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Franklin Resources, Inc. (NYSE:BEN)

F2Q09 Earnings Call Transcript

April 28, 2009 at 4:30 pm ET

Executives

Gregory E. Johnson - President and Chief Executive Officer

Kenneth A. Lewis - Executive Vice President and Chief Financial Officer

Analysts

Michael Kim - Sandler O'Neil & Partners L.P.

Kenneth Worthington - JP Morgan

Craig Siegenthaler - Credit Suisse

William Katz - Buckingham Research

Jeff Hobson - Stifel Nicolaus

Robert Smith - Fox-Pitt Kelton

Robert Lee - Keefe, Bruyette & Woods

Marc Irizarry - Goldman Sachs

Cynthia Mayer - BAS-ML

Operator

Good afternoon. My name is Randy and I will be your conference operator today. Welcome to Franklin Resources’ earnings conference call for the quarter ended March 31, 2009.

Please note that the financial results to be discussed in this conference call are preliminary. Statements made in this conference call regarding Franklin Resources Incorporated, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin’s recent filings with the Securities and Exchange Commission including the risk factors and MD&A sections of Franklin’s most recent Form 10-K and 10-Q filings.

(Operator Instructions) Thank you. I would now like to turn the call over to Greg Johnson, CEO. Sir, please go ahead.

Gregory Johnson

Thank you and good afternoon, everyone and welcome to the Franklin Templeton quarterly conference call. I am Greg Johnson, CEO and joining me today is Ken Lewis, our CFO. Hopefully, everyone had a chance to look through the commentary that was made available this morning as well as take a look at the presentation we posted on our website. If you had any problems accessing either of those, please contact Investor Relations and they will help you out.

While it was another difficult quarter for most in the asset management industry, we are pleased to see some positive signs. Close improve from the prior quarter and the recent rebound in global markets bodes well for further improvement as well as relative investment performance continues to improve and we are seeing tangible results from our cost management effort to date.

I would now like to open it up for your questions.

Question-and-Answer Session

Operator

Your first question comes from the line of Michael Kim - Sandler O'Neil & Partners L.P.

Michael Kim - Sandler O'Neil & Partners L.P.

The first question I have deals with the overall fee rate that has stayed relatively flat on a sequential basis even as the kind of the asset mix continues to skew towards lower fee fixed income products. So, I was just wondering if you could give us some color as to what might be driving the relative stability.

Gregory Johnson

Sure. I think the answer is very similar to what happened last quarter. We have been talking a little bit about this in this time of market volatility. When you look at the simple monthly average asset under management, it looks like the effective fee rate went up. When you look at the daily average asset management, it was flat to perhaps down basis points. So most of our funds we calculate it on daily basis so that is the explanation.

Michael Kim - Sandler O'Neil & Partners L.P.

Okay, that is helpful and then I guess more broadly, it seems like investors across both the retail and institutional channels continue to kind of migrate towards more conservative and presumably, lower fee products so I am just wondering how you are thinking about kind of long term margins for the business trend over time assuming that that trend continues.

Gregory Johnson

We have mentioned it before on a short term basis that we do not get too hung up with managing to a specific margin. That being said, we obviously keep a close eye on revenue. It is kind of impossible first to predict both the market behavior, the market itself and investor behavior but it is something that we keep an eye and then we have been pretty proactive as you can see on the cost management side so, fairly quick changes in revenues. So, we feel that we have processes in place to react pretty quickly to changes in revenue.

But I think there are some positive news on our equity products too that bode well for or that might indicate some increased investor preference for the higher fee earning assets.

Michael Kim - Sandler O'Neil & Partners L.P.

Okay and then just finally, I guess you mentioned in kind of your pre-recorded comments that the decision making process in the institutional channel remains slow and retail investors seemingly have yet to really jump back into equity funds. So, I am just wondering where you think the greatest growth opportunities lie in the near term either from a product standpoint or by distribution channel.

Gregory Johnson

I think those are very relevant comments. But as a similar or just following up on the conversation around the margins and things that flows, I think the greatest opportunity is still in the more conservative liquid fixed income type asset. But as long as the market continues to show stability and we have that a pretty good rally in equities and if you look at the January, February numbers versus March, it would indicate that investors will come back and I think that is the experience many in the industry are having in as far as April numbers go and we are seeing some similar patterns there as well.

On the institutional side, we are I think again for the quarter, not a lot of movements as far as searches go or finals but we are starting to see that tick up as well again and the opportunity in that side is still more around fixed income than equity.

Operator

Your next question comes from the line of Kenneth Worthington - JP Morgan.

Kenneth Worthington - JP Morgan

So, I just wanted to maybe press the fee rate question again. It seems like based on your disclosures that the highest fee assets shrunk the most during the quarter and I think we saw that same sort of effect last quarter as well. So, I still do not get how, even if they are calculated on a daily basis that the effective rate could be flat if like the international and global funds were down 13% assuming those are kind of the highest fee asset and take the aptitude extreme. The cash management was up. Fixed income was generally up. So, is there something else, some other kind of mix change that is not asset related that would have kept that fee rate stable?

Ken Lewis

No, not really. I think the daily fee rate explanation does account for the fact that it went out. By our calculation, it went down roughly a basis point so I mean it could be timing the lag effect and the way the average has worked but I mean that is the explanation.

Gregory Johnson

The sell off towards the end of the quarter, March is we had the equity fell off so maybe the average is smooth that out.

Kenneth Worthington - JP Morgan

Okay, I guess the second question, in terms of the, like the markets have rebounded smartly March, April; how quickly like you have done a very good job sort of cutting cost, how quickly do cost bounce back here with equity market starting to improve? I know, it seems like a bunch of the changes that you are making are kind of permanent but to what extent do we see other expenses start to rebound as revenues rebound? You mentioned in the prepared remarks that the marketing still got that but just like about the other expenses as well.

Ken Lewis

Yes, well I think that most of the expense cuts are we will call it semi permanent in nature. You would not see that rebound until volumes, business volumes increase dramatically and that is different from overall asset levels. Some of the other expenses, I did mention the advertising. I would expect a little up tick in that in the next two quarters. We have some positive messages to tell. We are going to tell them and then also on the information system technology and occupancy side, that has been trending down pretty sharply and it would not be unreasonable to think that. We could see higher spending levels in those categories in the next couple of quarters.

Kenneth Worthington - JP Morgan

And then lastly just on the auto business, you have taken some write downs for the last couple of quarters. To what extent are you shrinking that business and then to what extent had the changes at the US automakers, they are shrinking the dealerships, etc? Does that impact your business at all or are you really focused on sort of a higher end customer?

Ken Lewis

The mix of the auto loans that are on the book has not change and it is 98% prime and nonprime. But the real story is that we have shrunk the new underwritings substantially almost to nil and you could almost characterize the business as one that is in runoff mode until the economy turns around. So, there has been a dramatic slowdown of that business.

Operator

Your next question comes from the line of Craig Siegenthaler - Credit Suisse.

Craig Siegenthaler - Credit Suisse

My first question is on international sales. I am wondering when we exclude the reclassification of Indian cash management business and those other changes, why were sales still quite a low level even lower than the December quarter? I am just wondering if you can comment on what is impacting some of the international sales trends quarter over quarter.

Ken Lewis

I think the effect of international sales relative to the US was we had two large institutional redemption that the slide you are looking at that represented about $900 million which would have had a fairly dramatic effect on the quarter to quarter comparison because we did as far as retail flows go, if you look at our SICAV for the quarter, we had positive flows into the SICAV funds of about $100 million which is an improvement from $2.3 billion in outflows in the prior quarters.

So, we did see from the retail investor a fairly significant improvement but we did have a couple of large separate accounts that redeemed that affected international numbers.

Craig Siegenthaler - Credit Suisse

But if we add back the $900 million, you are still at roughly a 50% decline year-over-year. Do you think that is kind of more or less normal now with the AUM reset and kind of weaker demand overseas?

Ken Lewis

I thought you are comparing to the prior quarters. You are comparing to the prior year ago.

Craig Siegenthaler - Credit Suisse

I was actually looking at both comparison but then just after you gave me the add back, I just put in the number and compared it to last year.

Ken Lewis

Yes, I think that is probably a fair as far as flows go looking at the relative changes on those markets. We are a little bit more vulnerable on the international side to equity market because we do not have reviewing component in our flows so that tends to mean that the quarter to quarter comparisons are much more dramatic than what we see in the state.

Craig Siegenthaler - Credit Suisse

Got it and then the second question, I am just wondering can you provide us an update of how large your remaining equity tranche first loss pieces are of the securitization business in your investment portfolio?

Ken Lewis

So, in total there is about $200 million of auto loan and auto loan related assets on the book. Half of that are loans held to maturity. So, I do not think that is relevant to your question. So, the other half we have about $48 million of retained bonds, securities that we retained in the last securitization that we did last year. That is $48 million I think the original cost and that was closer to 90 but now it is 48 and then we have about $26 million of retained interest and then we have $9 million of guarantees.

Craig Siegenthaler - Credit Suisse

Is the 40 and the 26, are they in equity piece of an ABS structure with auto sub prime? Is that pretty much what they are?

Ken Lewis

No. The 48 is, we had a securitization last year and we did have to retain the lower tranches of that securitization and then the retained interest portion is simply are right to the excess cash flow on the trust that we securitized.

Craig Siegenthaler - Credit Suisse

Got it but it is not auto sub prime. Is it prime auto book?

Ken Lewis

It is prime and nonprime but it is the lower rate of tranches of the securitization.

Craig Siegenthaler - Credit Suisse

Yes, I know. I understand now. What is the valuation methodology because I imagine these investments are fairly liquid now in the market?

Ken Lewis

On the retained bonds, we go out and we get indicative pricing. We only got four prices on that one.

Operator

Your next question comes from the line of William Katz - Buckingham Research.

William Katz - Buckingham Research

Just a couple of clarifications and a couple of bigger picture questions, just to beat the dead horse here on the fee rate, to the extent the markets go up, you expected that yield would trend high and just giving the mix. It is mix at the end of the day is driving the quarter to quarter noise?

Ken Lewis

Next?

William Katz - Buckingham Research

Okay, second question is just on the securitization discussion in general. Just why bother at this point in time? I know it is a relatively small number so the first question is have you hedged your exposure in any way from the economic perspective and then secondly, given so the state of the credit markets and the outlook, can you remind me why you are in the business?

Ken Lewis

Right, we have not hedges the exposure anyway. As I mentioned, you are talking about 75, retained bonds 48, retained interest 26, guarantee 9. Actually when you look at it, we have used significant discount factors and estimating future cash flows. There is probably some value locked into those numbers so there is probably a fair amount of upsize. They have had some severe markdowns over the last 12 months and so the question of why we are in the business now as I mentioned effectively, we have stopped underwriting for all intents of purposes in that business.

William Katz - Buckingham Research

Right but it sounded like in your prepared remarks or you answered in one of the other questions that to the extent the economy would pick up again, you would get back into this little more aggressively in my term. Why are you in the business at all? What is the economic rationale, strategic rationale for being in this business?

Ken Lewis

Well, up until the last year, that business did operate at a pretty good profit margin. So, the only reason I mentioned the potential of increase in that business in the future is I do not want to rule anything out but obviously, we looked at all business lines and we go in through our budget process right now and we are taking strategic look at everything including the auto loan business.

William Katz - Buckingham Research

Okay, that is helpful and then Greg, I just have a quick questions for you big picture in nature. So, I am curios, in your prepared remarks you talked a little bit about some reallocation, rebalancing by insurance companies, I was just wondering if you could vet out exactly what you mean there and I have a couple of follow ups.

Gregory Johnson

Well, we are seeing after the last six months and things kind of froze around reallocation, we are starting to see some movement there and we expect to be the beneficiary of some of that movement here in the current quarter as far as significant reallocation and new wins within the insurance or VA sector. So, I think that is just hopefully a leading indicator of what we can expect on some other institutional separate accounts and really the earlier comment about we, are starting to see a little bit more movement relative to serving the last quarters.

William Katz - Buckingham Research

Well, this is really a look at your pipeline and that is just wishful thinking. This is actually what you are hearing from your sales team about where you are in the RFP processes in some of these accounts?

Gregory Johnson

Right.

William Katz - Buckingham Research

Okay, and then just, as you think about some of your competitors have announced plans and participate in the public/private investment partnership; I am just a little curious if you could update us on how you are thinking about that opportunity.

Ken Lewis

I will that, Bill. So, we are obviously very interested in participating in that public/private investment program and providing kind of a broad range of investment products to invest in that plan. So, there could be some significant opportunities. We did file our RFP last week and like you said, everyone else was expecting to hear something in midday.

William Katz - Buckingham Research

Okay, in your sense, they are going to go more than five companies or is it still limited to five companies?

Ken Lewis

I guess limited to five companies.

Operator

Your next question comes from the line of Jeff Hobson - Stifel Nicolaus.

Jeff Hobson - Stifel Nicolaus

In terms of the international markets, can you give us any maybe April commentary on a region-by-region basis? And I have been surprised at the outflows on the global fixed income side given the strong performance to some of those products. Can you comment on that?

Ken Lewis

Yes, I think I would share that. I think it is a little surprising but I think anytime you have the kind of sell off that we experienced in March, people tend to move towards whatever could be illiquid or has run up in value or maybe other gain. I mean I was actually going through the numbers. That was the one thing that stood out to me as well on the global fix sales. April is really the again, I mean you saw what happened in January and February for most groups in the industry. Other markets have been doing a little bit better here and like most groups, we would expect to see overall improvement from the prior, from where we are today and I really do not have any sense beyond nor would I like to indicate by region how or what trends we are seeing at this stage. It is just too early.

Jeff Hobson - Stifel Nicolaus

And you mentioned the possibility of increasing advertising. It sounds like to the extent you did that; you might focus on fixed income in the shorter term. Is that correct and any thoughts of products beyond fixed income where you might spend some time and/or money there?

Ken Lewis

Well, I think it is more a broader campaign that we are thinking about. The bearing name, Franklin Templeton, king of the decade, we are going to put some pieces out on that. Like I said, we have some relative good performance, stories to tell, mutual theories on a Templeton equity side as well as the fixed income. So, I think I will be broader. It will represent a much wider array of our products than just the fixed income.

Operator

Your next question comes from the line of Robert Smith - Fox-Pitt Kelton.

Robert Smith - Fox-Pitt Kelton

I just wanted to talk about the distribution side right now. As you said, you cut I guess global headcount 10% so far. Have you done anything that distribution side to help improve sales and how does that coordinate with the sort of the reductions?

Ken Lewis

Yes, I will just probably talk about the process we went through on the cost management side. As I mentioned many times, we are pretty pleased with the results. I think we have decreased the expenses $300 million for the quarter, $650 when compared to the last year and that did not entail a 10% decrease in staff. The way, we kind of took our time doing that and we were pretty thoughtful and we did a bottom up sales and one of the emphases was not to do anything.

Well, to do the cost cutting but still ensure that we are well positioned. So, we have very little cut in the portfolio management side and we have some cuts in the sales and marketing side but they tended to be more on the marketing side of the equation and so we do not think that we have really hurt ourselves on the distribution side and in fact, there are areas where we have invested and intentionally invested when we talked about the advertising but currently, we are going through as I mentioned the strategic review of all of our business lines, cost reduction maybe an output of that but we may also find that we need to invest in certain areas because there are opportunities there and so that is what we are potentially do.

Robert Smith - Fox-Pitt Kelton

Okay, great and then I just want to make sure I understand sort of what is happening on this institutional side of the business with the RFP. I guess, you said there is more opportunity in the fixed income side of the house than in the equity side. But if we are kind of looking at that, is the total RFP activity overall, is that still declining at a rapid rate or are we starting to see in the flexion point where the activity in the fixed income business is starting to pick up and we just have not yet seen the activity shift in the equity side and on the RFP, on the equity side, is there more activity where more discussion around domestic mandates or international mandates?

Ken Lewis

The pick up is, the answer is it not slowing as far as RFP activity. The message that I had heard from our institutional sales people is that they are starting to see a pick up in activity, not back to where it was but certainly on the, we are starting to see people now having gone through this period and looking at the portfolios that there is some reallocation activity on the variable annuity side that is sitting right now and just overall pick up activity and I will mention most of that has been on the fixed income side but for whatever equity activity that we have seen, it is still been more on the global versus the domestic but we have seen a whole lot of activity on the equity side as far as RFPs go.

Robert Smith - Fox-Pitt Kelton

Great, that sounds pretty good. Then the I guess the last question is from where you guys sit, what can you actually do or what do you want to sort of accomplish in order to get the performance off to that some of the businesses? I just wanted to know what you guys think you can do personally other than sort of talk to the managers.

Gregory Johnson

Well, I think we tried to make sure that one, we have the best people with the right kind of incentives in place to produce consistent long term result and it is something we debate quite a bit. We also continue to share resources and that is one of the advantages of our global platform whether it is trading system or just some of the risk metrics we have around the various investment groups. Those were areas that again we can provide value and we try not to. We talked about that one year number but the reality is that will bounce up and down quarter to quarter and that really does not tell us a whole lot. We want to look at where we are underperforming and why and understand that.

But really what we are trying to do is build long term records and if you look at how the groups, how we measure that is we kind of wait each time period a little bit differently and we tie that back to how they are compensated. So, there are things we can do but we are not obviously going to do things in a knee-jerk reaction when you have weekly or quarterly or year-to-date underperformance because for example, if we are underway to the Templeton in financials for various specific reasons that can lead to short term performance under or over depending on what that sectors doing and we just want to make sure that it is consistent with how we managed money in the long term.

So, there are I think things we can do we view it as our number one responsibility for management and we talk about that quite a bit that and that is why exists and everything we have to do is making sure that the people in resources are in the right place to provide those returns.

Robert Smith - Fox-Pitt Kelton

Great and then just my last question is really can you give us an update on your view on acquisition especially in light of the way AUM levels have kind of trended in the last year as well as sort of what is happening in the market place with the number of properties for sale.

Gregory Johnson

Yes, I mean we have talked about on prior calls that between what has happened to revenues for the industry and margins and combined out the need per capital and insurance companies and traditional broker-dealer companies that may have had proprietary groups that there is a need to raise capital and there is a need for smaller companies that are being squeezed with margins to get the benefit of cost savings from synergies with larger platforms so that I think has accelerated the phase of different groups of properties that at out there today and I think that as I said on prior calls too that it is hard to see a lot of activity when you have the kind of volatility that we had seen over the last six months but I think things seemed to be settling a little bit so I would expect to see more deals announced here in the next three to six months than we have seen in the past.

Operator

Your next question comes from the line of Robert Lee - Keefe, Bruyette & Woods.

Robert Lee - Keefe, Bruyette & Woods

Maybe I will just start with the follow up to the last point. Greg, can you maybe also update us on Franklin's own appetite for holes you are looking to fill? I think you have mentioned in the past that maybe growth for example is not as much of a priority as maybe you had been for the last several years or maybe brings up spin on that?

Gregory Johnson

Well, I think we are careful and we talked a lot about not trying to focus on what we do not have but focusing on what we have because I think we have some of, as far as breadth of product line, probably the best in the industry. But there is always, we are always open and we have had a history of doing acquisition that we think can add more value and as I mentioned before, an immediate value of the cost savings and in this environment that can be very significant to some managers so there is nothing we would rule out and especially in this environment where you can even consider doing deals that look very similar to your company by combining assets and getting the savings from that and realizing significant savings and that has not been really the opportunity in the past.

The growth side, we are going down the organic path and we have talked about that in the past and do have good records and have done some changes within our own groups and move our product line a little bit around and done some mergers to make that I think a little bit more attractive to the retail channel and that is where the track we are going but there are a lot of opportunities out there and we will continue to look at all of them but I do not think there is any one or two things that stand out. It is something we need more than the other.

Robert Lee - Keefe, Bruyette & Woods

Okay and maybe I like to ask you a question and so on at distribution, I mean it is clearly been a huge amount of shake up and turmoil among some of your traditional distributors whether it is M&A or brokers moving from one firm to another or what have you. I mean how are you, are you thinking that there is any need or also maybe somehow alter your distribution strategy and maybe it is more of a focus on the independent channel although I notice that I think that is the place you had been investing and as a follow up to that, do you feel like you are in the short run being hurt more by that given that you had such deep penetration and all of these kind of a change among brokers kind of impacts you because there is a lot of money flying from one firm to another.

Gregory Johnson

I think the question whether the consolidation is hurting us in the short run, I think it is very hard to isolate that and say exactly has that really affected flows for us. I do not think it has had much of an impact. The independent side I think has had an impact and we thought a lot about it and you mentioned, it is an area that we have been investing more and I think one of our programs with electronic marketing is to make sure that we can customize our distribution. I think that allows us to be much more efficient than the traditional wholesale model which is very expensive to get the right number of any person visits and the people, if we can do it electronically and deliver the kind of information that they want, those advisors to build a good relationship with. That is the path that we are currently investing dollars and see a pretty good opportunity there if we execute properly.

Robert Lee - Keefe, Bruyette & Woods

Does that play into your decision a little bit to increase your advertising spend because it is, since it is tougher to get to them directly in the sense maybe you need to actually be a little bit more whether it is trade or other advertising?

Gregory Johnson

Yes, that would affect somewhat the mix and I mean, I think we have to be a little careful about saying we are increasing our advertising because it is overall, it is still at a much lower spend than where we were a year ago and I think we just feel that the visibility we get today by continuing to have a presence in the various publication is for dollar if a dollar is the much better buy than it was a year ago when the pages were very crowded. So, that is why historically we continue to do that and as Ken mentioned, it is just we feel like we have a fairly good message I mean with the relative rankings for the 10 year numbers for the firm to get that message out and probably you are right, do that more through trade publications and mass media.

Operator

Your next question comes from the line of Marc Irizarry - Goldman Sachs.

Marc Irizarry - Goldman Sachs

Just in terms of the cost saves and the cost structure here, if we do take another lag down in the markets, it sounds like there are several places where you are willing to sort of grow through.

Ken Lewis

Sorry, Marc, could you repeat the last part of that question? Maybe we should move to the next question, operator and Marc can call back in?

Operator

Your next question comes from the line of Cynthia Mayer - BAS-ML.

Cynthia Mayer - BAS-ML

Just a follow up on an earlier comment I guess on acquisitions. I am wondering if there are any areas where you feel like you already have so much scale, it would be in someway detrimental to add assets in that area which might hurt your chance to generate alpha or you might willing to find market share which you could gain for free by simply outperforming.

Ken Lewis

I do not think there is any, if I think about capacity and one could argue, if there was a second large manager within global bonds because we have such a large presence and market share in the retail category. That will be an area where we would not consider for the reasons you just mentioned but I cannot think of any other areas that comes to mind that we would have capacity constraints that would affect our ability to generate alpha.

Cynthia Mayer - BAS-ML

Okay and just on the buybacks, it looks like you bought more than in the December quarter. Was that just being opportunistic or should we think about this as kind of returning to the million shares plus per quarter?

Ken Lewis

I think it was opportunistic. I think we will continue of course to just follow that opportunistic strategy. I guess you are looking for some guidance for the future. The Board did approve 10 million shares so we are going to obviously continue buying shares back because we do have faith in the future growth prospects of the Company. I think it is more the same with this.

Cynthia Mayer - BAS-ML

Okay and just couple more questions, I am wondering if FX had any impact this quarter. I know it is usually minimal but I just want to check.

Ken Lewis

It was very minimal this quarter, yes.

Cynthia Mayer - BAS-ML

Okay and just to clarify on the flows, if I look at the net flow detail on page 11, it looks like the fixed income redemptions really fell off from $22 billion down to $9 and I am wondering is that difference mostly the Indian cash management product not being included or is it something else because it sounded like global bundling accounted for maybe $2 billion difference in that.

Ken Lewis

Yes, I mean that is right because we did not break it out, only on international side we broke out the overall flows so we are comparing quarter to quarter by the other ones. We would have the India numbers in there but I think overall, this redemption, I am looking at it by fund, we are still down by 25% to 50% even for fixed income quarter to quarter.

Cynthia Mayer - BAS-ML

So, you are seeing that kind of across the board?

Ken Lewis

Yes.

Cynthia Mayer - BAS-ML

Okay, great and one more question just in the insurance channel. What fund is it or funds that you think is doing well?

Ken Lewis

Well, it is still the, as I mentioned the fixed income and specifically the global bond area.

Operator

Your final question comes from the line of Marc Irizarry - Goldman Sachs.

Marc Irizarry - Goldman Sachs

I am not sure what happened there before but just in terms of your cost structure, you have taken a decent amount of cost already out here and it sounds like you want to be positioned to grow the business through a downturn but just, can you maybe describe where you are in terms of if we do hit a little bit of the air pocket here in the market, is there some more cost cutting that can lie ahead or would you have to maybe think about reducing your footprint or distribution in some way?

Ken Lewis

Well, we are being, we are not taking anything for granted so as I mentioned, the strategic review we are going through is part of next year's budget process. We typically do it as normal course of business in the summer time. We are taking, we think there are probably some areas where there are some more room to cut cost but the areas are becoming a little bit more challenging to identify and certainly taking longer to execute on and longer to analyze but we are absolutely continuing that process so that, but we will do the right thing fro the business anyway which pretty much been part of our culture even before the downturn. But we are certainly not going to be cut flat footed if they do get that hiccup.

Gregory Johnson

We may have lost Marc again. Well, thank you everyone for participating on the call today and as always, we look forward to speaking next quarter. Thank you.

Operator

Ladies and gentlemen, that does conclude Franklin Templeton quarterly analysis call. Thank you for participating. You may now disconnect.

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Source: Franklin Resources, Inc. F2Q09 (Qtr End 03/31/09) Earnings Call Transcript
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