Prudential Shopping Equity Unit

Rising costs have the small shop between the Rock and a hard place.
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Prudential Financial

(PRU) - Get Report

is fielding offers for its research, sales and trading unit Prudential Equity Group.

The equity unit, which is small relative to other shops such as

Goldman Sachs

(GS) - Get Report

and

Merrill Lynch

(MER)

, consists of some 35 senior analysts but also has around 80 traders. Prudential has been trying to offload the unit as the market for research and trading has become more competitive and less lucrative.

Calls to Michael Shea, CEO of the group in New York, were not returned, and a spokeswoman at Pru's Newark, N.J., headquarters declined to comment.

Commissions have been declining for the past six years, says veteran equity analyst Brad Hintz of Sanford C. Bernstein in New York. "What you need to succeed is huge volume," he says. He didn't say whether privately held Bernstein had an interest in the Pru platform.

"Regulatory and compliance costs will increase by 6% annually. This will put pressure on industry performance in 2007-08, bringing estimated industry ROE to 9-10%," Hintz commented in a research note last year. Larger firms such as Goldman and Merrill are better able to absorb costs and juice profits, Hintz notes.

Also helping to impede some smaller brokerage performance is the industry's drive toward electronic execution such as algorithmic trading, Hintz comments, estimating that a brokerage needs to spend about $100 million on tech.

Given the tougher economics, many firms have sought to either cut their operations or build them out to create efficiencies.

Wells Fargo

(WFC) - Get Report

pulled out of institutional equities two years ago, and

Stifel Financial

(SF) - Get Report

acquired

Ryan Beck

from

BankAtlantic Bancorp

(BBX) - Get Report

in a deal completed in February.

The roster of possible buyers for Prudential's equity unit could include independent shops as well as other boutiques aiming to round out their coverage. Prudential's equity group includes a universe of hundreds of names and sectors ranging from pharmaceuticals

Eli Lilly

(LLY) - Get Report

and

Bristol-Myers Squibb

(BMY) - Get Report

to energy names such as

Apache

(APA) - Get Report

,

Chesapeake Energy

(CHK) - Get Report

and

ExxonMobil

(XOM) - Get Report

.

Prudential also has a sizable equity sales force, which has offices in London, Paris, Tokyo and Zurich.