Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

Asset Management Subsidiaries - Prudential by linxiaoqin

VIEWS: 17 PAGES: 1

									      We employ various hedging strategies to manage potential exposure to foreign currency exchange rate movements, including the
strategies discussed in “—Results of Operations for Financial Services Businesses by Segment—International Insurance and Investments
Division.” These hedging strategies include both internal and external hedging programs.

      The internal hedges are between a subsidiary of Prudential Financial and certain of our yen-based entities and serve to hedge the value
of U.S. dollar denominated investments held on the books of these yen-based entities. Cash settlements from these hedging activities result in
cash flows between Prudential Financial and these yen-based subsidiaries. The cash flows are dependent on changes in foreign currency
exchange rates and the notional amount of the exposures hedged. During 2009, Prudential Financial funded $163 million of cash settlements
related to the internal hedge program, which were paid to the yen-based subsidiaries. As of December 31, 2009 the market value of the
internal hedges was a liability of $599 million owed to the yen-based subsidiaries of Prudential Financial. Absent any changes in forward
exchange rates from those expected as of December 31, 2009, the $599 million internal hedge liability represents the present value of the net
cash flows from Prudential Financial to these entities over the life of the hedging instruments, up to 30 years. A significant yen appreciation
over an extended period of time would result in higher net cash outflows from Prudential Financial in excess of our historical experience.

     Our external hedges serve to hedge the equity investments in certain subsidiaries and future income of most foreign subsidiaries. The
external hedges are between a subsidiary of Prudential Financial and external parties. Cash settlements on these activities result in cash
flows between Prudential Financial and the external parties and are dependent on changes in foreign currency exchange rates. During 2009,
Prudential Financial paid $52 million of net cash flows for external hedge settlements. As of December 31, 2009, the net liability related to
external foreign currency hedges was $160 million. A significant appreciation in yen and other foreign currencies could result in net cash
outflows in excess of our liability. During the second quarter of 2009, we terminated our hedges of the U.S. GAAP equity exposure of our
Korean operations due to a variety of considerations, including a desire to limit the potential for cash settlement outflows that would result
from a strengthening Korean won.

     In our international investments operations, liquidity is provided through asset management fees as well as commission revenue. The
principal uses of liquidity include general and administrative expenses, and distributions of dividends and returns of capital. As with our
domestic operations, the primary liquidity risks for our fee-based asset management businesses relate to their profitability, which is
impacted by market conditions and our investment management performance. We believe cash flows from our international investments
subsidiaries are adequate to satisfy the current liquidity requirements of their operations, as well as requirements that could arise under
reasonably foreseeable stress scenarios, which are monitored through the use of internal measures.


Asset Management Subsidiaries
     Our asset management businesses, which include real estate, public and private fixed income and public equity asset management, as
well as commercial mortgage origination and servicing, and retail investment products, such as mutual funds and other retail services, are
largely unregulated from the standpoint of dividends and distributions. Our asset management subsidiaries through which we conduct these
businesses generally do not have restrictions on the amount of distributions they can make, and the fee-based asset management business
can provide a relatively stable source of cash flow to Prudential Financial.

     The principal sources of liquidity for our fee-based asset management businesses include asset management fees and commercial
mortgage servicing fees. The principal uses of liquidity include general and administrative expenses and distribution of dividends and
returns of capital to Prudential Financial. The primary liquidity risks for our fee-based asset management businesses relate to their
profitability, which is impacted by market conditions and our investment management performance. We believe the cash flows from our
fee-based asset management businesses are adequate to satisfy the current liquidity requirements of their operations, as well as
requirements that could arise under reasonably foreseeable stress scenarios, which are monitored through the use of internal measures.

     The principal sources of liquidity for our proprietary investments and interim loans are cash flows from investments, the ability to
liquidate investments, and available borrowing lines from internal sources, including Prudential Funding and Prudential Financial. The
primary liquidity risks include the inability to sell assets in a timely manner, declines in the value of assets and credit defaults. The current
adverse market conditions have increased the liquidity risks associated with our proprietary investments and interim loans, as the markets
for certain investments, such as commercial mortgages and real estate, have become less liquid. If we needed to sell these investments, we
may have difficulty doing so in a timely manner at a price that we could otherwise realize.

     In December 2008, we received approval from NJDOBI for Prudential Insurance to provide an 18-month $1.5 billion lending facility
to our commercial mortgage operation that is collateralized primarily by its interim loan portfolio. As of December 31, 2009, we were in
compliance with the loan-to-value covenant of the facility. However, there is a risk that further deterioration in the collateral pledged under
the facility could require posting of additional collateral or a partial pay down of the facility to bring the facility into compliance with its
covenants. As of December 31, 2009, $0.6 billion was outstanding under this facility.

     In April 2009, our commercial mortgage origination and servicing business received approval to participate in a Fannie Mae
alternative delivery program known as ASAP Plus (“As Soon as Pooled” delivery). Our approval limit for outstanding balances on ASAP
Plus is presently $350 million. This program allows us to assign a qualified Fannie Mae loan trade commitment to Fannie Mae as early as
the next business day after a loan closes, and receive 99% of the loan purchase price from Fannie Mae. The program does not eliminate the
need to provide temporary warehouse financing, but does significantly reduce the duration of funding requirements for eligible Fannie Mae
originated loans from the normal delivery cycle of two to four weeks down to as little as one to two days.

     During 2009, in our proprietary investing business, we received repayments of real estate loans secured by equity commitments from
investors and assets of funds managed by us, and we reduced exposure to certain public equity and real estate seed investments. The proceeds
of these activities, which totaled $1.0 billion, were used to repay financing provided by Prudential Financial and Prudential Funding.


                                                                                                Prudential Financial 2009 Annual Report     119

								
To top