Prudential Financial, the US insurance group, announced on Wednesday that it was going to shut down its small stock research and sales business, which some analysts called "a distraction" with little value. This closure will result in the loss of about 420 jobs. This will be the biggest business breakage recently occurred.
Prudential representatives mentioned that the company is going to close down Prudential Equity Group's offices and trading operations in nine U.S. cities, and also some offices in London, Zurich, Paris and Tokyo.
Mary Flowers, Prudential spokeswoman said: "We don't have the scale to compete," and also mentioned that they want to focus on "businesses where we can be a top-tier player."
Since 2000 there was a considerable pressure on stock trading for large companies, as decimal pricing narrowed margins and technology development in electronics cut the commissions. The research business was also negatively affected by the introduction of rules to the public, which left analysts no inside information to take advantage of. Notwithstanding the situation many medium-sized brokerages stayed in the business despite of low profit margins.
Fox-Pitt Kelton broker analyst David Trone, who came to Prudential in 2001, when it began providing independent research services, said: "All these things turned cash equities into a loss leader: you don't make money on it, but you've got to have it." Prudential Equity Group didn't have other businesses to cover these drawbacks. "Research and cash equities at the other firms aren't making money, either, but at least they are components of a broader institution,"
Prudential analysts estimate that the research arm will cost $110 million to be closed down, which equals to $72 million after taxes, which will be involved in the June quarter report.
The spokeswoman, Mary Flowers said "Prudential will retain Edward Keon, the equity unit's chief investment officer and the head of its quantitative group, along with his team"Â.
In 2006 Prudential Equity Group announced about profit before tax of $34m, on revenue of $260m and managed assets of $137m.
HISTORY
Since 1875, Prudential Financial has helped people achieve financial security and peace of mind. Our success is based on a long history of social responsibility, strong leadership, sound investments, and innovative products and services.
The Prudential Friendly Society, founded by insurance agent John Fairfield Dryden, was founded in a basement office at 812 Broad Street in downtown Newark, N.J. It was the first company in the U.S. to make life insurance available to the working class. The company sold Industrial Insurance, which provided funeral and burial expenses for low-income families, with some weekly premiums as low as three cents.
Prudential entered the 1990s with consolidated assets surpassing $100 billion. The decade also saw a changing of the guard when Arthur F. Ryan of Chase Manhattan Bank became the first individual from outside Prudential to become chairman and chief executive officer.
In 2001, Prudential marked a major milestone with its demutualization. Prudential Financial, Inc.'s common stock began trading on December 13, 2001, on the New York Stock Exchange under the symbol "PRU." Since that time, Prudential Financial completed a number of business transactions that include the acquisition of American Skandia, the largest distributor of variable annuities through independent financial planners in the United States, and the creation of a retail brokerage business with Wachovia Corporation, forming one of the nation's largest retail financial advisory organizations, Wachovia Securities, LLC.
Prudential Financial's distinctive rock logo and Prudential's name are among the most enduring brands in U.S. corporate history. The company's long history is a testament to the quality it has provided its customers. In addition to its high level of service, Prudential Financial is today recognized for the breadth of products and services it provides and continues to be a recognized company of quality financial services at home and abroad. - Alla Harutyunyan for HULIQ.COM
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