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Prudential to Sell Wachovia Stake to Wells for $3.7 Billion
2008-12-04
NEW YORK -- Prudential Financial Inc. said Thursday it plans to sell its minority stake in retail brokerage Wachovia Securities to Wells Fargo and has applied to tap into the Treasury's capital purchase program. According to a filing with the Securities and Exchange Commission, Prudential's stake in Wachovia Securities was valued at more than $3.7 billion, after tax, as of Jan. 1, 2008, excluding the A.G. Edwards business. Prudential combined its retail securities brokerage with those of Wachovia in July 2003 to form the St. Louis-based Wachovia Securities. As of Dec. 31, 2007, Prudential owned a 38% interest in the venture, while Wachovia owned the remaining 62%. The Newark, N.J.-based insurer said it intends to exercise its right under a "lookback" option to divest its joint venture interests in Wachovia Securities to Wells Fargo, which is acquiring Charlotte, N.C.-based Wachovia. The company selected the "lookback" option when Wachovia bought A.G. Edwards in October 2007. The option gives Prudential until Jan. 1, 2010, to decide whether or not to make a capital contribution to avoid or limit the dilution of its ownership interest in the joint venture. At the end of the lookback period, Prudential has the option to put its interests to Wachovia based on the appraised value of the joint venture, excluding A.G. Edwards' brokerage business. Prudential expects the transaction to close in January 2010. Beginning in the fourth quarter, the company will record its financial advisory operations as a divested business. In recent weeks, several analysts speculated that Prudential might attempt to either negotiate an early exit from the joint venture or sell its stake to a third party as a means to raise additional capital. Prudential also confirmed that it applied for an investment under the government's capital purchase program, which would result in the U.S. Treasury Department receiving preferred equity in the company. The company did not say how much it is seeking from the government, nor has any determination been made with regard to its participation in the program. As part of its $700 billion financial rescue package passed in September, the government poured $125 billion through stock purchases into nine large financial companies, and made another $125 billion available to other banks. Several banks have already received money under the program. Many insurers, including Prudential, have been under pressure to maintain solid capital positions to avoid damaging downgrades by ratings agencies. Keeping high ratings is key for insurers because lower ratings can raise borrowing costs, and in some cases could even mean lost business. On Monday, Fitch Ratings cut Prudential's senior debt rating to "A-" from "A'' and the financial strength ratings of Prudential's life insurance subsidiaries to "AA-" from "AA." All of the ratings are investment grade; the rating outlook is negative. Insurance firms also have suffered in recent quarters from investment losses linked to the disruptions in the stock market. In October, Prudential reported a third-quarter loss due to financial market turmoil and withdraw its forecast for the remainder of the year. Of the insurer's three divisions, its investment division reported the largest decline -- a loss of $92 million, compared with a year-earlier profit of $311 million. Prudential shares jumped $1.67, or 8.1%, to $22.21 in midday trading. Shares have traded between $13.10 and $93.14 in the past 12 months.
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