Ladies and gentlemen, thank you standing by, and welcome to the Prudential First Quarter 2009 Earnings call. At this time, all participant lines are in a listen-only mode. Later, there will an opportunity for your questions. Instructions will be given at that time. (Operator Instructions). As a reminder, today's conference call is being recorded. And for opening remarks, I'd now like to turn the conference over to Head of Investor Relations, Eric Durant. Please go ahead.

Thank you, Liam. Good morning, everyone. Thank you for joining us. In a few minutes, we'll begin with John Strangfeld's comments on the quarter. And then, Rich Carbone and Mark Grier will weigh in. After that, we'll have answered your questions. In order to help you to understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the predictions we make today. Additional information regarding factors that could cause such a difference, appears in the section titled Forward-Looking Statements and Non-GAAP Measures of our Earnings Press Release for the first quarter of 2009, which can be found on our website at www.investor.prudential.com. In addition, in managing our businesses we use a non-GAAP measure, we call adjusted operating income, to measure the performance of our Financial Services Businesses. Adjusted operating income, excludes net investment gains and losses as adjusted, and related charges and adjustments, as well as results from divested businesses. Adjusted operating income, also excludes recorded changes in assets values that will ultimately accrue to contract holders and recorded changes in contract holder liabilities, resulting from changes and related asset values. The comparable GAAP presentation, and the reconciliation between the two for the first quarter, are set out in our earnings press release on our website. Additional historical information, relating to the company's financial performance, is also located on our website. With that, here is John Strangfeld.

Thank you, Eric, and good morning, everyone. Thank you for joining us. We appreciate your interest in Prudential. I'd like to begin with some macro comments on business mix, performance and momentum. First quarter results were decent, all things considered, and our business fundamentals were strong, which bodes well for our future. Our results reflect our diverse portfolio of businesses and their varying sensitivity to equity market conditions. Retirement, Group Life and International Insurance, each reported record first quarter earnings. Asset Management and Annuities were heavily affected by unfavorable market conditions. Yet, both of these business rebounded from significant losses in the fourth quarter. So, while far less dramatic than in the fourth quarter, unfavorable market effects on our equity-sensitive businesses has somewhat overshadowed the fact that most of our non equity-sensitive business, have produced pretty darn good results. In fact, businesses representing nearly half of our normalized earnings, actually produced record results. Its not just the arithmetic mix of businesses that important. It's also the quality of the businesses that make up the mix, that give us confidence. Our businesses are good businesses. They help people manage risks and uncertainty. And that's more relevant today than ever. They serve attractive markets, and we are highly competitive in each of those markets. A reflection of that is the fact that our business fundamentals, meaning underlying drivers, remain strong despite the environment. We achieved record sales results in Retirement, strong sales in Group, Individual Life and Annuities, and continued strong results in International Insurance. We are by no means immune to the challenges of the markets, and of the economy. But we are holding up well, and we believe, as evidenced by our drivers, gaining ground. Considering first quarter results as well as financial market conditions, we are reducing our guidance…

Thank you, John. As usual, I'll begin with an overview of our first quarter adjusted operating and net income. And then, I'll discuss our capital and liquidity picture. And Mark will deal with the investment portfolio. The references and descriptions I'm about to make are for the Financial Services Business or the FSB. As you've seen from yesterday's release, we reported common stock earnings per share of a $1.5 for the first quarter, compared to a $1.57 for the year-ago quarter, based on adjusted operating income. The operating results of our business once again, are affected by discrete items, closely tied to the unfavorable financial market conditions, which I'll go through now. In our Annuity business, we increased our reserves to guaranteed minimum debt and income benefits, resulting in a charge of about $0.39 per share. And we increased the amortization of deferred policy acquisitions and other costs, producing a charge of about $0.20 per share. The market decline and account values for the quarter, lower expected fees, higher expected benefit costs, and unfavorable experience in the quarter, were all responsible for these charges. As you know, we no longer apply carter (ph) for market performance in the Annuity business. So, update of reserves and amortization take into account the entire market decline and account values for the quarter, as we project future fees and benefit costs. In addition, while we use a reversion to the new approach in this projection that assumes some recovery in account values over a four year look-back... look-forward period. The benefit to our calculations is limited, because we apply a cap to the overall gross returns on our account values. Our Individual Life insurance business also recorded increased net amortization of debt, and related costs of $0.06 per share as a result of market…

Thank you, Rich. Good morning, good afternoon or good evening. I'm going to start with some comments on the investment portfolio and then I'll talk about the businesses. As we've stated in the past, we manage our investment portfolio primarily with a focus on its cash flow prospects. Since our general account investments are mainly supporting long-term insurance liabilities. We continue to live with the substantial disconnect between the market values for many classes of investments, and their underlying cash flow prospects. This has produced gross unrealized losses that we believe have little relevance to the ultimate economics we will realize as the long-term investor. I would now hear that our early adoption of new accounting guidance on mark-to-market, of fixed income securities that we expect all to recovery, did not have a significant impact on the values we are using. And there has been no significant change in the portion of our holdings that we price based on models rather than market inputs, as a result of this guidance. With that said, let me start with the fixed maturity portfolio. Gross unrealized losses on fixed maturities in our general account stood about $11.2 billion at the end of the first quarter. We expect the holding securities to recovery, and the market driven declines in value do not have a negative impact on our statutory capital position. Gross unrealized losses are essentially unchanged from year end. As Rich mentioned, our early adoption of new accounting guidance for impairments, required us to restore previously taken impairments that don't represent credit losses back to book value. And this had the effective increasing our gross unrealized losses by about $1 billion. This accounting change, essentially offset credit spread tightening during the quarter. Said another way, our gross unrealized losses would have come down…

Thank you. (Operator Instructions) Our first question is from line of Suneet Kamath with Sanford Bernstein. Please go ahead.

Good morning, and thanks. Just two questions related to unusual items in the quarter. On the discount rate related to the market-based non-performance risk, question is why did you make that change now? Is that something that the auditors required you to do? Or was that your call? And are we going to be chewing this up now every quarter through the operating earnings line? And then, the second question is related to the variable annuity reserve strengthening. Did I hear you right saying that what the reserve now contemplates is 10.5% market appreciation per year going forward? So, if we missed that bogie, we may need to build more reserves ahead? Thanks.

Suneet, its Rich. No, the auditors didn't ask us to do this. This is GAAP. We have to reflect our own credit standings in the calculation of reserves that we imply FAS 157-2 which is mark-to-market. So, if we have a liability, we must reflect our own credit rating. It changed during the quarter from year-end and nearly used the updated data. As far as the other question goes, the... we had a mean reversion assumption when we calculate our reserves. Implicit in that mean reserve assumption is a 10.5% forward return assumption. And if we don't achieve that in any given quarter, there will be unlockings to both DAC and the GMDB reserve. And I am sorry, you also asked if we could expect updates to the 133 reserve as a result of non-performance risk. And the answer to that question is, yes. Going both ways. And obviously, as our spreads come in and our credit standing improves, it will result in a reversal of that roughly $240 million gain in the lock I should say in the first quarter. And that will unwind itself as a charge through the P&L in the future.

Got it.

To make sure, something I have here. Just to say our on the mean and mainly where you can exit full year period 10.5%. The long-term assumptions is lower than that beyond the four years, which is 8%.

Okay, thanks.

And next we go to line of John Nadel with Sterne, Agee. Please go ahead. John Nadel - Sterne, Agee & Leach: Hi, good morning. Thank you. Hey John, I was interested in your comments about over half of the normalized earnings, the businesses were generating sort of record results this quarter. And it got me to thinking about your longer term ROE. And obviously, there's a lot of market dynamics in effect here. But I guess, the way I'd ask the question is, as you look at the businesses that are actually underperforming, has there been any thing that you would characterize as you've review those businesses, as sort of permanent return reduction, in terms of the potential returns for those businesses i.e. Annuities or Asset Management as you look out. And if so, what kind of overall impact do you think that has on your franchise ROE objectives?

John, hi. I think principally, one area where that I have some application is in terms of the annuity ROE, particularly on the old block of business, as opposed to on our new block of business. But, there you have... there that force could be at work. John Nadel - Sterne, Agee & Leach: Okay. And any way of sort of thinking about the quantification in that? I suppose, the older business will over time just be muted further by new business growth. Correct?

Yeah. And then, we are in the process maybe Bernard can speak specifically, as to let us give you a current view on what that mix shift is, in terms of the mix of the old versus the new.

John, its Bernard Winograd. I think the sales at this point are 100% in the new products and the auto rebalancing product, which has very different characteristic. So, I think if you're trying to understand it, it's reasonably easy to extrapolate just by estimating what the impact of our sales are. The difficult thing to extrapolate is what is the persistency going to be of the old block that has the depressed ROE. And the answer is highly dependent upon the level of the stock market. As long as people guarantee they are substantially in the money, we're expecting persistency there to be quite high. John Nadel - Sterne, Agee & Leach: Got you. Okay, thank you. And then, the last thing I'd ask is just, as you look at the performances especially of the credit markets, since the end of the quarter, obviously, April was a very good month. And it seems to be continuing through at least the early parts of May. Any estimate you can give us on the impact that that might be having on your unrealized loss position relative to March 31?

Well, we don't... this is Mark. We don't comment on our interim financial numbers. But, I think our moves would be consistent with the improvement in the market. John Nadel - Sterne, Agee & Leach: Okay, thank you.

And next we go to the line of Nigel Dally with Morgan Stanley. Please go ahead.

Great, thank you, and good morning. First for Rich on the RVC ratio. How are the scenario to articulate our change if we use the current level of the S&P, it was around 900. Just, if we could isolate the impact of the equity markets on how those ratios change? Second, also happen to get an update on the Wachovia put option, given you solid liquidity capital. Is an early exit from the Wachovia put still on the table? Also, is the final value being determined, if not, why not? Last, given the need for relative rate capital under the stress test, should we still expect that you'll floating cash towards equity more likely? Thanks.

I think Mark will take the spilt question first Nigel.

Yeah. The headline over the put would be that we have no reason to expect that this won't play out as specified by the contract. And as we have been telling you, I would add that as we've said before, we would have an open mind about discussion. So, anything that anyone wants to talk about or willing to discuss. But, our plan right now is reflected in the stress scenarios that Rich talked about is that this will play out according to the contract. We also will have the choice of our cash or stock. And I can't speak to their capital plans or capital needs or intentions in that regard. Finally, with respect to the final value. As you know, we will go through a process that includes the appropriate appraisals, and arrive at that on a calendar that will have that happening some time this summer, in anticipation of settling in January.

Yeah Nigel. On the S&P sensitivity. There are so many moving parts. But, if I gave you a simple rule of thumb, and its not linear, which is the other problem. But, in S&P move of a 100 points translates to more or less 50 points in RVC, ceteris paribus.

Okay. That's very helpful. Thank you.

Let me just overlay one thing which is to remind you that when we present our scenarios, we include the actions that we will take to achieve our RVC objectives. So, when Rich puts that number out, that's an unmanaged impact. And we have substantial resources as you heard reflected in the RVC numbers that he talked about, even in the extreme scenarios, to ensure that we can manage to RVC targets that makes sense.

I understand, great. Thank you.

Next we go to the line of Tom Gallagher with Credit Suisse. Please go ahead.

Hi, I guess, just on that last comment, a follow-up first. Then I had a few other questions. But Rich, when you talk about the options available for you to bolster statutory capital under the stress test, can you articulate what those are, and try and give some kind of quantification of those?

Yeah, I'll tell you what they are. And the quantification, ends in flows. But, look, let me give you some of the bigger one's, okay. The first one, we always talked about this before was if PICA owes the holding company $3,5 billion as of year-end in medium term notes. We are repatriating or we're settling those loans between the holding company and PICA. And either downstreaming that back to PICA as capital or as PICA sends it back up, because PICA is a regulated entity of a holding company. It has to done at arms length. And PICA is actually recording a intercompany gain, which has the same effect to surplus as to if they paid me the full amount, and I gave it back to them, will they book the gain down below. So, that bolsters their surplus that way. And that's... that train has left the station. We're running at through the rest of the year, and by year-end we will have settled between PICA and the holding company that entire $3.5 billion. Another item is, we're moving our hedge positions for the FAS 133, the guarantees under our annuities back on to PICA from an offshore sub. And then, that bolsters the capital within PICA, because of the interplay between the liability... mark-to-market on the liability, and the mark-to-profit on hedge asset. We also have... we really don't use reinsurance a lot. And so, we have some reinsurance alternatives that are out there. And we have some excess collateral in certain subsidiaries that are behind our XXX financings. And those are represented by surplus notes, between the parent company and the subs. And the subs can pay back those surplus notes. And as we move down the plane from 800 to 700 to 600, we would trigger each one of these things along the way.

Okay. That's helpful. And if we... trying to roll all those up, are we talking about a $5 billion potential contribution of surplus. Is it anything and not ballpark?

No, I should see. No, I don't think it's 5 billion. I don't think it's 5 billion. Let me think. Wait a minute, with the hedge notes. With the hedge notes, it could be 4 to 5 billion with the hedge notes. With the hedge notes, with the retail notes and the hedges, yeah.

Okay. Yeah, that certainly would explain why you have substantial buffer in those sort of scenarios you laid out. That's helpful. The other questions I had were just on the holding company cash position that seemed to have gotten a lot better. Just overall, if you think about it from a coverage standpoint, just want to know what's behind the scenes. Why are you now holding cash that's essentially two times the amount of short-term debt, if we include the converts that are due, as opposed to last quarter, it was about one times. And also, what was the source of that cash build there?

Sure. The cash is real simple. That's the retail notes. They are paying off the medium term notes throughout the year. And why are we holding it, because it's a regulated entity. As they pay it back up to us, its going to still at the holding company. And so, we have a cash cushion that takes us through well into 2010. I'm actually targeting a cash cushion that will take us well into 2011.

Got it, thank you.

Next we go to the line of Jeff Schuman from KBW. Please go ahead. Jeffrey Schuman - Keefe, Bruyette & Woods: Thank you. Good morning. Hoping to reconcile a few things. Mark and Rich and John, all made some comments about capital. I think Mark closed by expressing comfort with capital position which he just told as a current market levels that the RBC is probably for 50ish in that, sort of downside market scenarios are manageable. And yet John I thought in your opening remarks, you made a comment about opportunistically considering access to capital. I am wondering, if you could sort of clarify what you meant by that?

I guess, a couple of different things. I think we view this is being a time where there is lots of opportunities, in terms of organically growing our business and that could be other opportunities as well. And what we recognize is that there could circumstances under which just as we're being opportunistic and opportunities we presume, there maybe opportunities with regard to financing alternatives as well, which is simply acknowledging that in this environment. So, really, there is not much to say. Jeffrey Schuman - Keefe, Bruyette & Woods: Okay. So, I should think of it maybe, possibly more of an offensive context rather than a defensive context necessarily?

Yeah, balance. But that's... that's balanced.

We don't think about it. Jeffrey Schuman - Keefe, Bruyette & Woods: Okay. And then, one other clarification. I thought I understood Mark just say that the appraisal related to the put was still in front of us. But, I thought that there had been historic appraisals that were long since done that were locked away to be examined on the contingency that you exercised the Wachovia put. So, had I misunderstood that... were there no historical appraisals done?

Well, yeah. Either I misspoke, or you got a little bit confused probably, I misspoke. We've said repeatedly that we had appraisals done last spring based on 1/1/08 for this entity. So, there are appraisals that are out there that have been done. And our process will work through those as we go through the formalities. Jeffrey Schuman - Keefe, Bruyette & Woods: So, have you...

Yes, you're right. Jeffrey Schuman - Keefe, Bruyette & Woods: So, have seen those appraisal outcomes or not?

No, we haven't. Jeffrey Schuman - Keefe, Bruyette & Woods: When will you see them, because I would have thought when you exercised the put then everyone would have a look at that. Is that the case?

We haven't exercised the put yet. We've declared our intention to exercise the put, but the legal process will begin by June. Jeffrey Schuman - Keefe, Bruyette & Woods: Okay.

We are still a little bit ahead of the legal process. So, when we do exercise the put with the formal notice, then we'll see those, and we'll tell everybody what the answer is. Jeffrey Schuman - Keefe, Bruyette & Woods: Okay, that's helpful. Thank you.

Yeah. But, you're right. There are appraisals that have been done based on 1/1/08. Jeffrey Schuman - Keefe, Bruyette & Woods: Great. Thank you.

Next, we have a question from the line of Ed Spehar with Bank of America. Please go ahead.

Hello, can you hear me?

Yeah, we can.

Okay. Thanks. Rich I was wondering if we could get maybe just a little bit more on these other actions. And specifically, when you talk about settling the medium term notes, should we be thinking about somehow like at 80% a par, or something in that neighborhood. Is that... or is it more than that?

Ed, you can think about at that way. But, I tried to make the point before probably not very clear, it doesn't matter. The own the holding company in $3.5 billion. They can pay the holding company $3.5 billion. They have the wherewithal to do that. And the holding company would downstream roughly a $1 billion down to PICA to supports PICA's capital in some of the stressed scenarios. But because it is an intercompany transaction, it requires an arm lengths (ph) pricing. We have to settle those notes. And I am going to go the whole nine yards here at 2.5. So, if I can pay the holding company 2.5, books an intercompany gain of the billion. All gets eliminated in consolidation. But, that billion sits in surplus of PICA. Could get their two ways? I could give it back to them, or they could book it on the sale.

Okay. But that's roughly, the number is a billion?

Yeah.

Okay. And then...

I passed today, Ed, not today, when we're all done with the 3.5.

Right, right, okay. And the next question is that you gave us these various impacts, and I am assuming that is the biggest one of the other actions, is that correct?

Yeah.

Okay. But, now when we move to this issue of hedges, moving the hedges back to... moving them under PICA from an offshore sub. How much of the hedge gain that you have there in this offshore sub, is really kind of an economic... what would you consider an economic gain versus just the mismatch in timing of asset liability valuation under stat?

Ed, this is Mark. I would consider most of that gain to be economic. We've over hedged the volatility in these living benefits. So, lot of the valuation of the hedge asset reflects high volatility that is not really a direct benefit to the liability holders. So, I think of it as more economic than accounting.

Okay. And then... but then, that leads to the next question, which is, we've obviously had very high, extraordinarily high implied valves for long-dated options. And so, to the extent that those come in even a little, I'm sure they have some already. But, how much... how sensitive is that sort of... that surplus in terms of the fluctuation implied valves?

I can't give you a number, Ed. But, it's very sensitive. The implied valves on that embedded derivative liability will and they've blown out, which is really put this thing at where it is. When they come back down, the liability will reduce accordingly.

We've done some things to mitigate the potential impact of falling volatility on that statutory gain.

Okay. So, I mean, I guess, the assumption is that if we get back down to those low levels that volatility is going to be high, right?

You mean... in the... yeah, I... now, I see what you're saying. Yeah, I think it's likely that if the S&P goes to 650, we'll be back in an environment of very high volatility.

Oh, I am sorry, Ed is that what you...

No, no. I guess, this is (Inaudible) kind of snacking a different question.

But yeah, I think there seems to be a pretty strong correlation between the massacre scenario in the market, and the implied volatility in these long-dated options.

Right. And can you just give us some sense of the dollar amount of the benefits you would get now, if you move the offshore underneath PICA?

It's in the order of the magnitude of $1 billion.

Okay. And then finally, I am assuming the RBC scenarios that you've talk about take into account the hit to the equity portfolio on the Closed Block as well?

Yes, they do.

Okay. Thanks a lot.

And our final question is from line of Eric Berg with Barclays Capital. Please go ahead.

Hi.

Eric, we can't hear you?

Hello?

Hello Eric, is it a mute run out.

He must be on a cell phone. We must have lost him. His line is still open.

Hello. Eric. All right, I think given that we seem to have lost Eric, it's time for us to wish you all a good day. So, thank you for your interest in Prudential. And we look forward to seeing you in the near future or listening to your questions, pretty much from now. Thank you, again.

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