Last week, Prudential Financial (PRU) announced that it has completed the previously announced sale of its minority interest in Wachovia Securities Financial Holdings to Wells Fargo & Co. (WFC) for $4.5 billion in cash. Apart from this the company has also received $418.4 million in relation to the promissory notes, held in the joint venture, issued by Wachovia Securities.
The retail brokerage joint venture was initially launched by Wachovia Corp. (owning 62%) with Prudential in Jul 2003. However, post the Wachovia acquisition in Dec 2008, the joint venture also became the property of Wells Fargo. At the time of Wachovia acquisition, the company had reportedly assumed that it would acquire Prudential’s stake in the near future. The acquisition will now give complete control of affairs to Wells Fargo. Prudential, however, moves ahead with the sale of its stake to boost its finances.
Wells Fargo Advisors is currently the third largest retail brokerage firm in the U.S. It is one of the direct retail customer-oriented businesses of the company, providing sound advice and customized investment products, taking care of the risk and return capacities of its customers. Hence, having a strong position in the firm will obviously strengthen the company’s core competencies, helping it grow inorganically as well. Prudential expects an after-tax gain of $1.5 billion from the transaction.
These funds will add to the company’s capital to further solidify it in the process. With its right business mix, Prudential stands favorable to drive double-digit earnings growth and is poised to grow its earnings and expand its return on equity faster than its peers over the next several years. Prudential has among the strongest balance sheets in the life industry following its recent capital raises. It has a strong international presence that provides it with organic growth opportunities, which are not available to many of its peers. As a result, the company should be able to maintain its ratings and invest in its business despite the prospect of high investment losses.
Read the full analyst report on “PRU”
Read the full analyst report on “WFC”
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