Prudential Plans Sale of Stake in Wachovia Securities (Update2)

By Andrew Frye
Bloomberg News
December 4, 2008

Dec. 4 (Bloomberg) -- Prudential Financial Inc., the second-biggest U.S. life insurer, plans to sell its minority stake in Wachovia Securities to Wells Fargo & Co. and seek cash from the U.S. Treasury's rescue fund to rebuild capital.

The insurer is exercising the right to sell its holdings in the brokerage back to Wachovia Corp., Prudential said today in a regulatory filing. The joint venture was formed in 2003 when Prudential combined its retail brokerage with Wachovia's in a cashless transaction. Wachovia has since agreed to be acquired by San Francisco-based Wells Fargo, creating the biggest branch network in the U.S.

Prudential Chief Executive Officer John Strangfeld is seeking to strengthen the insurer's finances as real estate investments sour and the stock market slump hurts returns from variable annuity sales. While the final price hasn't been set, the insurer's stake in Wachovia Securities is worth about $5 billion before tax, Prudential said.

The sale will probably close on Jan. 1, 2010, and assumes the completion of the pending takeover by Wells Fargo of Wachovia, according to Newark, New Jersey-based Prudential.

The insurer also said it applied to participate in the Treasury's $250 billion capital purchase program, which injects cash into financial companies in return for preferred stock. The insurer said no decision has been made yet on whether its request will be accepted.

Treasury Funds

Prudential joins smaller insurers Hartford Financial Services Group Inc. and Principal Financial Group Inc. in seeking a portion of the government's bailout fund, originally targeted at banking companies. No. 1 MetLife Inc. has declined to comment on whether it will seek U.S. funds.

Fitch Ratings downgraded Prudential's credit on Dec. 1 as investment losses tied to the subprime meltdown depleted the insurer's capital. Strangfeld, promoted to CEO in January, suspended share buybacks and cut the dividend in half after Prudential posted a $166 million net loss in the third quarter.

Wachovia bought St. Louis-based A.G. Edwards Inc. for more than $6 billion last year and folded it into Wachovia Securities. Prudential held 38 percent of Wachovia Securities before the A.G. Edwards deal, which may have diluted the insurer's stake.

Life insurers including Prudential and New York-based MetLife have lost more than half their market value this year as plummeting stock and bond markets lowered the value of investments that insurers use to back policies. Prudential is down 78 percent since Dec. 31 through yesterday, while MetLife has slipped 57 percent.

North American insurers have posted more than $100 billion in writedowns and unrealized losses tied to the housing slump. MetLife sold $2.3 billion in shares in October to boost finances, while Hartford, based in the Connecticut city of the same name, cut its dividend and raised $2.5 billion by selling debt and equity to Allianz SE.

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