think it's fairly traditional for most companies to do that.

So if a reconciliation required, you can do the floor.

But that's the basis.

Even though our effective tax rate is at a lower rate.

As you're talking off, or adjusting, you usually use the 35% tax rate, because that's the impact it will have.

I'll have to follow-up.

Because if you apply 35% to the $63 million, I don't think you get to $0.13, but I can follow-up later.

Because, let's see where we're off, because we feel pretty confident on that one.

On the DAC, what we're saying is since the-- we adjust for the movement in equity markets, each month and obviously each quarter, as it affects the gross profits, as we evaluate the insurance activities.

So that's the impact of it.

We're adjusting now for the future gross profits, as the market moves.

So essentially mean reversion refers to some degree of unlocking in DAC because of the market--

Absolutely, due to movements in equity market, yes.

Okay, thank you.

You're quite welcome.

Our next question come from Suneet Kamath, from Sanford Bernstein.

Please go ahead.

Thank you.

Two quick questions, hopefully.

First, in your 2006 10-K, in the foot notes there, you discuss the impact-- earnings impact from a 10% decline in ESP 500-- or in the equity markets, and I think you cited the number as of 2006 year end at $127 million, pretax.

I was wondering first if you could provide an update of that-- for that number for 2007, or is that 127 still a good rule of thumb to use.

And then secondly, could you just provide an update of what you're seeing in terms of third party distribution of the RiverSource funds.

That was something that you had talked about in the past, and I'm just wondering where you are with that.

Thanks.

This is Walt.

Let me take the first part.

It is a good rule of thumb to use.

It's still pretty close.

That's what we've used in our filings.

And you know that assumes it happens for the full year, on day one.

Okay.

And then for the second part--

On the second, on the distribution of RiverSource funds externally, we did put in place the infrastructure, we have wholesalers on the ground, and over the last part of last year, we generated a few hundred million dollars of inflows, and we feel good about the progress we're making to ramp that up, with feet on the ground in 2008.

Can you provide any color in terms of number of channels that you're in or number of warehouses or anything like that to give us a sense of how it's going?

We've actually-- I don't have the exact number in front of me, but we have a good number of agreements signed, and of both in the broken dealer channel, as well as in the bank channel, and we're continuing to make good progress.

So we are able to now distribute to a good number of reps.

We'll provide that detail in upcoming quarter.

Okay.

That would be helpful.

Thanks.

Thank you.

Our next question comes from Andrew Kligerman from UBS.

Please go ahead.

Good evening.

I have a question and a few quick follow-ups.

The first question is on the hedging-related effects.

In one part of your release you say that you generated $66 million in income from variable annuity-related hedges, and then later on you say there was a $67 million expense due to mark-to-market variable annuity living benefit riders, and the the impact of the application of SOP3-1.

So it really kind of washed out pretty nicely, and as you said earlier in the call, you had completed the hedging program.

Remind me if I'm right, I think before you had Delta hedges, and you needed to get the ROE and Vega in place, and that was the first part.

And the second part of it is, is the outlook, with the market down 11% year-to-date, or I can't even keep up with where the market is, quite frankly.

But with it down roughly that amount year-to-date, do you think the hedges will continue to work, if I understand correctly, the way they did in the fourth quarter?

Sure, Andrew.

What we had, actually, was we-- as we mentioned, we started migrating from the customized hedges that we had with Goldman to more industry standard hedging.

And we're in the midst then of trying to adjust to the liability characteristics as the balls were changing, and we said in the quarter we did not have the GMB hedges fully in place.

We have now migrated to cover the position on the GMAB, and we have made full conversion following our-- basically using the industry standard hedging approach.

So from that standpoint, the Delta approach was not really what we were doing.

As it relates to the hedges right now, and you saw where the long term evolves are going, we believe they'll be performing and we're-- we'll be monitoring.

It is a tough market to certainly hedge positions, but the group is feeling, we have our hedges in place and we'll just-- we'll monitor through.

Walter, are you hedging the hedge comment, or do you feel pretty good that these hedges will kind of wash out again this quarter, or you're just not sure at this stage in the game?

Well as you saw where the evolves went, it's almost gotten back to November's level in January.

And on that basis, I'm not trying to hedge my bet, no pun intended, but I do believe, as we said in the quarter there was a $9 million impact and certainly we're targeting to operate-- a feeling that the hedges are being effective.

Okay.

And then following back on that comment earlier about the decline in distribution fees of about 7%, and you highlighted the reliquidations.

What was the effect of that last year?

Maybe just to get a sense of what that impact was on the distribution fees.

Well, the interesting thing, last year it becomes-- at that time, we changed the way we do our reporting, so it's an entire shift for us, as we evolved it.

But it had-- on the distribution impact, it had-- the range of that was about $60 million.

60 million?

6-0?

60.

Okay, great.

That's on revenue--

It's within the range Andrew, because we can't track it specifically.

It's reinvestment of cash proceeds, and once it becomes cash, it's spongeable.

Spongeable.

And then the last question.

Just on your franchisee advisors, I've been reading that you may have lost one or two big ticket advisors recently to some of your competitors, maybe with Linsco, or another.

I can't remember, but are you concerned about retention of some of your big-ticket advisors, and why might you have lost one or two of them recently?

No.

You know, our overall retention, and I mention advisor satisfaction is quite strong.

You're always going to have an individual decision made by an advisor.

I actually believe that we're in great stead.

I think people really feel good about the progress we're making, and the investments.

We were also able to bring in a few good advisors from experience, which was the first time ever that were ever of reasonable size.

So I'm not over concerned, it's one of the things that we always monitor and watch, and we're always concerned about anyone leaving.

But I think there are individual circumstances that people make decisions on, and we're not unhappy with the situation we're in.

I actually think, if you look, that our productivity is quite strong compared to any of theses firms that you are talking about, and our satisfaction is quite strong, and our retention is quite strong compared to all of them.

So you know, we're going to continue to focus our efforts and in fact, ramp up our efforts to bring in experienced people.

Great.

Thank you.

Thank you.

Our next question comes from Tom Gallagher, from Credit Suisse.

Please go ahead.

Hi.

First question is, I just want to be clear, the $9 million negative impact from the living benefit guarantees, did that hurt earnings this quarter, or was that offset by the positive mark on the hedge?

No, the $9 million was, as a result of net after DAC, after tax impact, and that was an event.

Then we adopted the SOP, which offset that.

Okay.

So the SOP05-01 offset?

Yes.

I thought the SOP05-1 from other companies, that's been a negative.

That was a positive for you?

Yes, it was.

Approximately the same as the $9 million I mentioned.

Can you expand on that?

It's 03-1, not 05.

Sorry.

Could you expand a little bit.

I want to understand what-- without spending too much time, but if it can be done in simple terms, how that is a positive, the SOP03-1.

Basically when we went through our validations, and trying to transfer over to-- from 133 and then what goes in for the life contingency, elements of it, the revaluationing created from that standpoint the amount of liability was reduced -- reduced based on the way we've been carrying it, and we've been a prudent--and the way we've been accounting for our liability, and on that basis, it generated a small profit.

Okay.

Like I said, we have always taken a pretty rigid approach on valuing our liabilities, and therefore when we transferred over, and moved a portion over to the life side of it, it actually then resulted in a small net change.

Okay.

Next question is --

Remember the book is quite large, so $9 million is not that big of a number.

Sure.

The next question is the comment on DAC amortization and hedge fund, and seeing investment weaknesses.

I appreciate you sort of striped that out as a one-timer.

Given what has happened thus far in 1Q, is it likely-- it seems pretty likely that we're going to get some kind of recurrence of that.

Is that a fair assumption, unless we get a pretty substantial recovery in the market, or am I not thinking about that in the right way?

The way the mean reversion, the way the markets are, that would have an impact, yes.

Okay.

The next question, I want to stay in the order of magnitude, Jim, you talked about the advice wealth management, and there is some flexibility on the expense side, if I look at what you reported there from a pre-tax earnings standpoint, add back the disclosed items, I get $55 million of earnings, which is clearly on the low side.

Can you talk a little about how much expense leverage there actually is, assuming the sales numbers and revenues remain under some pressure here?

Is $55 million going to be kind of an abnormally low number, considering that you kind of got hit by spending a lot while the market turned south, or is it going to take a while to kind of really move off of this level?

I think to what Walter discussed in his talking points, there are a few things that did happen in the fourth quarter.

One is some extra expenses based on the level of some of the investments, including remember, what is in that segment is the new Ameriprise bank, as well as the certificate business.

That there are some impacts there in the quarter, that's in that wealth and advice segment.

The second is, seasonally, the fourth quarter, just based on some of the expenses and how they're recorded, and expenses have come in a little more heavily in the fourth quarter than in the other quarters.

So from a perspective, I can't talk about what the level of client and advisor activity is depending on the markets are, but I would say we're not expecting that type of level, to continue at that level.

We think that there would be some bounce back in that, based on the things that we've mentioned to you.

Of course given the various markets, I can't dictate what the level of activity, but as you saw in the fourth quarter activity, it remained pretty good through a very volatile period.

Okay.

And then the-- also a question on protection.

That normalized earnings result, as you all define it, was very strong and it looked like auto and home produced a particularly favorable result, with roughly an 85% combined ratio.

Can you just comment on-- I presume that was the result of some reserve releases?

Can you just comment on what is going on on auto and home?

Yes.

In the auto and home, at the end of the year we reevaluate our E&O, and we did have a release based upon the performance characteristics on that, and that's the same thing that happened last year from that standpoint and it is basically part of the process, we found.

And also there was a-- basically a general loss ratio reduction from that standpoint.

So it's performed-- those are two drivers.

I just want to remind you that, it's E&O of our advisors, so it's an inner company E&O book that impacts the protection segment.

Overall just on the P&C, this is Jim, just a comment, is our overall business performed quite well, and continues to be, so we feel good about the business and our position in it.

So we do not necessarily see anything changing from the progress we've been able to make over the last year or two.

Okay.

And Walter, what would the level of reserve extend for the quarter?

On the-- basically on E&O it's $6 million.

$6 million.

Okay.

And last question.

Just on your all-day exposure, I believe there had been number a downgrades recently, just generically on all day, the last few weeks.

Have any of your bonds been downgraded?

That's my last question, thanks.

This is Laura Gagnon.

We had a few bonds that were downgraded from triple A to double A, because of the Fitch downgrade of one of the financial guarantors.

But as we said earlier, we rely on the underlying cash flows and not on the guarantee, and those were in the asset backed area, not the residential mortgage area.

Okay.

Thank you.

Our next comes from Al Copersino, from Madoff.

I just had a follow-up question on the-- one of the disclosed items.

The hedge fund, I'm sorry to ask another question, these are Threadneedle run hedge funds, or these are assets of yours?

These are basically our hedge funds, not Threadneedle.

Owned assets.

Thank you very much.

Appreciate it.

(OPERATOR INSTRUCTIONS).

Our next question comes from Darius Braun, from Citadel.

Please go ahead.

Hello guys.

Quick question as it relates to the disclosed items, I'd just like to confirm that in the text of the release, when you're referring to earnings being impacted by $0.06 due to extraordinary levels of market movement, is that also highlighted in the disclosed items at the back of the supplement?

Darius, this is Laura.

We give you the other income line in the supplement.

We've disclosed it forever so you can see those trends over time.

So it is not one of the disclosed--

It does not include those.

So that would explain the discrepancy between the 63 and the 47 people are getting to.

Yes.

Thank you.

And the next question is, as it relates to separation costs incorporated in other, there was $11 million in severance cost.

Is that included in the disclosed items?

Yes.

It's in the, what we call the legal and contingency reserves.

The G&A line.

Okay.

And that would be in the corporate?

In the corporate segment.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS).

Okay.

If there are no more questions, I just want to-- Walter and I would like to thank you for taking the time today, and if there are any other questions, Laura and team can follow-up with you.

I will be in my office for a while yet this evening.

That number is 612-671-2080.

Thank you.

Thank you ladies and gentlemen.

This concludes the fourth quarter 2007 earnings call.

Thank you for participating.

You may all disconnect.