Prudential's Books Hide $500 Million Loss

Unrealized losses now total $5.9 billion, up $2 billion in the quarter, representing those assets that Prudential believes will ultimately hold value, including the previously mentioned $500 million in impaired fixed securities. Prudential believes that it faces a potential $550 million loss over a five-year period.

Prudential refused to quantify the excess of capital that it believes it holds but is not reported on the balance sheet. One analyst pointed out that it was always discussed, so why not now? The response from Carbone was that "we are reluctant to spit out numbers that may not be accurate." He went on to say, "in this environment, we would be very cautious about applying assumptions that we might have done one year ago."

Even when it was pointed out that Hartford(HIG Quote) stock prices were down significantly because it had been evasive over capital discussions, the response was that on the basis of an S&P 500 at 900, Prudential anticipates risk-based capital coverage of 350 to 400; currently it is about 350. The S&P closed today at 954.

Prudential, like most insurance companies, operates a securities lending program, and at the quarter end it amounted to $6.9 billion, a quarter of which is in Treasuries. It says that it has an additional $10 billion in assets that could be pledged to the program, but as this is not "mission critical," it is not worried about the continued pressure on the underlying asset values. Strangfeld, referring to liquidity, said "we have sufficient to meet our needs at the parent company and subsidiaries."