Prudential Reduced by S&P After Two Straight Losses (Update3)

By Erik Holm
Bloomberg News
February 17, 2009

Feb. 17 (Bloomberg) -- Prudential Financial Inc., the second-largest U.S. life insurer, was downgraded by Standard & Poor's after posting two straight quarterly losses.

Declines in Prudential's fixed-income and stock portfolios may also cause S&P to reduce the grades on the firm's individual insurance units, the ratings company said in a statement on the Newark, New Jersey-based insurer.

Prudential is selling its stake in a securities brokerage after halving the quarterly dividend and suspending share buybacks to preserve capital. Declining stock markets have forced the company to take losses on retirement products that guarantee minimum returns, even when equities decline.

"We expect earnings to remain depressed, especially in market-sensitive businesses, such as variable annuities and asset management," the ratings firm said.

Prudential dropped $4.07, or 15 percent, to $22.59 at 4:02 p.m. in New York Stock Exchange composite trading and has plunged about 68 percent in the past 12 months. MetLife Inc., the largest U.S. life insurer, has dropped 59 percent in that span.

The counterparty credit rating was reduced to A from the A+ grade it had maintained since May 2007. A downgrade may hurt sales of retirement products to institutions and individuals in the U.S., Executive Vice President Bernard Winograd said last year in a conference call.

'Market Volatility'

"Despite S&P's actions, which reflect the unprecedented market volatility that's affected our recent results and our investment portfolio, we believe we have solid capital consistent with our AA financial strength ratings objectives for our insurance companies," Prudential spokesman Bob DeFillippo said.

North American insurers have posted more than $140 billion in writedowns and credit losses tied to the collapse of the U.S. housing market in the past two years. Prudential's share totals more than $9 billion through 2008.

Prudential announced plans in December to sell its minority stake in Wachovia Securities, which the insurer valued at about $5 billion, to the unit's majority owner, Wells Fargo & Co. Prudential, which created the venture with Wachovia Corp. in 2003, may have to wait until Jan. 1, 2010, to exercise its previously granted right to sell and exit the investment.

Wachovia almost collapsed last year, and then agreed to be bought by Wells Fargo.

Copyright © 2009 FBIC (

Click here to return to FBIC homepage