INFORMATION ABOUT PRUDENTIAL FINANCIAL, INC.'S INVESTMENTS
Published on
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
September 30, 2008
($ millions)
| General Account Investments |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||
| Asset-backed securities (a) |
12,091 | 78 | 1,430 | 10,739 | ||||
| Residential mortgage-backed securities (b) |
10,991 | 131 | 78 | 11,044 | ||||
| Commercial mortgage-backed securities (c) |
8,420 | 8 | 584 | 7,844 |
| Gross Carrying Value |
Allowance For Losses |
Net Book Value | |||||
| Commercial loans (d) |
21,941 | (112 | ) | 21,829 |
(a) Supplemental information for asset-backed securities:
| LOWEST RATING AGENCY RATING (5) | Total Amortized Cost |
Total Fair Value | ||||||||||||||
| Vintage | AAA | AA | A | BBB | BB and below |
|||||||||||
| Collateralized by sub-prime mortgages: |
||||||||||||||||
| Enhanced short-term portfolio |
||||||||||||||||
| 2008 | — | — | — | — | — | — | — | |||||||||
| 2007 | 311 | 176 | 69 | 55 | — | 611 | 510 | |||||||||
| 2006 | 1,007 | 408 | 182 | 163 | 7 | 1,767 | 1,609 | |||||||||
| 2005 | 38 | 3 | — | 6 | 1 | 48 | 47 | |||||||||
| 2004 | — | — | — | — | — | — | — | |||||||||
| 2003 and prior | — | — | — | — | — | — | — | |||||||||
| Total enhanced short-term portfolio (1) |
1,356 | 587 | 251 | 224 | 8 | 2,426 | 2,166 | |||||||||
| All other portfolios |
||||||||||||||||
| 2008 | — | — | — | — | — | — | — | |||||||||
| 2007 | 73 | 93 | 53 | 32 | 62 | 313 | 208 | |||||||||
| 2006 | 385 | 486 | 97 | 153 | 259 | 1,380 | 975 | |||||||||
| 2005 | 17 | 370 | 92 | 61 | 35 | 575 | 432 | |||||||||
| 2004 | 41 | 359 | 249 | 38 | 3 | 690 | 530 | |||||||||
| 2003 and prior | 28 | 191 | 145 | 82 | 42 | 488 | 385 | |||||||||
| Total all other portfolios |
544 | 1,499 | 636 | 366 | 401 | 3,446 | 2,530 | |||||||||
| Total collateralized by sub-prime mortgages (2) |
1,900 | 2,086 | 887 | 590 | 409 | 5,872 | 4,696 | |||||||||
| Other asset-backed securities: |
||||||||||||||||
| Externally managed investments in the European market (3) |
— | — | 964 | 489 | 14 | 1,467 | 1,496 | |||||||||
| Collateralized by auto loans |
1,471 | 74 | 60 | 82 | 3 | 1,690 | 1,650 | |||||||||
| Collateralized by credit cards |
69 | — | 2 | 722 | — | 793 | 693 | |||||||||
| Collateralized by non-sub-prime mortgages |
826 | 42 | 7 | 33 | 15 | 923 | 934 | |||||||||
| Other (4) |
686 | 241 | 147 | 100 | 172 | 1,346 | 1,270 | |||||||||
| Total asset-backed securities |
4,952 | 2,443 | 2,067 | 2,016 | 613 | 12,091 | 10,739 | |||||||||
| (1) | Our Enhanced Short-term portfolio is used primarily to invest cash proceeds of securities lending and repurchase activities, commercial paper issuances 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 asset-backed securities collateralized by sub-prime mortgages attributable to the Financial Services Businesses, excluding those supported by guarantees from monoline bond insurers, was 34% as of September 30, 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 September 30, 2008, based on amortized cost, approximately 91% of these asset-backed securities collateralized by sub-prime mortgages have estimated credit subordination percentages of 20% or more, and 50% have estimated credit subordination percentages of 30% or more. |
In addition to subordination, certain securities, referred to as front pay or second pay securities, benefit from the prioritization of principal cash flows within the senior tranches of the structure. In most instances, these shorter duration senior securities have priority to principal cash flows over other securities in the structure, including longer duration senior securities. Included within the $5.872 billion of asset-backed securities collateralized by sub-prime mortgages attributable to the Financial Services Businesses as of September 30, 2008 were $1.967 billion of securities, on an amortized cost basis, that represent front pay or second pay securities, depending on the overall structure of the securities.
| (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 46% European corporate and bank bonds, 22% bank capital, 17% European asset-backed securities, and 15% other. As of September 30, 2008, fair value excludes the $(338) million impact of a bifurcated embedded derivative. |
| (4) | Includes collateralized debt obligations with amortized cost of $507 million and fair value of $474 million, with less than 1% 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 asset-backed securities held outside the general account in other entities and operations with amortized cost of $275 million and fair value of $257 million. Based on amortized cost, 74% of these securities have credit ratings of AAA, 6% have A credit ratings, and the remaining 20% have credit ratings of BBB or below. As of September 30, 2008, included within these asset-backed securities are securities collateralized by sub-prime mortgages with amortized cost and fair value of $5 million, all of which have AAA credit ratings, with $4 million in the 2006 vintage and $1 million in the 2003 vintage. Also included are collateralized debt obligations with amortized cost of $39 million and fair value of $33 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 billion of trading account assets supporting insurance liabilities, the investment results of which ultimately accrue to contract holders. An additional $283 million of asset-backed securities as of September 30, 2008 are classified as other trading, including $28 million held outside the general account, 90% of which have credit ratings of AAA and 10% of which have credit ratings of BB, and $255 million included in our general account, 79% of which have credit ratings of A or above and the remaining 21% virtually all have BBB credit ratings.
(b) Supplemental information for residential mortgage-backed securities:
As of September 30, 2008, based on amortized cost, 98% of the general account 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 AA or above. Collateralized mortgage obligations, including approximately $51 million secured by “ALT-A” mortgages, represented the remaining 2% of residential mortgage-backed securities; and all have credit ratings of A or above.
Excluded from the above are residential mortgage-backed securities held outside the general account in other entities and operations with amortized cost and fair value of $676 million, all of which have AAA credit ratings. Also excluded from the above are $637 million of residential mortgage-backed securities classified as trading account assets supporting insurance liabilities and carried at fair value, the investment results of which ultimately accrue to contract holders.
Prudential Financial, Inc.
Financial Services Businesses
Information Regarding Certain General Account Investments
Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Loans
September 30, 2008
($ millions)
(c) Supplemental information for commercial mortgage-backed securities:
| Vintage |
LOWEST RATING AGENCY RATING (2) | Total Amortized Cost |
Total Fair Value | |||||||||||
| AAA | AA | A | BBB | BB and below |
||||||||||
| 2008 |
176 | 4 | 22 | 88 | 21 | 311 | 296 | |||||||
| 2007 |
1,606 | — | 3 | 64 | 69 | 1,742 | 1,644 | |||||||
| 2006 |
3,367 | 5 | — | 6 | 12 | 3,390 | 3,106 | |||||||
| 2005 |
1,513 | — | — | 10 | 37 | 1,560 | 1,442 | |||||||
| 2004 |
431 | — | — | — | 4 | 435 | 398 | |||||||
| 2003 and prior |
828 | 98 | 31 | 15 | 10 | 982 | 958 | |||||||
| Total (1)(2) |
7,921 | 107 | 56 | 183 | 153 | 8,420 | 7,844 | |||||||
| (1) | As of September 30, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account commercial mortgage-backed securities attributable to the Financial Services Businesses was 69% and 1.55 times, respectively. The weighted average estimated subordination percentage of our general account investments in commercial mortgage-backed securities attributable to the Financial Services Businesses was 35% as of September 30, 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 weighted average estimated subordination percentage includes an adjustment for that portion of the capital structure which has been effectively defeased by US Treasury securities. As of September 30, 2008, based on amortized cost, approximately 91% of these commercial mortgage-backed securities have estimated credit subordination percentages of 20% or more, and 75% have estimated credit subordination percentages of 30% or more. |
| (2) | Included in the table above are commercial mortgage-backed securities supported by Japan based mortgage loans of $9 million in AAA, $4 million in AA, $25 million in A, $168 million in BBB, and $148 million in BB and below. |
Excluded from the table above are commercial mortgage-backed securities held outside the general account in other entities and operations with amortized cost of $28 million and fair value of $27 million, 74% of which have credit ratings of AA or better and the remaining 26% 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 $2.4 billion of trading account assets supporting insurance liabilities, the investment results of which ultimately accrue to contract holders. An additional $1 million of commercial mortgage-backed securities held outside the general account as of September 30, 2008 are classified as other trading, all of which have AAA credit ratings.
(d) Supplemental information for commercial loans:
| Commercial loans by property type: |
Gross Carrying Value |
% of Total | |||
| Industrial buildings |
4,769 | 21.8 | % | ||
| Office buildings |
4,024 | 18.3 | % | ||
| Apartment complexes |
3,594 | 16.4 | % | ||
| Retail stores |
3,591 | 16.4 | % | ||
| Other |
1,454 | 6.6 | % | ||
| Agricultural properties |
1,249 | 5.7 | % | ||
| Hospitality |
1,163 | 5.3 | % | ||
| Residential properties |
879 | 4.0 | % | ||
| Subtotal of collateralized loans |
20,723 | 94.5 | % | ||
| Uncollateralized loans |
1,218 | 5.5 | % | ||
| Total commercial loans |
21,941 | 100.0 | % | ||
| Commercial loans by status: |
Gross Carrying Value | |
| Performing |
21,879 | |
| Delinquent, not in foreclosure |
51 | |
| Delinquent, in foreclosure |
6 | |
| Restructured |
5 | |
| Total commercial loans |
21,941 | |
As of September 30, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account investments in commercial loans attributable to the Financial Services Businesses was 57% and 1.91 times, respectively.
Prudential Financial, Inc.
Closed Block Business
Information Regarding Certain General Account Investments
Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Loans
September 30, 2008
($ millions)
| Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||
| Asset-backed securities (a) |
6,429 | 21 | 1,053 | 5,397 | ||||
| Residential mortgage-backed securities (b) |
3,688 | 38 | 60 | 3,666 | ||||
| Commercial mortgage-backed securities (c) |
3,869 | 4 | 269 | 3,604 |
| Gross Carrying Value |
Allowance For Losses |
Net Book Value | |||||
| Commercial loans (d) |
8,600 | (37 | ) | 8,563 |
(a) Supplemental information for asset-backed securities:
| LOWEST RATING AGENCY RATING (5) | Total Amortized Cost |
Total Fair Value | ||||||||||||||
| Vintage | AAA | AA | A | BBB | BB and below |
|||||||||||
| Collateralized by sub-prime mortgages: |
||||||||||||||||
| Enhanced short-term portfolio |
||||||||||||||||
| 2008 | — | — | — | — | — | — | — | |||||||||
| 2007 | 313 | 181 | 71 | 30 | — | 595 | 498 | |||||||||
| 2006 | 1,031 | 420 | 188 | 13 | 8 | 1,660 | 1,515 | |||||||||
| 2005 | 39 | 3 | — | — | — | 42 | 41 | |||||||||
| 2004 | — | — | — | — | — | — | — | |||||||||
| 2003 and prior | — | — | — | — | — | — | — | |||||||||
| Total enhanced short-term portfolio (1) |
1,383 | 604 | 259 | 43 | 8 | 2,297 | 2,054 | |||||||||
| All other portfolios |
||||||||||||||||
| 2008 | — | — | — | — | — | — | — | |||||||||
| 2007 | 54 | 36 | 23 | 41 | 45 | 199 | 147 | |||||||||
| 2006 | 408 | 253 | 124 | 178 | 160 | 1,123 | 772 | |||||||||
| 2005 | 28 | 334 | 31 | 38 | 15 | 446 | 332 | |||||||||
| 2004 | 8 | 300 | 39 | 3 | — | 350 | 265 | |||||||||
| 2003 and prior | 38 | 241 | 80 | 71 | 36 | 466 | 375 | |||||||||
| Total all other portfolios |
536 | 1,164 | 297 | 331 | 256 | 2,584 | 1,891 | |||||||||
| Total collateralized by sub-prime mortgages (2) |
1,919 | 1,768 | 556 | 374 | 264 | 4,881 | 3,945 | |||||||||
| Other asset-backed securities: |
||||||||||||||||
| Collateralized by credit cards |
— | — | — | 457 | — | 457 | 387 | |||||||||
| Collateralized by auto loans |
283 | 11 | 10 | 31 | — | 335 | 325 | |||||||||
| Externally managed investments in the European market (3) |
— | — | 281 | — | — | 281 | 289 | |||||||||
| Collateralized by education loans |
190 | 20 | — | — | 6 | 216 | 208 | |||||||||
| Other (4) |
122 | 44 | 47 | 11 | 35 | 259 | 243 | |||||||||
| Total asset-backed securities |
2,514 | 1,843 | 894 | 873 | 305 | 6,429 | 5,397 | |||||||||
| (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 asset-backed securities collateralized by sub-prime mortgages attributable to the Closed Block Business, excluding those supported by guarantees from monoline bond insurers, was 35% as of September 30, 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 September 30, 2008, based on amortized cost, approximately 96% of these asset-backed securities collateralized by sub-prime mortgages have credit estimated subordination percentages of 20% or more, and 58% have estimated credit subordination percentages of 30% or more. |
In addition to subordination, certain securities, referred to as front pay or second pay securities, benefit from the prioritization of principal cash flows within the senior tranches of the structure. In most instances, these shorter duration senior securities have priority to principal cash flows over other securities in the structure, including longer duration senior securities. Included within the $4.881 billion of asset-backed securities collateralized by sub-prime mortgages attributable to the Closed Block Business as of September 30, 2008 were $1.947 billion of securities, on an amortized cost basis, that represent front pay or second pay securities, depending on the overall structure of the securities.
| (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 46% European corporate and bank bonds, 22% bank capital, 17% European asset-backed securities, and 15% other. As of September 30, 2008, fair value excludes the $(74) million impact of a bifurcated embedded derivative. |
| (4) | Includes collateralized debt obligations with amortized cost of $61 million and fair value of $62 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 September 30, 2008.
(b) Supplemental information for residential mortgage-backed securities:
As of September 30, 2008, based on amortized cost, 85% of the 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 $150 million secured by “ALT-A” mortgages, represented the remaining 15% of residential mortgage-backed securities and all have credit ratings of AAA.
Prudential Financial, Inc.
Closed Block Business
Information Regarding Certain General Account Investments
Residential Mortgage-Backed, Commercial Mortgage-Backed, and Asset-Backed Securities, and Commercial Loans
September 30, 2008
($ millions)
(c) Supplemental information for commercial mortgage-backed securities:
| LOWEST RATING AGENCY RATING (2) | Total Amortized Cost |
Total Fair Value | ||||||||||||
| Vintage |
AAA | AA | A | BBB | BB and below |
|||||||||
| 2008 |
10 | — | — | — | — | 10 | 9 | |||||||
| 2007 |
418 | — | 12 | — | — | 430 | 396 | |||||||
| 2006 |
880 | — | — | — | — | 880 | 798 | |||||||
| 2005 |
1,285 | — | — | — | — | 1,285 | 1,187 | |||||||
| 2004 |
395 | — | — | — | — | 395 | 365 | |||||||
| 2003 and prior |
783 | 42 | 43 | 1 | — | 869 | 849 | |||||||
| Total (1) |
3,771 | 42 | 55 | 1 | — | 3,869 | 3,604 | |||||||
| (1) | As of September 30, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account commercial mortgage-backed securities attributable to the Closed Block Business was 69% and 1.58 times, respectively. The weighted average estimated subordination percentage of our general account investments in commercial mortgage-backed securities attributable to the Closed Block Business was 32% as of September 30, 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 weighted average estimated subordination percentage includes an adjustment for that portion of the capital structure which has been effectively defeased by US Treasury securities. As of September 30, 2008, based on amortized cost, approximately 92% of these commercial mortgage-backed securities have estimated credit subordination percentages of 20% or more, and 59% 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 |
1,889 | 22.0 | % | ||
| Office buildings |
1,768 | 20.5 | % | ||
| Apartment complexes |
1,719 | 20.0 | % | ||
| Retail stores |
1,484 | 17.2 | % | ||
| Agricultural properties |
797 | 9.3 | % | ||
| Other properties |
496 | 5.8 | % | ||
| Hospitality |
406 | 4.7 | % | ||
| Residential properties |
1 | — | |||
| Subtotal of collateralized loans |
8,560 | 99.5 | % | ||
| Uncollateralized loans |
40 | 0.5 | % | ||
| Total commercial loans |
8,600 | 100.0 | % | ||
| Commercial loans by status: |
Gross Carrying Value | |
| Performing |
8,599 | |
| Delinquent, not in foreclosure |
— | |
| Delinquent, in foreclosure |
— | |
| Restructured |
1 | |
| Total commercial loans |
8,600 | |
As of September 30, 2008, based on amortized cost, the weighted average loan to value and debt service coverage ratios of general account investments in commercial loans attributable to the Closed Block Business was 50% and 1.96 times, respectively.