September 28, 1999
New York, NY

Axa Chief: Financial Stocks are Hampered by 'Investment Paradox'
Michael Hegarty, President & CEO

Financial stocks are trading at the low end of historic valuations but there are demographic reasons why they should be more attractive to investors, the head of Axa Financial Inc. told insurance analysts and investors.

Michael Hegarty, Axa's vice chairman and chief operating officer, believes his company's stock price is the victim of a "valuation paradox" and ought to be considered a great investment opportunity. Hegarty spoke Tuesday at the life insurance segment of the CIBC World Markets conference, co-sponsored by A.M. Best Co.

Until earlier this month, Axa Financial was known as the Equitable Cos., and took the new name of the name of its parent corporation, Axa of France.

One worry for investors may be whether Axa Financial can sustain its earnings, Hegarty said. AXA Financial's growth rate has been higher than 20% in each of its businesses for the past five years. Earnings per share in the second quarter were up 22%, and return on equity was nearly 20%. The company reported more than $18 billion in sales in the second quarter and more than $33 billion for the first six months.

Hegarty's case for why robust growth can be sustained: Axa Financial's target market, the affluent and emerging affluent, are expected to see assets more than double in the next few years, from about $6 trillion currently. Pension guarantees, meanwhile, are disappearing. Nearly 60% of affluent surveyed report they prefer to do business with a single company and want a strong, trusted relationship with an advisor, Hegarty said.

Axa Financial shuns easily copied, commoditized products. Representatives sell to wealthy people, largely for financial- and estate-planning purposes, said Eric Berg, managing director of CIBC World Markets. Representatives' inventory includes products from other companies, and the company "uses technology to make it easy for agents and customers to do business" with it, Berg said.

Distribution is "where the war will be fought and won," Hegarty said. Axa created its Axa Advisors unit to provide objective advice to customers on retirement, investments, education funding, insurance, and estate and tax planning. Recruiting efforts are being aimed at certified public accountants, certified financial planners, chartered life underwriters and chartered financial consultants, he said. Axa also created an asset-management account for wealthy clients. In a Texas pilot project, more than 800 opened those accounts, which collectively now contain more than $100 million in assets.

Hegarty said Axa will continue its branding efforts, although the company will continue to use familiar names, including Equitable (insurance), Donald Lufkin & Jenrette (brokerage), DLJ Direct (online brokerage) and Alliance Capital (mutual funds).

Internationally, Axa is raising its profile as a third-party asset manager, Hegarty said. Alliance is now the second-largest such manager in Japan.

Financial stocks' earnings are often sensitive to changes in interest rates; Hegarty argues that Axa Financial's earnings have increased steadily in the past five years despite fluctuating interest rates.