Earlier during the week, Fitch Rating affirmed the “BBB+” long-term issuer default and the “BBB” senior debt ratings on Prudential Financial Inc. (PRU) and improved its outlook to “stable” from “negative”. The rating action follows the announcement made earlier during the month by Wells Fargo & Co. (WFC) to purchase the 38% stake of Prudential in its retail brokerage joint venture (JV), Wells Fargo Advisors, for a cash payment of $4.5 billion. The deal is likely to close by Dec 31, 2009. These funds will add to the company’s capital.
The retail brokerage JV was initially launched by Wachovia Corp. (owning 62%) with Prudential in July 2003. However, post Wachovia acquisition in Dec 2008, the JV also became the property of Wells Fargo. The company at the time of the Wachovia acquisition had reportedly assumed that it would acquire Prudential’s stake in the near future. The acquisition will now give complete control to Wells Fargo. Prudential, however, moves ahead with the sale of its stake to boost its finances.
Prudential with its right business mix is favorably positioned 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 is 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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