Ameriprise Financial, Inc. (AMP) Q2 2022 Earnings Report, Transcript and Summary

Welcome to the Q2 2022 Earnings Call. My name is Vanessa, and I will be your operator for today's call. At this, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder this conference is being recorded. I will now turn the call over to Alicia Charity. You may begin.

Thank you and good morning. Welcome to Ameriprise Financial's Second Quarter Earnings Call. On the call with me today are Jim Cracchiolo, Chairman and CEO; and Walter Berman, Chief Financial Officer. Following their remarks, we'd be happy to take your questions. Turning to our earnings presentation materials that are available on our website. On slide 2 you'll see a discussion of forward-looking statements. Specifically during the call you will hear references to various non-GAAP financial measures, which we believe provide insight into the company's operations. Reconciliation of non-GAAP numbers to their respective GAAP numbers can be found in today's materials and on our website. Some statements that we make on this call may be forward looking, reflecting management's expectations about future events and overall operating plans and performance. These forward-looking statements speak only as of todays 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 our second quarter 2022 earnings release, our 2021 annual report to shareholders and our 2021 10-K report. We make no obligation to publicly update or revise these forward-looking statements. On slide 3, you see our GAAP financial results at the top of the page for the second quarter. Below that you'll see our adjusted operating results, which management believes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitates a more meaningful trend analysis. Many of the comments that management makes on the call today will focus on adjusted operating results. And with that I'll turn it over to Jim.

Good morning and welcome to our second quarter earnings call. Ameriprise performed well in a significantly more challenging environment and delivered a solid quarter. Clearly high inflation in the US and globally as well as geopolitical uncertainty continued to cause greater volatility in pressured markets. With the Fed raising rates and concern about a potential recession, markets are experiencing headwinds and that's weighing on investor sentiment. While the environment impacted our results particularly in Asset Management, we delivered strong profitability, good client flows and wealth management and strong results at the bank. We're continuing to serve clients well, managing our expenses prudently and investing in the business to drive near and longer term growth. Let's move to second quarter results. Compared to a year ago, total assets under management and administration declined 3% to $1.2 trillion. We benefited from the BMO EMEA acquisition and the cumulative impact of Ameriprise client net inflows but assets were affected by a negative foreign exchange and the steep decline in both equity and fixed income markets. In terms of adjusted operating financials, revenues grew 3% to $3.5 billion as good business performance offset market impacts. With that, earnings were up 4% with EPS up 10% to $5.81 and ROE was very strong at 48.8%, compared to 37.5% a year ago. I'll turn to Advice & Wealth Management where we delivered another strong quarter. We had good activity in a tough market environment. We're serving clients well with our goal-based advice, driving strong engagement and earning strong satisfaction. Total client net inflows were $8.6 billion down 10% but quite good in this environment. Our wrap net inflows also declined to $6.2 billion. Cash balances were up sharply to more than $47 billion, compared to more than $39 billion a year ago. Even in a more challenging operating environment, our adviser productivity was strong up 11% to $814,000 per adviser. We recently hosted our national conference for our top advisers and the level of engagement was terrific. They're excited about growing their practices at Ameriprise and appreciate the investments we've made and the support we provide. We're also seeing nice engagement with adviser recruits. We had another good quarter in terms of recruiting adding 99 highly productive advisers. Our value proposition stands even taller in choppier markets. When experienced advisers join us, they routinely say our culture, technology, financial planning capabilities and ability to grow are key reasons they make the move. We're driving meaningful momentum and I feel good about our pipeline. Now I'll give you some perspective on our growing cash business, which represents a significant future revenue and earnings opportunity for us. First, we're beginning to generate more revenue from our off-balance sheet cash as the Fed increases short rates. Second, we continue to move more assets to Ameriprise Bank garnering additional spread including moving $2.3 billion to the bank late in the second quarter. For perspective, total bank assets are now at $17.1 billion. Assets have more than doubled since the beginning of 2021 and we're positioned to take this further. An important takeaway for you is that as we move through the second half of 2022 and into 2023, the growth of our cash business and rising interest rates will provide an offset to equity market weakness. That leads me to AWM's financials. We continue to generate strong pre-tax income up 16% to nearly $500 million and our margin continues to accrete up 250 basis points to nearly 24%, even after the impact of substantial market declines. Moving to Retirement & Protection Solutions. The business is performing well in this environment and reflects our strategy to focus on our core products. I'll start with variable annuities. Overall, sales were down 29% given our move away from living benefit guarantees. We continue to prioritize annuities without living benefits in our structured products. In Protection, Life sales declined 23% given the climate and our move away from fixed insurance. We remain focused on our VUL and DI products, which have good profitability and are appropriate for our clients. In terms of earnings, they were in line with our expectations and our financial results and free cash flow look good and our risk profile remains well managed. Now let's turn to Asset Management. We've already referenced the challenging operating environment that has resulted in asset declines and tough retail flows for the industry. We're experiencing that pressure too. However, we feel like the business is performing well and we're making appropriate adjustments as we move forward. Assets under management was up a bit year-over-year as a result of the BMO acquisition and the cumulative impact of net inflows offset by market declines and a significant foreign exchange impact in the quarter. Revenue was essentially flat overall. Let's start with investment performance. Our long-term numbers continue to show good consistency for our three, five and 10-year time periods with over 75% of our funds above medium on an asset-weighted basis. Regarding one-year performance, it's been a tough period in both equities and fixed income. Domestic equity results were good driven by our larger funds moving back above the median. In international equities, our quality positioning has been more of a challenge in these markets. In fixed income, results have been solid in Europe, but in the US were impacted by our longer duration positioning in our quality focus and credit. We do feel with market conditions beginning to stabilize, we should see some improvement. Let's turn to flows, where we had outflows of $3.1 billion in the quarter that included $1.2 billion of legacy insurance partner outflows. This reflects the pressure you've seen in retail, but was partially offset by positive institutional results. In retail overall, we had lower gross sales and higher redemptions resulting in $5.8 billion of net outflows. This was driven largely by weak conditions in the United States and to a lesser extent in EMEA. In US retail, equity outflows were generally in line with the industry and the fixed income results were behind given our product mix. Compared to the industry, we did not participate nearly as much in short duration as interest rates stabilize and investors see opportunities, we believe our product position to improve flows. In EMEA, retail flows also remained under pressure. However, we did see some improvement in Continental Europe. Turning to Global Institutional. Excluding legacy insurance partners, net inflows were $3.9 billion. We had some good inflows in fixed income and other strategies. In addition, to our broad lineup of traditional institutional strategies, we're bringing more focus to multi-asset and solutions as well as alternatives. I was with the team in London in June, and they're feeling good about the core business the integration and the extensive capabilities we offer clients. In fact, just a few weeks ago we announced the rebranding of BMO strategies to Columbia Threadneedle, which was an important step as we move forward. I'll close Asset Management, with the financials. Our margin was 38.5% and that incorporated the BMO business, which has lower margins based on their mix. Given market decline and impact on revenue, we're taking steps to continue to control discretionary expenses thoughtfully. We'll be paying close attention to market environment, as we move forward. So overall, Ameriprise remains in a strong position. We have a proven track record of navigating tougher times and will continue to do so. We're highly engaged with our clients and helping them stay on track. And from a financial perspective, rising interest rates will act as an offset to compressed markets, as we move through the balance of the year. We will be focused on managing our discretionary expenses, even more tightly as we move forward. Importantly, our balance sheet fundamentals remain very good. We continue to generate strong returns and substantial free cash flow, which provides flexibility. In the quarter, we returned $600 million to shareholders and are on track to return 90% of operating earnings to shareholders in 2022. With that, I'll turn it over to Walter, to provide his perspective in more detail on the quarter and then we'll take your questions.

Thank you. As Jim said, results in the quarter were strong with earnings up 4%, to $665 million and EPS up 10% to $5.81, in face of substantial market declines. This demonstrates the underlying strength of our business model, and highlights the diversification benefit each segment provides across market cycles, as well as initial interest rate benefits and overall expense discipline throughout the firm. As we move into the second half of the year, benefits from rising rates and higher cash balances are expected to offset the realized pressures, from the market volatility. Our high-quality, diversified investment portfolio and head count continue to support strong balance sheet fundamentals and our business is generating good free cash flow. Despite the elevated level of market volatility in the quarter, Ameriprise returned $600 million of capital to shareholders and maintained significant excess capital of $1.6 billion. We are on track to return approximately 90% of adjusted operating earnings to shareholders this year. Let's turn to Slide 6. We ended the quarter with assets under management and administration of $1.2 trillion, down 3%, reflecting equity and bond market depreciation and as well as foreign exchange. We are executing our growth strategies, including the integration of the BMO business. The BMO business contributed to our geographic diversification, with international assets now representing 36% of asset management AUM, up from 27% prior to the BMO acquisition. And we continue to benefit from strong underlying organic growth momentum with $69 billion of wealth and asset management flows, over the last 12 months. Total flows in the quarter were $6 billion, with $9 billion of inflows in Wealth Management offset by $3 billion of outflows in asset management. Let's turn to individual segment performance, beginning with Wealth Management on Slide 7. Wealth Management client assets declined 9% to $735 billion. Despite the exceptional market depreciation in the quarter with equities down 15%, and bonds down 10%, we generated strong client flows from new client acquisition, excellent experienced adviser recruiting and deeper client relationships. Our advisers had strong productivity growth, with revenue per adviser reaching $814,000 in the quarter up 11% from the prior year. On Slide 8, you can see Wealth Management profitability benefited, from organic growth and the initial rise in interest rates. Adjusted net operating revenues increased 4% or $76 million to $2.1 billion, as market depreciation and lower transactional activity during the quarter was more than offset by rising interest rates and client flows. Cash balances increased to $47 billion, up 21% from last year. At the same time, the gross fee yield doubled, versus last year driving higher interest earnings in the quarter. Expenses remain well managed. G&A expenses increased $15 million or 4%, primarily from higher volume-based expenses over the past year. Overall, Wealth Management profitability remained strong with pretax adjusted operating earnings of $492 million, up 16% from last year and our pretax operating margin reached 23.9%, up 250 basis points. As you can see on Slide 9, we are well positioned to realize significant incremental benefits from rising rates on our cash products this year and going forward. In the quarter, we transferred $2.3 billion of brokerage sweep balances on to the bank's balance sheet in two and three-year duration strategies, with yields above 4% on average. In July, yields on new money purchases at the bank increased further and are in the 4.5% range. We continue to feel good about the credit quality of the portfolio with most of the portfolio in the AAA rated structured assets. We plan to bring an additional $3 billion of assets on to the balance sheet during the third quarter, bringing the full year increase to $7 billion. Our model leverages both broker-dealer suite program and the bank to optimize earnings from cash products. Currently, we have about one-third of the client cash balances at the bank and we expect it to be nearly 40% by the end of the year. In addition, our certificate business is another area that benefits from rising interest rates. In total, we expect to generate substantially more interest-related revenue in 2022 relative to 2021, which would offset current market-related impacts. Based upon our current assumptions, the interest rate benefit will increase further in 2023. Let's turn to Asset Management on Slide 10, where performance was in line with the macro environment. Total assets under management increased 1% to $598 billion. As the acquisition of BMO business was largely offset by market depreciation and foreign exchange translation. Asset Management flows were negative in the quarter with continued strength in our global institutional business offsetting a meaningful portion of retail outflows. Like the industry, we continue to experience pressures from global market volatility, a risk off investor sentiment and geopolitical strain in EMEA. Margin in the quarter declined to 38.5%. It should be noted that BMO reduces our margins by approximately 400 basis points. Going forward, our new margin toggle will be in the 31% to 35% range, reflecting the addition of BMO, which is primarily an institutional business. On slide 11, you can see Asset Management financial results were a reflection of the challenging market backdrop. Adjusted operating revenues were essentially flat at $881 million as the addition of BMO offset the impact of double-digit market depreciation, foreign exchange rates and outflows. Likewise, earnings in the quarter declined $31 million. Importantly, we are managing the areas we can control. The underlying fee rate remained stable in the quarter at 48 basis points. Expenses remain well managed with G&A expenses down 6%, excluding BMO. We are currently in the process of evaluating all discretionary spend and high rate. We remain committed to managing expenses very tightly in the current revenue environment. Let's turn to slide 12. The Retirement & Protection Solutions continued to deliver stable earnings and free cash flow generation as a result of its differentiated risk profile. Pretax adjusted operating earnings were $179 million. Sales in the quarter declined as a result of market dislocation and management actions to reduce the risk profile of the business. Most notably, variable new sales declined 29%, reflecting the uncertain market environment, as well as our decision to exit manufacturing products with limiting benefit riders, which was completed in June. Account value with living benefit riders represent less than 60% of the overall book, down nearly 3 percentage points from last year. Our risk profile remains strong with 94% VA hedge effectiveness in the quarter and an estimated RBC ratio of 530%. Now let's move to the balance sheet on slide 13. Our balance sheet fundamentals remain strong and our diversified high-quality AA rated investment portfolio remains well positioned. These strong fundamentals allow us to deliver a consistent and differentiated level of capital return to shareholders, even during periods of market volatility that we experienced this quarter. During the quarter we returned $600 million to shareholders and excess capital is at $1.6 billion. We remain on track to return approximately 90% of the adjusted operating earnings to shareholders in 2022. With that, we'll take your question.

Thank you. We will now begin our question-and-answer session. [Operator Instructions] We have our first question from Brennan Hawken with UBS.

Good morning. Thank you for taking my question. I love to start with the bank and the yield. Provided some great color on plans to continue to shift balances, saw really attractive balances. I believe, Walter that you indicated that assets moved to the bank in the second quarter late in the quarter. So considering that and considering where reinvestments are, how should we be calibrating for the potential yield upside, not only from averaging in the late shift in the quarter, but then further deployments of the $3 billion that you're considering in the third quarter? Thanks.

Okay. So if I understand the question, we weren't really shifting in the $3 billion. We believe it will be in the early part of the quarter that we will do that. Obviously, we will continue to invest in our structured AAA investments and which currently are yielding in the 4.5% range. And so that will make a total of about $7 billion of new funds into the bank and deployed in, like I said, in the second quarter it's 4.2% and now at current rates it's 4.5%.

Okay, great. Thank you. And then, when we're thinking about NII continuing to grow, saw really strong margin trends here this quarter -- pre-tax margin trends in AWM, despite the challenging environment. So NII clearly helpful there. As that continues to grow, you continue to deploy more cash. Should we be continuing to pace margin expansion at a similar level that we saw here in the second quarter, even if markets remain challenging?

Again, a lot of assumptions in there, but from the standpoint of looking at the opportunity we have on the care side and certainly, the strong close that we are garnering in this environment, you should be able to see margin maintain and expand.

Great. Thanks for the color.

Thank you. Our next question is from Andrew Kligerman with Credit Suisse.

Hey, good morning. Recruiting was very solid. You given a 10,200 plus advisers. It was up about 1% sequentially. How is the pipeline there? Is this a business that you think is going to continue to grow throughout the year, despite this market turmoil?

Andrew, yes, thank you for the question. We continue to see good recruits. I mean, actually second quarter was actually stronger than the first. And the pipeline continues to look good. We are speaking to more people. I think people are recognizing what we bring to the plate, in combination of the support we give, the technology and how we help them really grow their practices. We're getting really strong reviews from people who have joined us. And so, we feel that this is a continued good opportunity for us. And even as you go through these volatile markets, based on the type of support we give and helping advisers to actually achieve more in regard to their productivity and how they manage their businesses, we feel it's a good opportunity for us.

That's great. And then just on the wrap flows, if you'd asked me three years ago when you were doing $4 billion to $5 billion in net flows and you said you did $6.2 billion like this quarter, I would have thought that was an outstanding result and probably it still is. But recently you had peak numbers around $10 billion. And my question is, is this $6.2 billion a good base now, or do you think that could continue to be pressured even lower just given the market volatility?

Well, I think what you're asking, it's also an excellent question. And so yes, our total client activity has increased over the years as you've seen. And even in this last quarter, we brought in almost $9 billion of new client inflows. Now with this market as you would imagine, the deployment of whether it's new money or even current money is a little more -- people are a little more putting on the sidelines and waiting the things are stable. So money is still being deployed, but not to the extent where you have rising markets or the stability in the market. So with the pullback, we experienced, I mean, first part of the year, you're down 20% bond markets were also down. So I think the $6 billion is quite strong in this type of market environment. My feeling is money will continue to go back into the market as things stabilize particularly even in the fixed side of the business. So I don't see anything changing. Now whether you've got some material market dislocation occurring in the third and fourth quarter, I can't tell you. But I think if markets aren't materially different we should still continue to see good flows.

That's great. Thanks a lot.

Thank you. Our next question is from Alex Blostein with Goldman Sachs.

Hey, good morning everybody. Thank you for the question. So maybe just to start with some of the cash balances dynamic within Advice & Wealth. Walter, I was wondering if you can give us an update on how the cash balance is holding up so far in the third quarter given obviously pretty strong trends in Q2 with cash balances being up? And as we think about the deposit betas, it looks like you guys passed through almost nothing to the customer in the second quarter. So any updated thoughts around sustainability of sort of a such slow deposit betas as you progress through the rest of the year would be helpful.

Hey, Alex. They are holding up. And from that standpoint, so the trend you've seen it is holding. As it relates to the crediting rate for clients, we go through an extensive competitive review. And on that basis we did increase some of the rates as it relates to it based on that review and we will certainly consider continue to evaluate that which we do weekly. So we see that obviously we will start crediting as if the Fed basically increases on the 75 basis points that we anticipate at the end of the month. And so right now we feel there is certainly opportunity as rates increase and to certainly credit and those are in our assumption base.

Got it. And I guess as you think about just the trade-off of growing the bank beyond 2022 you gave obviously a very clear guidance of how large you expect the bank to get by the end of 2022. But seeing how the yield on broker suite balances will be fairly attractive given again it's all floating, how are you kind of thinking about balancing growth of the bank versus just leaving it in third-party bank sweep given that spread probably narrows a bit here?

Yes. Listen it's a good question. But if you go back to the first quarter of 2020, certainly we were earning, certainly a good short-term return and then it disappeared. So the bank gives us the ability to really have a steady earnings stream with high-quality investments. So we are balancing that. And the spreads we're getting right now we feel is very good with the risk profile. So we will continue to do that from that standpoint. We feel it's a critical part of our overall cash strategy. So we're very fortunate to have the bank not only to offer to our clients, new products and capability, but also the -- giving this ability to have the stabilization of having the spread income come through.

Great. Just a quick one for me at the end here. As we think about G&A that's held up really nicely in the quarter. Particularly we've seen you guys bring down expenses in G&A in the asset management business. But when you think about the firm-wide G&A run rate for the back half of the year given obviously fee challenges on the back of low markets how are you thinking about the G&A run rate for the back half? I heard your comments qualitatively about pausing maybe some of the initiatives and looking for ways to save. But I guess relative to like the $880-ish million G&A run rate we saw in the second quarter what does the backup look like?

Number one from a company standpoint certainly we look at it, but we are going to be very well managed on our G&A overall as you indicated certainly asset management Jim indicated certainly they are looking at discretionary spend. So, overall from a company standpoint, we are going to be in the range that we talk about and we're performing well. As it relates to AWM with the good revenue growth we see and everything it's going to be managed, but we are certainly trying to garner and increase basically and take advantage of this situation to invest. So, it's going to be well managed early within expectations to the revenue growth that we see which we think is going to be good.

Okay. Thanks very much.

And we have our next question from Thomas Gallagher with Evercore ISI.

Good morning. Walter just wanted to come back to what -- if you can give some indication of broadly what you're investing in the banking deposits? And I think you mentioned AAA structured assets. Are those CLOs, or what -- can you give a little more color on why you feel confident in the quality on the asset side?

Okay. It is structured. It's in CMBS, it is basically a retail MBS and the CLOs are the highest structure within that structure and they all are triple rated from that standpoint 88% of what we invest is in those AAA securities -- structured securities.

Okay, that's helpful. Question on your capital. I think excess capital went down by $300 million this quarter. Can you talk a bit about what drove it? I assume it was variable annuity related in your life insurance business maybe a little bit below the surface sort of what happened there with hedging? Was it higher required capital? And what kind of drove that?

Well, it's -- you saw it dropped $300 million again within our rare expectations it was that tolerance reporting, it was within total tolerances. It hit reserves and basically capital on the VA side as it relates to that 15% drop in the quarter. And so from that standpoint the hedging was effective is 94%. So, we feel very comfortable, but it was a substantial drop and certainly within our expectations from our modeling. So, but it was both on both reserves and on capital.

Okay. Thanks. And then final question just can you give an update on how the whole process for a potential risk transfer is going whether -- I think when you started this whole process late in 2021, you had commented that you felt like the quality of your insurance business would be validated as you went through that process. Would you say you still feel that way that if you do something it's going to be reflected in an attractive price, or what have you learned so far through that process maybe?

So, as again we're continuing to evaluate. We certainly have interest in that and we're evaluating that. And we -- yes to be direct about it, I think it is clear to us that the value and the quality at which we have is being recognized from that standpoint. But as you know these are long tail evaluations and they're continuing.

Okay. Thank you.

Thank you. Our next question is from Suneet Kamath.

Thanks. Good morning. Just a couple for me. Walter I think last quarter you talked about a $200 million benefit from the bank. And I know we talked about a bunch of moving pieces so far on this call, but can you give us a sense at least based on where we sit today kind of how you're feeling about that $200 million number? Did it contemplate future rate hikes and that sort of thing? Just some color there would be helpful.

Sure. So in there, we're anticipating based on the latest estimates from the Fed, there will be an additional 175 basis point increase and we'll see where that goes. Certainly, from that, all we also – the crediting rates, we are assuming that we would start distributing at a harder level within that. So right now, the number of – versus for the whole year is the change versus last year would be in the $400 million range plus. So that $200 million that we talked about is in the $400 million range plus for the total year.

And that's for 2022? So as we think about 2023.

First 2021, yes.

Yeah. Okay. All right. That's good. And then, I guess sort of a specific one, but I noticed that your long-term care reserves came down I think about 11% -- 10%, 11% from last year. Is that just the benefit of higher rate? Can you talk about that a little bit? And then to follow-up on Tom's risk transfer question any more activity in terms of long-term care that you're hearing in the market?

Okay. On the reserves, I believe, it is but we'll get back and confirm that as it relates to -- we're evaluating. Let me just say, what we continue to evaluate close spectrum. All right?

Okay. And then just last one is just on the Asset Management margin, the new target of 31% to 35%. Is that entirely BMO-driven, or does that also – is there also a piece related to the pretty significant market decline that we've seen here in the second quarter? And then at some point, do you start to push back towards your prior range, or is it just kind of the new level for that business? Thanks.

The 400 basis points is strictly BMO. That's a normalization on the BMO from – so the 35% to 39% is like I said going down 400 basis points strictly because in BMO it does not – and obviously, we're coming down because of the market standpoint. And – but because we're in the 40s and now it's dropping, because of the deleveraging is taking place, because of the equity markets and fixed income and we'll continue that's it. Hopefully I answered it.

Yeah, I got it. It sounds like that's the new level with the business. Okay. Thanks.

Our next question is from Steven Chubak with Wolfe Research.

Hi. Good morning. So just one follow-up for me relating to that prior question on the asset management margin outlook. I just wanted to make sure Walter it does sound like that is the new run rate. But does that 31% to 35% contemplate some of the actions you alluded to around discretionary spend? And also wanted to see, whether that also incorporated some of the BMO expense synergies that are not yet reflected in the run rate?

So when that's – it is now normalized okay because we always said we would be 34% up and 39%. And it is our target range. So as the markets, if we look at the markets and we evaluate the implications, we are going to be looking at the expenses. And it does have the some of the synergies that we anticipated with BMO, which was going to be more back loaded to 2023.

Understood. And maybe just one quick follow-up, can you just speak to how the flow trends are tracking in July just so we can think about some of the cadence of flows versus 2Q recognizing the industry is still facing some headwinds just from a flow perspective.

Yes. So, this is Jim. What I would expect is more of a continuation at this point. I think from a retail perspective, I think things are still on the asset management side soft. I think you'll see that across the industry. If you look at the new Sims that are coming out, or will come out. I think on institutional it's just longer for mandates et cetera. But – so I don't see a dramatic change at this point. Now, we'll see what the Fed does, and we'll see what the outlook is for various things as we go forward. But that's what I would probably say.

Very helpful. Thanks so much for taking my questions.

Thank you. Our next question is from John Barnidge with Piper Sandler.

Thank you very much. With that new guidance around margins in the Asset Management segment can you maybe talk about the level of composition of variable expenses maybe across the franchise in your businesses? Thanks.

Again, looking at our expense base there's a reasonable portion that's variable. But again, the exact proportion, it gives us the ability to certainly adjust. The exact percentages – kindly, I would have to get back on that. But we do have -- because there is investment spending that we do, and certainly, we have evaluation of hiring and other things on open positions. So, there's a reasonable amount of variable in there, but I don't have the exact percentages at mind, pardon me right now.

And then maybe my follow-up question. Is there a way to size the liability-driven investing opportunity that seems like it's been a strong area for institutional?

Yes. So, with the BMO acquisition, et cetera, they have very good capabilities, and now we are looking at those opportunities across the franchise with our expanded level of institutional business. And so, we feel it will be a good channel as well as a relationship builder channel for us.

Thank you.

Thank you. Our next question is from Erik Bass with Autonomous Research.

Hi. Thank you. Can you talk about the level of foreign exchange sensitivity in the asset management business post the BMO acquisition? And I guess, there's clearly impact on revenues and AUM, but how much of an offset? Is there in expenses? And how should we think about the kind of net earnings impact?

Yes. So, with BMO, obviously, we shifted from 27% to 36%. And that is sensitive to. So approximately in the PTI elements of it, it was about a $15 million impact to us.

$15 million in the quarter?

Yes. That's net. Yes, on PTI.

Got it. Thank you. And then, I mean you highlighted the $1.6 billion of excess capital that you have. And in past periods of market weakness, you've sometimes increased the level of capital return above the 90% target of earnings and leaned into buybacks a bit more. Is that something that you would consider given the pullback in your stock year-to-date?

Well, from -- if I understand your question, certainly the $1.6 billion we feel comfortable at the continued as we indicated hitting our trend line for the 90% for the year. And obviously, as you look at the back half of the year, we'll be able to, certainly, with that 90% hitting buyback, a lot more share where the share price was last year versus is right now. Hopefully, it will get back to where it is. But where it is right now, will give us the ability at that level to buy back more shares.

Got it. But you're not thinking of changing the percentage?

No. At this stage, we evaluate each quarter, but the answer is -- and we'll be opportunistic as we assess it, but we're still talking in 90%.

Remember, I think it's actually pretty good. A lot of companies are pulling back on their buybacks if they were doing them, and we're doing them at a still a very strong rate.

Yes. No, very fair. And obviously, with the price lower, you're buying more shares. So, I appreciate it. Thank you.

Our next question is from Kenneth Lee.

Hey. Good morning. Thanks for taking the question. Just one on the Asset Management side, again. Curious as to what you're seeing in terms of net flows within the fixed income category, just given the industry trends we're seeing. Thanks.

Yes. So, what we saw in our business is our net flows were a little -- on a percentage basis, a little worse than where we saw on our equity side. And that's mainly because of the mix of business that we have. So, some of the players that might have had larger areas of short duration, et cetera. We have a short duration business, but it's not necessarily one that we're across all our channels in. And so, people who had that business or a little more of the inflow in there than we did, because we really were in mortgages and total bond and things such as that a little longer duration products. And then, the other area that I think probably had some greater flows was more on the leveraged loan area, which is only a small business for us. So, I think it had to do more with mix than anything else. But because of being in the type that we were in with the dislocation in the fixed income market as you would imagine redemptions would be up a little more and flows were down. Municipals, was another area that we had a bit of that weakness and based on the market situation. But we believe that the areas that we do have now, based on the credit quality, et cetera, will come back. We think as interest rates stabilize a little more or that as you see on the long end, it's starting to soften up a little bit.

Great. Very helpful there. And just one related question as my follow-up. More broadly speaking within the Asset Management side, how do you think about the overall product offerings mix the strategies out there? Any particular gaps that you would like to fill at this point? Thanks.

Yeah. So what we have now we have a good mix with the BMO acquisition. So we're putting more energy and time on the ESG or the RI part responsible investing. We're doing more on things like LDI and solutions. We're doing more on alternatives. We're trying to build out a little more on our retail, real estate and property businesses institutional as well. And so there are certain things like that that we're focused on for what we have in place. So we feel good about the mix that we have. Again, we're in a little bit of this -- I think you look across the asset management industry. I'm not sure you'll see a lot of favorability at this point across, but I think we're in good shape. We have good businesses. We can manage our expenses. We're still investing appropriately to get some greater scale efficiencies and the integration with BMO. So again, we're in a little bit of a dislocation market. But I think -- and that's really one of the benefits of the firm like Ameriprise. We're very balanced, even where I know on one end someone says risk transfer, but we generate some really good solid earnings and cash flow from our I&A business activities, our AWM now with the growth of the bank in complement, it gives us a good now offset. So I think over time, again you'll see the strength of how the company really plays out and how we can use this opportunity to really leverage against whether it's having to do with shareholder return or even flexibility.

Great. Very helpful there. Thanks again.

Thank you. Our next question is from Ryan Krueger with KBW.

Hey. Thanks, good morning. Just a follow-up on the $400 million of upside from interest rates in full year 2022. Just given that probably a fair amount of that is coming in the back half of the year, are you able to comment on how we should -- how that might look in 2023 as well?

It should look pretty good.

Okay. Yeah, obviously -- it's Walter. You're going to get the normalization. If the Fed increases come in, which is 175 coming in the back end and getting the normalization on calendarization is going to take place there. It is dependent of course, again what happens to the cash balances and the crediting rate. So there's a lot of variables. But as Jim said, you're going to get an increase. And certainly, we anticipate there will be an increase based on our modeling. So in -- again, from our standpoint, it is going to be substantial.

Got it. And then just on the asset management margin target. You were still a fair amount above that new target in the second quarter. Is this -- should we just think about this as a longer-term target, or in the current environment, would you anticipate being down to within that new target in the near term?

I think what you have to sort of factor in. And again, it depends on what happens with markets, right? You had a bit more of a dislocation of the markets in the second quarter. And so, as you look at that probably compared to where the averages are between the first and the second quarter going into the third, you will continue to have a little bit more of that margin compression as is depreciation on the asset base, if you roll it over. But having said that, I would say that we still feel good about being within those margins after you take that into account. So remember, markets depreciated and it's not just equity markets, the fixed income market, which is not normal in the sense where you get both of them depreciating at the same time.

Got it. Thank you.

We have no further questions. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.