Form: 8-K

Current report

Documents

Exhibit 99.2

Prudential Financial, Inc.

Financial Services Businesses

Information Regarding Certain General Account Investments

Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Loans

March 31, 2008

($ millions)

 

General Account Investments - Available for Sale

    Amortized
Cost		    Gross
Unrealized
Gains		    Gross
Unrealized
Losses		    Fair
Value

Asset-backed securities (a)

    13,363    74    1,328    12,109

Residential mortgage-backed securities (b)

    10,826    189    90    10,925

Commercial mortgage-backed securities (c)

    6,956    46    146    6,856

 

     Gross
Carrying
Value		    Allowance
For
Losses		     Net
Book
Value

Commercial loans (d)

    21,274    (94 )   21,180

(a) Supplemental information for asset-backed securities:

 

          LOWEST RATING AGENCY RATING               
     Vintage    AAA    AA    A    BBB    BB and
below		    Total
Amortized Cost		    Total
Fair Value		     

Collateralized by sub-prime mortgages:

                           

Enhanced short-term portfolio

                           
   2007    535    104    57    —      —      696    616   
   2006    1,913    162    238    —      —      2,313    2,146   
   2005    75    —      24    —      —      99    95   
   2004    —      —      —      —      —      —      —     
   2003 and prior    —      —      —      —      —      —      —     
                                        

Total enhanced short-term portfolio (1)

       2,523    266    319    —      —      3,108    2,857   
                                        

All other portfolios

                           
   2007    227    68    74    —      —      369    276   
   2006    877    346    423    26    5    1,677    1,294   
   2005    19    457    161    21    4    662    517   
   2004    43    362    332    7    —      744    587   
   2003 and prior    51    214    218    74    18    575    464   
                                        

Total all other portfolios

       1,217    1,447    1,208    128    27    4,027    3,138   
                                        

Total collateralized by sub-prime mortgages (2)

       3,740    1,713    1,527    128    27    7,135    5,995   
                                        

Other asset-backed securities:

                           

Externally managed investments in the European market (3)

       —      —      1,283    586    15    1,884    1,905   

Collateralized by auto loans

       1,025    65    91    82    3    1,266    1,257   

Collateralized by credit cards

       143    —      7    761    —      911    818   

Collateralized by non-sub-prime mortgages

       704    53    13    36    16    822    835   

Other (4)

       739    170    173    65    198    1,345    1,299   
                                        

Total asset-backed securities

       6,351    2,001    3,094    1,658    259    13,363    12,109   
                                        

 

(1) Our Enhanced Short-term portfolio is used primarily to invest cash proceeds of securities lending and repurchase activities, and cash generated from certain trading and operating activities. The investment policy statement of this portfolio requires that securities purchased for this portfolio have a remaining expected average life of 2 years or less when acquired.

 

(2) The weighted average estimated subordination percentage of our general account available for sale asset-backed securities collateralized by sub-prime mortgages attributable to the Financial Services Businesses, excluding those supported by guarantees from monoline bond insurers, was 33% as of March 31, 2008. The subordination percentage represents the current weighted average estimated percentage of the capital structure subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. As of March 31, 2008, based on amortized cost, approximately 89% of these asset-backed securities collateralized by sub-prime mortgages have estimated credit subordination percentages of 20% or more, and 49% have estimated credit subordination percentages of 30% or more.

 

(3) Externally managed investments in the European markets reflects our investment in medium term notes that are collateralized by portfolios of assets primarily consisting of European fixed income securities and derivatives, including 49% European corporate and bank bonds, 21% bank capital, 18% European asset-backed securities, and 12% other. As of March 31, 2008, fair value excludes the $(432) million impact of a bifurcated embedded derivative.

 

(4) Includes collateralized debt obligations with amortized cost of $199 million and fair value of $169 million, with less than 2% secured by sub-prime mortgages. Also includes asset backed-securities collateralized by education loans, equipment leases, timeshares, aircraft, and franchises.

Excluded from the table above are available for sale asset-backed securities held outside the general account in other entities and operations with amortized cost of $258 million and fair value of $244 million. Based on amortized cost, 75% of these securities have credit ratings of AAA and the remaining 25% have credit ratings of BBB or below. As of March 31, 2008, included within these asset-backed securities are securities collateralized by sub-prime mortgages with amortized cost and fair value of $9 million, all of which have AAA credit ratings, with $8 million in the 2006 vintage and $1 million in the 2003 vintage. Also included are collateralized debt obligations with amortized cost of $49 million and fair value of $41 million, with none secured by sub-prime mortgages. Also excluded from the table above are asset-backed securities classified as trading and carried at fair value, including $1.2 billion of trading account assets supporting insurance liabilities, the investment results of which ultimately accrue to contract holders. An additional $47 million of asset-backed securities as of March 31, 2008 are classified as other trading, including $15 million held outside the general account with AAA credit ratings, and $32 million included in our general account, 31% of which have credit ratings of AAA and the remaining 69% of which have BBB credit ratings.

(b) Supplemental information for residential mortgage-backed securities:

As of March 31, 2008, based on amortized cost, 98% of the general account available for sale residential mortgage-backed securities attributable to the Financial Services Businesses were publicly traded agency pass-through securities, which are supported by implicit or explicit government guarantees and have credit ratings of AAA. Collateralized mortgage obligations, including approximately $58 million secured by “ALT-A” mortgages, represented the remaining 2% of residential mortgage-backed securities; all have credit ratings of A or above.

Excluded from the table above are available for sale residential mortgage-backed securities held outside the general account in other entities and operations with amortized cost of $602 million ($611 million fair value), all of which have AAA credit ratings. Also excluded from the table above are $965 million of residential mortgage-backed securities classified as trading account assets supporting insurance liabilities and carried at fair value, the investment results of which ultimately accrue to contract holders.

(c) Supplemental information for commercial mortgage-backed securities:

 

     LOWEST RATING AGENCY RATING          

Vintage

    AAA    AA    A    BBB    BB and
below		    Total
Amortized Cost		    Total Fair
Value

2008

    21    —      —      12    —      33    34

2007

    740    —      3    68    76    887    889

2006

    2,776    6    —      7    23    2,812    2,773

2005

    1,441    —      —      11    39    1,491    1,455

2004

    409    —      —      —      4    413    399

2003 and prior

    1,023    171    60    57    9    1,320    1,306
                                  

Total (1)

    6,410    177    63    155    151    6,956    6,856
                                  

 

(1) As of March 31, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account available for sale commercial mortgage-backed securities attributable to the Financial Services Businesses is 68% and 1.54 times, respectively. The weighted average estimated subordination percentage of our general account available for sale investments in commercial mortgage-backed securities attributable to the Financial Services Businesses was 35% as of March 31, 2008. The subordination percentage represents the current weighted average estimated percentage of the capital structure subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. The estimated subordination percentage includes an adjustment for that portion of the capital structure which has been effectively defeased by US Treasury securities. As of March 31, 2008, based on amortized cost, approximately 89% of these commercial mortgage-backed securities have estimated credit subordination percentages of 20% or more, and 70% have estimated credit subordination percentages of 30% or more.

Excluded from the table above are available for sale commercial mortgage-backed securities held outside the general account in other entities and operations with amortized cost of $12 million and fair value of $11 million, 41% of which have credit ratings of AAA and the remaining 59% have credit ratings of BB and below. Also excluded from the table above are commercial mortgage-backed securities classified as trading and carried at fair value, including $2.5 billion of trading account assets supporting insurance liabilities, the investment results of which ultimately accrue to contract holders. An additional $445 million of commercial mortgage-backed securities held outside the general account as of March 31, 2008 are classified as other trading, of which 83% have AAA credit ratings, 7% have AA credit ratings, 7% have A credit ratings, and the remaining 3% have BBB credit ratings.

(d) Supplemental information for commercial loans:

 

Commercial loans by property type:

    Gross
Carrying
Value		    % of Total  

Industrial buildings

    4,478    21.0 %

Office buildings

    3,820    17.9 %

Apartment complexes

    3,587    16.9 %

Retail stores

    3,051    14.3 %

Other

    2,613    12.3 %

Agricultural properties

    1,269    6.0 %

Residential properties

    972    4.6 %
           

Subtotal of collateralized loans

    19,790    93.0 %

Uncollateralized loans

    1,484    7.0 %
           

Total commercial loans

    21,274    100.0 %
           

 

Commercial loans by status:

    Gross
Carrying
Value

Performing

    21,216

Delinquent, not in foreclosure

    45

Delinquent, in foreclosure

    7

Restructured

    6
    

Total commercial loans

    21,274
    

As of March 31, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account investment in commercial loans attributable to the Financial Services Businesses was 52% and 1.8 times, respectively.

Prudential Financial, Inc.

Closed Block Business

Information Regarding Certain General Account Investments

Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Loans

March 31, 2008

($ millions)

 

General Account Investments - Available for Sale

    Amortized
Cost		    Gross
Unrealized
Gains		    Gross
Unrealized
Losses		    Fair
Value

Asset-backed securities (a)

    7,598    29    1,001    6,626

Residential mortgage-backed securities (b)

    3,997    75    21    4,051

Commercial mortgage-backed securities (c)

    4,230    21    116    4,135

 

     Gross
Carrying
Value		    Allowance
For
Losses		     Net
Book
Value

Commercial loans (d)

    8,523    (29 )   8,494

(a) Supplemental information for asset-backed securities:

 

          LOWEST RATING AGENCY RATING               
     Vintage    AAA    AA    A    BBB    BB and
below		    Total
Amortized Cost		    Total
Fair Value		     

Collateralized by sub-prime mortgages:

                           

Enhanced short-term portfolio

                           
   2007    552    107    59    —      —      718    635   
   2006    1,972    167    246    —      —      2,385    2,213   
   2005    77    —      25    —      —      102    99   
   2004    —      —      —      —      —      —      —     
   2003 and prior    —      —      —      —      —      —      —     
                                        

Total enhanced short-term portfolio (1)

       2,601    274    330    —      —      3,205    2,947   
                                        

All other portfolios

                           
   2007    167    22    22    —      —      211    143   
   2006    614    193    240    7    —      1,054    760   
   2005    30    404    16    —      —      450    344   
   2004    9    304    51    —      —      364    279   
   2003 and prior    48    340    100    32    7    527    419   
                                        

Total all other portfolios

       868    1,263    429    39    7    2,606    1,945   
                                        

Total collateralized by sub-prime mortgages (2)

       3,469    1,537    759    39    7    5,811    4,892   
                                        

Other asset-backed securities:

                           

Collateralized by credit cards

       38    —      21    480    —      539    475   

Collateralized by auto loans

       362    16    56    25    —      459    457   

Externally managed investments in the European market (3)

       —      —      281    —      —      281    296   

Collateralized by education loans

       234    20    —      —      —      254    252   

Other (4)

       160    23    27    13    31    254    254   
                                        

Total asset-backed securities

       4,263    1,596    1,144    557    38    7,598    6,626   
                                        

 

(1) Our Enhanced Short-term portfolio is used primarily to invest cash proceeds of securities lending and repurchase activities, and cash generated from certain trading and operating activities. The investment policy statement of this portfolio requires that securities purchased for this portfolio have a remaining expected average life of 2 years or less when acquired.

 

(2) The weighted average estimated subordination percentage of our general account available for sale asset-backed securities collateralized by sub-prime mortgages attributable to the Closed Block Business, excluding those supported by guarantees from monoline bond insurers, was 34% as of March 31, 2008. The subordination percentage represents the current weighted average estimated percentage of the capital structure subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. As of March 31, 2008, based on amortized cost, approximately 95% of these asset-backed securities collateralized by sub-prime mortgages have credit estimated subordination percentages of 20% or more, and 54% have estimated credit subordination percentages of 30% or more.

 

(3) Externally managed investments in the European markets reflects our investment in medium term notes that are collateralized by portfolios of assets primarily consisting of European fixed income securities and derivatives, including 49% European corporate and bank bonds, 21% bank capital, 18% European asset-backed securities, and 12% other. As of March 31, 2008, fair value excludes the $(55) million impact of a bifurcated embedded derivative.

 

(4) Includes collateralized debt obligations with amortized cost of $22 million and fair value of $26 million, with none secured by sub-prime mortgages. Also includes asset backed-securities collateralized by equipment leases, timeshares, aircraft, and franchises.

Excluded from the table above are $17 million of asset-backed securities classified as trading and carried at fair value, all of which have BBB credit ratings as of March 31, 2008.

(b) Supplemental information for residential mortgage-backed securities:

As of March 31, 2008, based on amortized cost, 84% of the general account available for sale residential mortgage-backed securities attributable to the Closed Block Business were publicly traded agency pass-through securities, which are supported by implicit or explicit government guarantees and have credit ratings of AAA. Collateralized mortgage obligations, including approximately $3 million secured by “ALT-A” mortgages, represented the remaining 16% of residential mortgage-backed securities and all have credit ratings of AAA.

 

Prudential Financial, Inc.

Closed Block Business

Information Regarding Certain General Account Investments

Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Loans

March 31, 2008

($ millions)

(c) Supplemental information for commercial mortgage-backed securities:

 

     LOWEST RATING AGENCY RATING          

Vintage

    AAA    AA    A    BBB    BB and
below		    Total
Amortized Cost		    Total Fair
Value

2008

    9    —      —      —      —      9    9

2007

    268    —      19    —      —      287    276

2006

    1,138    —      —      —      —      1,138    1,121

2005

    1,391    —      —      —      —      1,391    1,348

2004

    396    —      —      —      —      396    379

2003 and prior

    888    48    52    21    —      1,009    1,002
                                  

Total (1)

    4,090    48    71    21    —      4,230    4,135
                                  

 

(1) As of March 31, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account available for sale commercial mortgage-backed securities attributable to the Closed Block Business is 68% and 1.59 times, respectively. The weighted average estimated subordination percentage of our general account available for sale investments in commercial mortgage-backed securities attributable to the Closed Block Business was 32% as of March 31, 2008. The subordination percentage represents the current weighted average estimated percentage of the capital structure subordinated to our investment holding that is available to absorb losses before the security incurs the first dollar loss of principal. The estimated subordination percentage includes an adjustment for that portion of the capital structure which has been effectively defeased by US Treasury securities. As of March 31, 2008, based on amortized cost, approximately 89% of these commercial mortgage-backed securities have estimated credit subordination percentages of 20% or more, and 57% have estimated credit subordination percentages of 30% or more.

(d) Supplemental information for commercial loans:

 

Commercial loans by property type:

    Gross
Carrying
Value		    % of Total  

Industrial buildings

    1,921    22.5 %

Office buildings

    1,649    19.4 %

Apartment complexes

    1,706    20.0 %

Retail stores

    1,382    16.2 %

Other

    887    10.4 %

Agricultural properties

    824    9.7 %

Residential properties

    1    0.0 %
           

Subtotal of collateralized loans

    8,370    98.2 %

Uncollateralized loans

    153    1.8 %
           

Total commercial loans

    8,523    100.0 %
           

 

Commercial loans by status:

    Gross
Carrying
Value

Performing

    8,522

Delinquent, not in foreclosure

    —  

Delinquent, in foreclosure

    —  

Restructured

    1
    

Total commercial loans

    8,523
    

As of March 31, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account investment in commercial loans attributable to the Closed Block Business was 44% and 1.86 times, respectively.