Prudential, Hartford Drop; Goldman First to Say Sell (Update2)
By Andrew Frye
November 11, 2008
Nov. 11 (Bloomberg) -- Prudential Financial Inc., the No. 2 U.S. life insurer, and Hartford Financial Services Group Inc. dropped in New York trading on concern that investment losses and falling stock markets will force the companies to raise capital.
Prudential and Hartford were downgraded to "sell'' today by Christopher Neczypor of Goldman Sachs Group Inc., the only analyst tracked by Bloomberg to give the firms that rating. Neczypor lowered his outlook on the U.S. life insurance industry to "cautious'' from "neutral'' after taking over for Thomas Cholnoky as Goldman's lead equity analyst for the sector.
"Each of the companies in our coverage universe will need to raise incremental capital,'' Neczypor said today in a research note. "The next 12 to 18 months will bring continued asset deterioration.''
Life insurance stocks had their worst month in a decade in October on concerns about losses on equity-based retirement products in which the firms guarantee minimum returns even when markets fall. Declines in fixed-income holdings also pressured the companies. North American insurers reported more than $120 billion of write-downs and unrealized losses tied to the collapse of the U.S. mortgage market since the beginning of last year.
Prudential declined $2.44, or 7.9 percent, to $28.51 at 2:38 p.m. in New York Stock Exchange composite trading, while Hartford, based in the Connecticut city of the same name, slipped $3.07, or 21 percent, to $11.48.
Prudential halted its buyback last month and Hartford sold $2.5 billion of stocks and bonds to increase funds as losses erode capital. Prudential is "evaluating'' opportunities to participate in federal programs that could boost capital, the company said on Oct. 30. Hartford said on Nov. 3 it had $2 billion in capital more than required to maintain AA ratings.
Neczypor said his "favorite idea'' was selling Principal Financial Group Inc. and also recommended investors divest Lincoln National Corp. Principal fell 12 percent, and Lincoln declined 13 percent. No. 1 MetLife Inc., rated "neutral'' by Neczypor, slipped 7.3 percent.
"Our capital position is strong, with very strong liquidity,'' Principal Chief Executive Officer Larry Zimpleman said in statement distributed today by Business Wire.
Bob DeFillippo, a spokesman for Prudential, Lincoln's Laurel O'Brien and Hartford's Shannon Lapierre declined to comment.
Prudential, based in Newark, New Jersey, is rated "buy'' by 10 analysts and "hold'' by five, according to Bloomberg data. A total of five analysts recommending buying Hartford stock, while 10 analysts advised investors to hold it.
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