New York (
collected half a billion dollars less than it had expected from selling its stake in a
Prudential, the second-largest U.S. life-insurance company, said last year it was exercising an option to exit the Wachovia Securities Financial Holdings brokerage unit, which started six years ago as a joint venture with Wachovia Corp. Wells Fargo acquired Wachovia in January during the credit crisis.
Prudential estimates that the $4.5 billion in proceeds it gets for Wachovia Securities Financial Holdings will produce a gain of about $2.3 billion, or about $1.5 billion on an after-tax basis. The insurer had said it could get as much as $5 billion.
Despite the disappointment, the deal will free up $2.8 billion in equity tied up in the brokerage, according to Chief Financial Officer Rich Carbone. It will be a cash deal, whereas Wells Fargo sought a cash-and-stock agreement.
In addition, Prudential will receive $417 million in a subordinated promissory note within 30 days of the joint venture's termination.
The proceeds will significantly increase the risk-based capital ratio of its subsidiary, The Prudential Insurance Co. of America, as of Dec. 31. That means it will be able to expand its business without worrying about capital constraints.
-- Reported by Gavin Magor in Jupiter, Fla.
Gavin Magor is the senior analyst responsible for assigning financial-strength ratings to insurance companies. He conducts industry analysis and supports consumer products. Magor has more than 22 years of international experience in operations and credit-risk management, commercial lending and analysis. His experience includes international assignments in Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.