阿默普萊斯金融 (AMP) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the second quarter 2008 earnings call.

(OPERATOR INSTRUCTIONS) Please note, this conference is being recorded.

I will now turn the call over to Ms.

Kathryn Koessel.

Ms.

Koessel, you may begin.

Thank you and welcome to the Ameriprise second quarter earnings call.

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

After the remarks, we'd be happy to take your questions.

During the call, you may hear references to various non-GAAP financial measures which we believe are by insight into the underlying performance of the company's operation.

Reconciliations 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, 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 2007 annual report to shareholders, and our 2007 10-K report.

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

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

Good evening, everyone, and thanks for joining our second quarter earnings call.

As you are well aware, the market and economic conditions continue to be very challenging; however, our business fundamentals remain solid and we delivered respectable earnings for the quarter.

Of course, many of our earnings streams are market sensitive and we have clearly been affected by the 13% decline in the S&P 500 during the first half of the year.

Despite the conditions, I feel good about our position and outlook.

Our business is strong and well diversified and we continue to invest in the future.

We are focused on serving our clients and emphasizing the core strength of our financial planning model which serves us well across market cycles.

In addition, we continue to realize benefits from our conservative approach to managing our balance sheet.

Now I will give you some context for our second quarter results.

Net revenues were down 8% compared to a year ago, primarily due to market impact on asset balances and the large REIT liquidation in last year's second quarter.

In regard to our results, earnings per diluted share were $0.93, excluding capital gains and losses as well as separation costs from the second quarter of last year, we earn $1.01 per share a 3% increase.

Our ROE for the trailing 12 months was 12.1% excluding separation costs and investment gains and losses.

These results didn't meet our on average overtime goals, but given the strong headwinds that are pervasive across our industry, we're in good shape.

Perhaps most important in this environment, our balance sheet continues to perform well.

Our strong position is enabling us to pursue opportunities when others in the industry are retrenching.

We continue to hold very limited exposure to the most distressed asset classes, and we are comfortable with our overall asset mix.

Our asset quality remains strong and we have had minimal balance sheet impairments compared to the rest of the industry.

We also remain in a very solid capital and liquidity position, and we are returning significant capital to our shareholders.

During the second quarter we purchased 5.2 million shares at a cost of $250 million, and we have returned more than 100% of our adjusted earnings over the past 2-1/2 years.

In addition, today we announced that our Board of Directors has authorized an increase of 13% in our quarterly dividend to $0.17 per share.

As evidence of our strong balance sheet and liquidity, our counterparty credit rating was upgraded earlier this month.

We also have the resources necessary to grow the company over the long term as our agreement to acquire J.&W.

Selgiman may clear.

This transaction is a very good fit for many reasons.

Financially, the acquisition is expected to be accretive to earnings next year and we will fund the deal with cash on hand.

The transaction will not impact our capital position significantly and we expect to maintain our current shareholder repurchase agenda.

We are also managing expenses tightly and as you can see evidence of that in our general and administrative expense line which was 13% lower than a year ago and 3% lower than last quarter.

We're seeing the results from the expense program we put in place earlier this year while we continue to execute our re-engineering agenda and our investment plan.

Our operating results for the quarter demonstrate the weak market environment but also the strength of our foundation and strategy.

Our fundamental value proposition is serving massive loaner fluent clients and long-term personal planning relationships and these relationships endure across cycles.

Even with the current challenges, our plan activity remains solid.

Financial planning net cash sales were up 8% over last year and we continue to enter into planning relationships with more of our clients.

In regard to our adviser force, we continue to grow the franchisee channel at a measured rate, even as we've been re-engineering the employee channel to focus on profitability.

This has resulted in a lower employee adviser account.

However, we expect the decreases in employee advisors to slow in the second half of the year.

We continue to provide advisors with excellent support and their satisfaction remains very high as a result.

During the second quarter we began to roll out our new financial planning tools and the initial adviser feedback has been very positive.

The tools make the process of grading new financial plans much more efficient which, in turn, encourages advisers to sell more plans and make them more productive.

Now I'll move on to the product areas.

Owned, managed and administered assets declined 8% compared with a year ago due to market depreciation as well as outflows at both RiverSource and Threadneedle.

The Threadneedle outflows continue to come primarily from lower margin Zurich assets.

We continue to generate strong growth in wrap accounts with assets of 3% over a year ago to 91 billion.

We generated 2.8 billion in wrap net inflows during the quarter.

Overall, RiverSource Funds flows were negative by 1.2 billion, about half of which came out of money market funds as clients sought to avoid negative real return against inflation.

In turn, this outflow from cash products explains part of our strong inflows and wrap accounts.

The outflows were partially offset by good initial traction from our investments in outside distribution.

Another factor contributing to the net outflows is that our overall investment performance is not where we would like it to be.

Our performance record remains reasonably strong over three and five year periods in many category, but our one and two-year performance numbers have been weak in a few of our investment strategies.

First, in fixed income our portfolios have generally been overweight to credit spreads, especially in commercial mortgage-backed securities as well as non-agency mortgage-backed securities.

These spreads have widened which coupled with our portfolios generally be in long-term interest rates, has resulted in weak performance.

In equities, our emphasis on valuation in a number of our boutiques have led to performance weakness.

Valuation as a selection factor has mattered little over the last 18 months and investment performance has suffered accordingly.

We're committed to improving our performance and we are confident that we can return to consistent competitive performance over the long term.

Threadneedles retail sales and performance remain strong while the results for the quarter were impacted by asset outflows.

In addition to the Zurich assets, Threadneedle experienced turnover in the management of some of its alternative assets which resulted in some of the asset outflows.

Threadneedle's culture promotes team work among investment professionals and we have complete confidence in the teams in place.

Those teams are working to retain asset in their funds.

While I'm on the topic of asset management, I'd like to highlight the business benefits of the pending Seligman acquisition.

The addition of Seligman will significant increase our third party distribution capabilities and it brings us $18 billion in total assets, including over 3 billion in hedge fund assets.

We will also bring in several top performing funds, including the industry leading communications and information fund as well as the Seligman growth fund which was number one in its category for the second quarter.

Overall, the acquisition is exactly what we have told you we have been looking for, financially attractive additions to our higher margin businesses that are good strategic and cultural fits.

In our other product areas, we continue to drive net inflows in variable annuities with $800 million of inflows during the quarter.

We continue to experience outflows and fixed annuity, but these outflows are slowing significantly as we have experienced lower redemptions and we have begun to market more attractively priced product offerings.

In the insurance business, life insurance enforce increased 5% over a year ago to $191 billion while auto and home policies have increased by 5%.

The total protection segment premiums increased 2% despite generally slower growth in volume for insurance products.

In summary, our business metrics continue to be affected by the tough market conditions, but our underlying business and our strategy and foundation remain sound.

We are confident that our long-term opportunity is compelling and we are continuing to invest in the business to deliver on our vision for growth.

We are investing for business growth, advisor support, marketing, product development and our client experience.

Overall, of course we would like all to have better markets.

But that said, I feel good about our financial position as well as our long-term opportunity in the way we're pursuing that.

With that, I will now turn it over the Walter and then we'll take any questions that you have.

Thanks, Jim.

The external equity, short-term interest rate, and credit market environment continue to negatively impact our performance in the second quarter.

As anticipated, the equity market P&L impact was less severe, but the negative impact of short-term interest rates increased from last quarter.

Our reported $0.93 in EPS was down $0.05 from last year.

The second quarter reflected a year-over-year negative impact of $0.09 related to the following items.

First, weakening credit markets contributed to the after tax realized loss of $0.08 per diluted share primarily from other than temporarily impaireds this quarter related to three AAA rated Alt A securities.

Lower market levels resulted in $0.03 per diluted share of impact from amortization of [DAC] and deferred sales inducement course compared to a $0.03 gain in the year ago quarter for a swing of $0.06 and one-time tax benefits of $0.12 per diluted share in the quarter compared to a benefit of $0.07 in the prior year period for a net change of $0.05.

In the quarter, we continued our focus on ongoing re-engineering to help mitigate the effects of the markets.

The first quarter savings accelerated in current quarter as evidenced by 13% year over year decline in G&A cost.

In addition to our re-engineering and cost saving initiatives, we remain focused on the strength of our capital position, maintaining adequate liquidity, preserving our strong balance sheet, and effective management of risk.

We continue to generate capital through earnings and to benefit from our longer term strategy of shifting to more fee base and less capital intensive products.

As a result, our capital position remains healthy as reflected by our recent announcement of an additional share purchase authorization, our agreement to acquire (inaudible) and a 13% increase in our dividend.

Our excess capital position remains strong.

Today, we have more than $1billion in excess capital and anticipate that we'll continue to have more than 1 billion even after the acquisition.

In terms of liquidity, we remain well positioned.

We continue to have over 2 billion in uncommitted cash and cash equivalents with more than 1 billion at that at the holding company.

We have substantial dividend capacity from both our insurance and non-insurance subsidiaries.

Our leverage ratios remain strong.

Our debt-to-capital ratio is 21% where 17.4% excluding non-recourse debt and with equity credit for our hybrid securities.

And our financial strength was affirmed by a recent upgrade of our debt.

Our ratio of earnings to fixed charges was 7.4 times at the quarter end.

Our hedging and risk management processes are performing well.

The variable annuity hedge impact after tax after DAC was $6 million comprised of SFAS 157 valuation benefits and the benefit of hedge effectiveness.

Let me know turn to asset quality.

We continue to have a very high quality portfolio that has performed well under these market stresses; however, we are not immune to market impacts.

As I mentioned, we announced $18 million in after tax security losses this quarter primarily related to the impairment of three AAA rated all day securities.

Year to date, our after tax realized losses are $33 million.

Over the past four quarters we have had after tax realized period losses of about 4 basis points of total invested assets.

Compared to insurance peers who have announced the minimum of 17 basis points and a median of 40 basis points in realized losses through the first quarter of 2008.

This does not include second quarter losses as peers have not yet reported.

While highlighting several points related to our asset quality, additional details are provided on our website consistent with our prior quarter practices.

Our $33 billion balance sheet, opposition remains largely unchanged from last quarter.

Our exposure to financial guarantors modestly increased in the quarter to $734 million and we continue to look to the integrity of the direct investment cash flows and generally do not rely solely on the guarantee.

Our exposure to the equity portion of CDOs that we manage for our clients declined to 38 million from 42 million last quarter.

There has been very little change in our residential mortgage-backed portfolio.

We continue to own 1.1 billion of Alt-A and 247 million of subprime backed securities.

Our valuation considers various factors, including loan quality, structural protection, collateral enhancement, seasoning, geographic concentration, and our assessment of current and future trend lines and underlying cash flows, including delinquency and severity trends.

Based on our underlying cash flow announced, the highest risk categories include middle [mesonene] AAA-related Alt-A securities backed by option arms and AA-rated Alt-A securities.

The middle mesonene bonds have current unrealized loss position of approximately $75 million.

Most of these securities continue to have more than 20% collateral enhancement.

The AA rated Alt A securities have an unrealized loss position of about $40 million.

These securities are more seasoned, all 2005 and early vintages with collateral enhancements in the mid to high single digits.

With regard to our commercial mortgage-backed securities, they continue to perform better than the overall market.

We added to our asset-backed portfolio which continues to be primarily AAA-rated.

Our real estate loan portfolio of $3 billion is very high quality and continues to have no delinquencies.

Last, we continue to monitor our corporate credit exposures of $13 billion carefully.

We are watching credit and market trends closely, and we remain comfortable with our exposures.

As I mentioned during our last conference call, we saw an opportunity to be rewarded for taking appropriate and prudent risks.

Therefore, we invested of over $1billion of our cash in to investment grade corporates, non-agency mortgages and high-yield bank loans that had attractive valuations relative to their risks.

Those investments slightly increased our percentage of below investment grade securities.

When looking forward to the remainder of 2008, there are a few things to consider.

As I mentioned earlier, we continue to benefit from effective tax planning.

While we received a net $0.05 benefit which lowered our effective tax rate in the quarter, for the remaining two quarters of the year we expect the tax rate to be between 24% to 26%.

We are in the process of upgrading our actual valuation system.

And we expect to implement -- which we expect to implement in the third or fourth quarter depending on when the new valuation system is fully operational.

If implementation is in the fourth quarter, we intend to move DAC and locking to the fourth quarter to allow us to use the new system.

In closing, I would like to summarize my comments.

While the market environment is impacting our results, we are talking a prudent approach to managing expense and optimizing our ongoing investment program.

Our capital and liquidity position remains strong with a high quality balance sheet and strong capital base supported by cash flows from a diversified operating model and our prudent decision processes.

We believe that we are well positioned for the future both from a business and a financial perspective.

With that, I would like to open it up for questions.

(OPERATOR INSTRUCTIONS) Our first question comes from Andrew Kligerman.

Please go ahead.

Hey, good evening or evening.

A couple of quick questions.

First one just on the excess capital.

Walter, mentioned that you would still have a billion plus of excess capital even after the J.

& W.

acquisition.

Do you expect to continue at this quarter billion dollars per quarter buyback even given the very difficult credit market conditions?

Well, obviously we don't forecast the level but we certainly, as we indicate, intend to continue our share of buy back program as we go forward.

Okay, and then just on the expenses it's indicated that expenses are down 9%.

That is probably somewhere north of 15 million in the quarter alone versus the year-ago period in expenses.

Going forward, A, are those lower expenses sustainable?

And, B, would you be pushing to lower them even further in subsequent quarters and how would you do that?

Andy, we certainly believe we can continue to effectively manage our expense base and as we indicated it is an important focus not just from the extent standpoint, but to continue to improve our processes and note we will continue to evaluate the situation and make prudent moves.

But certainly it is full attention of management and be cognizant of what investments and what expenditures are effective in this sort of market.

Would that imply flat or even lower going forward?

Pretty much, yes.

Good observation.

And the below investment grade, I see that it came from -- it went from 5% of investments to 7% last quarter.

Walter mentioned high yield bank loans.

Maybe just a little more color because that would be what, maybe 600 million of additional investments.

Maybe just a little more clarity around that.

Andrew, this is Laura Gagnon.

There were a couple of down grades that affected that and a couple hundred million of bank loans.

I believe it went from 6 to 7, not 5 to 7.

Okay, and then just lastly, the wrap net flows actually improved to something along the magnitude of 2.8 billion in the quarter sequentially.

They were down more materially year over year, but maybe just a little more color on what is happening there and where you think wrap net flows will be over the next few quarters.

Well, I think a lot of that is impacted by you know, clients' appetite and adviser's the appetite based on the market.

You saw improvement coming back in the second quarter as they initially saw some stabilization in the markets and some of that improving.

I think it is contingent on the market volatility but I think we're seeing some appetite back for equity product again, and that is what you saw in the wrap program.

But, again, it is all subject to the market volatility and activities.

Got it.

Thanks a lot.

You're welcome, Andy.

Our next question comes from Suneet Kamath.

Please go ahead.

Thank you.

Just two questions.

First question on the RiverSource flows.

You mentioned 1.2 billion.

I think you said half of that is in money market funds.

And then I think you said a portion of that went into the wrap accounts business.

I'm just wondering sort of the net fee impact of that.

Are the fees that you earn on the money market products significantly higher or lower than what you picked up in terms of the wrap accounts?

I'm just trying to understand the revenue impact of those asset flows.

Secondly for Walter on the DAC, you mentioned that you're going through some reviews in that it may delay your DAC unlocking.

Can you comment?

Are you changing the way that you think about DAC amortization on a quarterly basis to sort of bring it more in line with what your peer group is doing, what your peers are doing or is this just something separate, and because of that you're just delay your regular DAC unlocking to the fourth quarter?

Let me take the question first.

We are, as I indicated, upgrading our technology systems capability and that will be the only element that potentially would delay.

We're still targeting to try to get it in the third quarter from that standpoint, so we did not want to do the unlocking under our own capabilities, we're going to have the new capability up.

So I was just trying to align there.

From the standpoint we're not looking to make a statement about changing our DAC on processes we certainly are evaluating how we do it versus how the peers do it and to try and see from that standpoint what gives the best transparency.

As far as flows in to RiverSource, 600 million was out of the money market and, again, I think you'll see in an out flows of the money market as cash is applied or as people sit on the sidelines a bit.

The fees on the money marker are lower than the fees that you would get in a long-term fund in our categories.

In addition to that, in regard to the wrap program, we do get -- in asset management fees, we get part distribution fees from that.

On a relative sense I would probably say the fees that we get primarily from managing in this case might be slightly higher from a net company perspective of the money just sitting in the money market.

But, again, we're talking about 2.8 billion versus half a billion coming from the money market.

So our net positive there because of the increase in total volume activity.

Okay, thanks.

Our next question comes from Jeff Schuman.

Please go ahead.

Good evening.

I was wondering if you could give us a little more background on the loss of alternative assets at Threadneedle.

The loss is pretty material relative to that size of that asset base.

Is there a particular performance issue or some talent turnover?

What's the story there?

What we had, we lost two PMs.

One was running our UK hedge fund, the other one that was in the US hedge fund.

Their team members have taken over.

In that changeover, some people did redeem and we lost about half a billion of assets coming from those funds.

And do those redemptions continue or has that kind of played out, do you think?

One of them, which was the one who left early in the first quarter, it looks like those redemptions have played out already.

The US occurred in the second quarter so there might be a few more redemptions coming from that.

I think some of that is already reflected there.

There might be a few more coming.

You mentioned gaining some third party distribution capabilities with the Seligman deal.

Can you flush that out a little bit for us?

Is this just mostly the gain in wholesalers or are there some very specific distributors that you gain?

What specifically do you gain?

I think there are a few things.

First of all just as a touch basis, our third party distribution that we are organically building is actually working according to our plan.

We're able to get good ramp up and some flows in the second quarter according to what we targeted for the year.

The Seligman deal gives us a significantly greater number of agreements already in place, wholesalers on the ground with relationships.

So hopefully that will help us accelerate our penetration in the third party channel.

In addition, we think that we can get more of the Seligman funds into our own channel through our wholesaling distribution.

And that also will compliment activities and flows into the Seligman part of the deal.

And it also helps us ramp up a little more on our institutional business that we started to grow the sales activity there and the alternative assets that Seligman has that we can feed into our channels.

So it is a combination of things that we think will give us a greater jump start into the third party distribution using their capabilities, some of their products and ours.

That is great.

And lastly on the RiverSource performance issue, is there anything that you are doing to maybe kind of accelerate a turn there?

Are you changing strategies, changing personnel or is it a matter of just kind of waiting for the market to come back your way?

I think Ted is focused with his team on those things that they have been evaluated that they think they should change versus not.

I think the investment professionals are very focused on what their performance and why.

So I think some of it may change some things as we see the markets.

Some of it, they're sticking to their strategies a little bit and their belief on some of what they invested in.

Great, thanks a lot.

Our next question comes from Colin Devine.

Please go ahead.

Good evening.

Just a couple of quick ones.

Walter, with respect to Threadneedle and the professional turnover, what I have heard from my London office is one of the individuals, I guess is not SAC, but the other one I'm not sure that it has been disclosed where they're going.

So until that happens is it going to be a little tough to predict how much of the assets are going to follow them is one, and maybe perhaps more than a little as we look at this.

Secondly, just to clarify with the DAC issue, is it still going to be your intention to true this up in the third quarter normally easier going forward and the fourth quarter this year with the system change?

And then finally, if you can talk a little bit about what you're seeing as we head in the third quarter with the variable annuity sales and also what percentage of your commissions on VAs is going out of the (inaudible) share level versus an up front?

Let me -- it was a race to DAC.

It is our intention that we will continue in the third quarter unlocking and there will only be an aberration to move into the fourth quarter strictly because of the system.

So if we do in the fourth quarter this year, we'll be back in the third quarter next, if I understood your question.

Yes.

I don't know if we have the --

We don't have the VA sales breakdown.

I don't have that so we'll have to try and get back to you on that.

And then, as Jim said, on the basic -- on the hedge fund, we believe what happened in the second quarter has been certainly redemptions that a reasonable portion of that has occurred but we're still monitoring right now and the team is in place.

While there are members of the team that have been -- still a part of that that were looking to retain assets as we saw in the first hedge fund when people left, we did lose a number of those assets initially, and the team is now showing decent performance.

So we think that we feel pretty good about that.

And the second one, as I said, occurred in the second quarter.

So I can't give you the exact of how much more will come.

But, again, we're using the same methods as part of the team to retain those assets and we have good people there.

Again, it will be affected but I think on the cost of the total we have lost so far I'm not sure it is going to be as much.

One final one.

On the certificate and banking business, how much of the loss was driven by the investment losses of the 24 million?

About some -- you're talking about the impairment?

Well, no, I'm looking at pre tax income for your certificate and banking business which was a loss of 24 million, I believe.

21 of that was impairment.

Okay, that was the question, thank you.

Our next question comes from Tom Gallagher.

Please go ahead.

First question is related to incentive fees and asset management.

I know last 4Q of '07 you had a nice pickup which I believe was largely driven by Threadneedle alternative, if I'm tracing the numbers correctly.

That is correct, Tom.

So given what is going on both to net outflows as just as well as year-to-date performance, looks like you're sort of modestly positive.

I just look at your disclosure.

I assume you have to get to a hurdle rate to start earning performance fees there.

Is it fair to say outlook for this year dramatically lower in terms of potential for performance fees or any kind of comment you can give us for that, thanks.

That is my first question.

I think clearly at this stage we haven't really forecasted that.

But certainly the elements of it -- it is not unreasonable to assume that it could be lower.

Okay.

That means we don't have the second half of the year.

But based on some of the flows being down and also the performance being not as strong as last year so far, the performance fees will be down unless things come back in the second half of the year.

And we have season that come back.

So it is certainly -- we keep on monitoring it from that standpoint.

And we always look at that as an incremental for us at the end of the year.

So it is not in any of the reported numbers so far.

Understood.

And so -- and kind of rough rule of thumb to think about as it relates to earning those being need to earn a minimum of somewhere in the 8% to 10% range before you start earning incentive fees in the alternative business?

It is in that range.

I don't have the exact number, but certainly that is in the appropriate range.

Okay, the next question is if we -- I don't know if you can give us some kind of range to think about.

If you fast-forwarded the DAC review and made some equity market assumption, let's just say remains where it is today, could you give us an idea of what kind of unlocking, which I presume would be a charge just based on the equity markets today, you would have in 3Q or 4Q?

It is a complex element because it deals with so many other factors, lapses, markets and everything.

Remember, markets we take on each quarter base so we reflect that and the DAC reversion.

So that is not for us a big a deal as it is for some of our peers.

And we have not, that is the issue we will not start running the locking models until we're about that time frame where we have to make the decision.

So it is really tough to guesstimate it.

There is nothing that we can see the plus or minus, but certainly the market factor is not the element within that.

Walter, is it fair to say what is happening in the equity markets year to date, that impact on your DAC in terms of the underperformance of the equity markets, is that fully factored into these many unlockings we've seen every quarter?

It is a factor.

We reflect it monthly and quarterly.

And that -- I think one of your colleagues asked a question.

That is one of of the things that we do that probably is not necessarily the industry standard.

Okay.

And that is potentially up to some type of review, just in terms of how the methodology?

Yes, basically.

And last question, when you look at the asset weight performance for I guess the one and two year numbers and the fact that they have weakened a bit, how does that affect your plans on third party distribution buildout if it does at all?

Does that make it a lot tougher at this stage?

Yes, I think what we do is we still have some really good performance and strong products like in our value areas that there are products out there that we do have that will sell and are selling.

So we're feeling good about the sales that we're already ramping up and putting new wholesalers on the ground.

So we do feel that we have products that are good to sell, that has good performance.

Yes, it would be great to have a performance in all the categories?

But right now we do have product to sell.

Okay thanks.

Our next question comes from John Hall, please go ahead.

Good evening.

In the release, you mentioned that there were increased investment in distribution in the asset management segment.

I was wondering if you could just give an order of magnitude there.

And then offer the view whether that is essentially on hold as you bring in Seligman.

The answer is no.

We're -- as Jim said, we are tracking towards our plan and certainly we'll lever the Seligman wholesalers and integrate on a wide plan.

I think what it is if you look at it, we already added wholesaling teams and so those people we have been funding.

Those have been in our expenses so far that will continue.

What Seligman provides us is an additional number of teams so that we don't have to organically add to it right now.

We think that the compliment of our teams in Seligman will actually get us through the next number of periods in a sense that we're not going to add to additional new wholesaling teams.

So that does give us a big jump start, because these people are already on the ground with relationships that we can leverage more fully.

That's the benefit.

We're not scaling back the teams that we already put in because we think that we need a reasonable sized wholesaling force and this gives us a good compliment now.

And we avoid the learning curve because these people are already on the ground.

That is great, I was going after there would be a delta from the investment from the second quarter into the third.

I think it is just more of a run rate.

I think we had most of the teams on board.

In the first quarter.

I think we added one or two in the second.

So it shouldn't be materially different in the second.

Great.

Are there going to be consolidation expenses as it were associated with bringing Seligman in?

There will be some deal cost as it relates to it and as we indicated the majority of the synergy will be generated from expenses as we get the benefits of integration next year.

Okay, and with the Seligman transaction being pulled in and the like, are you essentially on the sidelines for the moment as far as M&A in around distribution and AUMs?

Yes.

So you're still in the game?

Still in the game.

Fantastic, thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from Eric Berg.

Please go ahead.

Thanks and good evening to everyone.

I'm still trying the understand a little bit about this whole DAC process and Ameriprise.

The concept of mean reversion is I don't think it is a GAAP concept.

As I recall, it is sort of a convention that was developed by some company several years ago in response to big swings in the stock market.

Can you review with us, not in great detail but just in very concise form and summary form, what this mean reversion concept means that you reference in your disclosed items.

And then I have a followup question.

Sure, Eric.

I think when you -- you're correct.

It is essentially markets were moving and from that standpoint various conventions were established which would allow a more timely recognition of the market movements and where some firms delay the recognition.

We then chose when that was discussed to actually reflect the calculation of what the impacts of the market would be in our future gross estimated gross profit calculations.

So we have been under the more "conservative" approach to recognition of it on an immediate basis.

And I think one or two firms do that and there are several firms that don't.

So it is basically -- on that basis that was something we discussed with (inaudible) Young, we evaluated and that was the basis we put in.

Okay, so what again in a concise way, what is the main difference between what's happening each quarter with the DAC balance, the unlockings which are technically taking place reflecting either stronger than expected or poorer than expected stock market.

What is the difference between what is going on with the DAC on a quarterly basis and what will happen in the September or December quarter?

What happens there since we are current basically and we trued it up to the latest markets, obviously if something takes place in the quarter that would be part of the process.

But then we look through all the ever assumptions and the actuaries that are evaluating the trend lines as it relates to the key assumptions.

All the elements in seeing if those elements of drivers now would warrant a change in the estimated gross profit calculations, the market only becomes that quarter element taking place within it which is we do every quarter.

They are then looking at the baseline driver trends as to what will affect the estimated gross profit and seeing what has changed.

Obviously as we told you, if there is any change that takes place in the quarters as we are between the third quarter unlocking we will obviously reflect if we feel there is a strong enough trend line.

Lastly, would you just go over one more time, please, the summary reasons for the under performance in your fixed income and equity businesses at RiverSource?

You mentioned CMBS credit spreads.

I thought they actually narrowed in the June quarter rather than widened after the collapse of Bear there, there seemed to have been a narrowing of the credit spreads.

You also mentioned in the same breath something about valuation in common stock investing and how it wasn't working out.

Could you just go over it?

I didn't quite follow that whole thing.

Before we do that I just want to point out that what drove the one-year performance.

So we're talking a lot about the spread widening that happened in the third and fourth quarter as well is driving what is happening in our one-year performance numbers.

So fair enough, that is a helpful reminder, Laura.

So the point is we have this spread widening and how were your managers positioned in fixed income?

Well, our managers were positioned, they thought there would be a faster rise in long-term interest rates and that did not occur as well and that it part of it.

And the equity side, many of our manages focus on valuation and a lot really has not been driven by valuation, it has been driven more by momentum these days particularly as people move into whether material stocks or energy.

Our managers look at value, they look at intrinsic value there and over time the performance coming from good companies and so they put more in it in that category than others have and that is where you see differences in performance.

Thank you, Jim.

I'm all set.

(OPERATOR INSTRUCTIONS)

Okay, this is Laura Gagnon.

Kathryn and I will be around to answer any follow-up questions you have.

The number to call is 612-671-2080.

Thank you very much.

Thank you, everyone.

I appreciate the time and effort.

And we look forward to any question that questions that you have.

And hopefully the markets will settle down, but we continue to be very focused on what we need to do to control our destiny and I think we have been doing that so far in the first two quarters.

Thank you ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may all disconnect.