Equitable Holdings, Inc. Third Quarter Earnings Call - EQUITABLE HOLDINGS INC

Explicit Guidance:

• Full-Year 2026 EPS Growth: Expecting greater than 15% non-GAAP operating EPS growth (excluding notable items) for the full year 2026.
• Fourth Quarter 2026 Earnings: Retirement earnings baseline expectation of roughly flat to stable with first-half 2026 spread levels; Wealth Management earnings baseline expectation of $70 million; Corporate & Other loss forecasted between $350 million and $400 million (excluding notable items).
• Full-Year 2026 Financials: Consolidated cash generation target of $1.8 billion; Payout ratio target of 60% to 70% for the full year; Consolidated tax rate forecast at 20%.
• Alliance Bernstein (AB) Fees: Raised full-year 2026 performance fee guidance to $135–$150 million, implying $62–$77 million for the fourth quarter.
• Alternative Investments: Forecasted fourth quarter annualized return of low single digits (specifically driven by real estate equity headwinds); long-term expectation remains 8% to 12%.
• Capital Returns: Maintaining 60%–70% payout ratio target; cash and liquid assets at holding company ended at $900 million.

Business-Segment Outlook:

• Retirement: Net interest margin (NIM) expected to remain roughly stable with first-half 2026 levels after timing normalization in Q4; fee-based revenue expected to continue growing alongside separate account growth; DAC amortization expected to increase as a non-cash item due to current lapse assumptions but viewed as a baseline for future quarters; sales of RILAs and guaranteed income solutions expected to remain strong.
• Alliance Bernstein (AB): Expected to begin accruing fees on the $12 billion commercial mortgage loan (CML) portfolio transferred from Equitable in the fourth quarter; private markets AUM currently $105 billion, exceeding the $90–$100 billion target; private markets growth and CML platform expansion expected to enhance ability to win third-party mandates.
• Wealth Management: Advised assets growing organically; advisor productivity up 14% year-over-year; headcount stable with a robust pipeline of over 2,000 advisors; core bridge acquisition adding $20 billion of assets and advisors expected to drive further productivity gains.
• Corporate & Other: Continued to expect losses driven by the exit of the employee benefits business and integration costs.

Market and Competitive Outlook:

• U.S. Retirement Market: Viewed as a secular growth opportunity with $50 trillion+ asset pool; 10% market share expected for "New Equitable" (combined with CoreBridge); retirement asset pool growing at 7% CAGR over the past decade; $1 trillion in annual IRA rollover activity; annuity sales growing at 16% CAGR.
• Product Trends: Strong demand for protected equity solutions (RILAs) and guaranteed retirement income; expansion of guaranteed income allocations within target date funds creating new market access; higher interest rates expected to enhance consumer value proposition for annuities.
• Competition: No new entrants in RILA space since Q1 2025; focus remains on profitable growth and risk-adjusted returns; competitive pricing remains disciplined; New Equitable positioned as the only company with a top-five position in every major product category, providing distribution leverage.
• Sales Projections: "New Equitable" expected to write $70–$80 billion in new liabilities annually.

Macro / Industry Outlook:

• Interest Rates: High interest rate environment viewed as a net positive for the business; 50 basis point move impacts operating earnings by approx. $40 million; rates expected to stabilize, normalizing spread noise in Q4.
• Demographics: Baby boomer retirement wave (4 million turning 65 annually) driving "money in motion"; wealth transfer activity expected to increase demand for personalized financial advice.
• Economic Environment: US consumer expected to remain strong, supporting credit stability; real estate equity returns expected to remain pressured in the near term due to higher rates, with no long-term forecast for 2027 provided yet.
• Regulation: Industry moves toward stricter governance (NAIC rules on offshore activity) viewed as net positive for trusted brands like New Equitable.

Strategic Initiatives:

• Merger with CoreBridge: Expected to close at year-end 2026 following regulatory approvals; Board of Directors for New Equitable selected; top 500 leaders named to hit the ground running in January 2027.
• Synergies: Identified $100 million in run-rate expense savings to be recognized in the first half of 2027; on track for $150 million in Year 1 savings; confidence in achieving at least $500 million in run-rate savings by end of 2028.
• Asset Management Integration: AB platform expanded with $12 billion CML loans from Equitable to bolster private markets offering; AB expected to develop new capabilities in private credit and infrastructure to support $70–$80 billion annual liability generation.
• Technology: Leveraging AI during integration to improve customer experience, productivity, and scale.
• Divestiture: Sale of employee benefits business to The Hartford closed October 1st; proceeds to be deployed to support growth.

Risks and Headwinds to Outlook:

• Interest Rate Volatility: Timing mismatches between liability resets (RILA contracts) and asset yields can cause quarterly spread noise; high rates may pressure real estate equity returns.
• Credit Risk: Potential for credit events in CML portfolios if US consumer strength wanes; mitigated by high LTV underwriting and stress testing (RBC >430% in stress scenarios).
• Lapse Rates: Updated assumptions reflect higher lapses, accelerating non-cash DAC amortization.
• Market Conditions: Alternatives portfolio returns (specifically real estate equity) currently below long-term expectations; fixed income returns have been mixed.
• Execution Risk: Dependency on successful integration of CoreBridge and realization of $500 million synergy target by 2028.

Management Tone on the Future:

• Confidence Level: Highly confident in earnings momentum ("well on track"), the merger's strategic value ("clear right to win"), and synergy realization ("proof point" of early wins).
• Outlook: "Bullish" on wealth management future; view retirement and decumulation as central secular growth opportunities.
• Transition: Focus on handing off to Mark Constantini (CEO) and assuming Executive Chairman role for Mark Pearson; emphasis on entering the merger from a position of strength with $4 billion+ combined operating income.

Miscellaneous:

• GAAP vs. Non-GAAP: Mention of potential GAAP shareholder equity reset at merger close to reflect fair value, which will alter book value and leverage metrics for New Equitable.
• Reinsurance Adjustments: $37 million out-of-period benefit identified as an accounting timing adjustment (true-up of prior periods) with no cash impact or change to reinsurer partner agreements.