By Greg Morcroft, MarketWatch
RISMEDIA, June 7, 2007-(MarketWatch)-Prudential Financial is shuttering its stock research? business and laying off about 420 staffers worldwide, the company said Wednesday.
As the insurer takes another step away from Wall Street, Prudential said in a statement that it’s discontinuing all institutional equity research, sales and trading operations.
Company spokeswoman Theresa Miller explained that Prudential was unable to achieve scale in the business and wants to focus on its retirement and asset-management operations.
For the year ended December 31, 2006, the operations to be shuttered had revenues of approximately $260 million and income from continuing operations before income taxes of approximately $34 million.
Prudential had reportedly been shopping the unit around, but Miller declined to comment on whether the company had attempted to sell the business.
But, with the move now, Prudential said in an SEC filing that it currently estimates that it will ultimately incur aggregate costs of about $110 million ($72 million after-tax) in connection with the decision.
Equity research has always been a pricey proposition for Wall Street firms, and in recent years has been seen as something of a profit drag. Also, trading has become more competitive as more and more business is conducted electronically, squeezing profit margins.
The decision affects Prudential Equity Group employees throughout the United States, including offices and trading operations in New York, Washington, San Francisco, Kansas City, Chicago, Philadelphia, Cleveland, Atlanta and Boston. Overseas, Prudential had offices in London, Zurich, Paris, and Tokyo.
Effective at once, Prudential Equity Group is dropping coverage of the sectors and roughly 350 companies it covers. The unit posted revenue of about $260 million last year.
In 2004, Prudential, primarily an insurance company known for its “Rock of Gibraltar” logo, trimmed back its Wall Street business when it formed with Wachovia Corp, a joint brokerage venture. Under that deal, Prudential ended up with a roughly 40% stake in the venture.
Following Wachovia’s agreement to buy regional broker A.G. Edwards Inc. last week, Prudential has several options regarding its stake in the venture, including a sale to Wachovia.
Shares of Prudential lost 1.1% at $99.45 in afternoon trading.
Greg Morcroft is MarketWatch’s financial editor in New York.
