Company Press Release

Asset Management posted a pre-tax loss of $227 million, compared with pre-tax income of $303 million in last year’s second quarter.

* Net revenues decreased 68 percent to $488 million resulting from losses in our merchant banking business and lower net revenues in our core business. Merchant banking results reflect losses on principal investments in the real estate and private equity businesses compared with strong gains posted in the second quarter of last year. Core results reflect lower management and administration fees primarily due to lower performance fees in our alternatives business and lower principal investments gains. Trading results primarily reflect losses of approximately $86 million related to securities issued by structured investment vehicles held on balance sheet by Asset Management.

* Non-interest expenses decreased 41 percent to $715 million from a year ago. Compensation costs declined on lower revenues including losses associated with investments for the benefit of our employee deferred compensation and co-investment plans. Non-compensation expenses also decreased from a year ago reflecting lower levels of business activity.

* Asset Management recorded net customer inflows of $15.5 billion for the quarter, compared with $9.3 billion a year ago, the seventh consecutive quarter of net customer inflows. Core net flows were $13.8 billion, compared with $5.6 billion a year ago, primarily driven by fixed income money market products. Net flows in merchant banking of $1.7 billion for the quarter were down from $3.7 billion a year ago, as lower real estate flows where partly offset by higher flows in infrastructure.

* Assets under management or supervision at May 31, 2008 were a record $605 billion, up $45 billion, or 8 percent, from a year ago, driven by increases in both our core and merchant banking businesses. The increase in core primarily resulted from net customer inflows in fixed income money market products and alternatives, partly offset by net customer outflows in equity, while the increase in merchant banking primarily reflects net customer inflows and asset appreciation in real estate and net inflows in infrastructure.

* The percent of the Company's long-term fund assets performing in the top half of the Lipper rankings was 35 percent over one year, 39 percent over three years, 52 percent over five years and 73 percent over ten years.


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