Prudential's Books Hide $500 Million Loss

Carbone said that the "losses reflect a change we feel is necessary at this time." Hardly surprising, as the news release indicates a loss of 23 cents per common share, and this would have been closer to $1.29 per share had the same accounting practices been followed. Analysts had been expecting a profit of 78 cents per share. Prudential did meet the range for the pre-announcement of operating income earnings per share at 74 cents per common share, excluding the life insurance business closed to new policies that lost $58 million for the quarter.

The insurance division recorded $32 million in operating income, down $524 million on the comparable quarter of the prior year with annuity income down $512 million, recording a $307 million loss. The investment division recorded a loss of $92 million, down $403 million, with retirement being a rare positive area, up $68 million to $133 million. The only division to at least punch its weight in this difficult economic climate was the international insurance and investments division, which recorded a $497 million profit, down just $40 million.

Assets under management and administration decreased to $714.4 billion, down $53.9 billion.

In the call, analysts were told by Chairman and CEO John Strangfeld that "the underlying performance of our business is solid." He went on to say that sales and cash flows remain positive despite the market conditions, and indeed premiums are up $125 million to $2,798 million compared with the prior-year quarter and up on the year to date. The problem is that investment income is half of the revenue, and this has been severely affected by the serious decline in asset values, including one-time losses of $300 million on investments in Lehman Brothers and American International Group(AIG Quote) in the third quarter.