Prudential Turns Itself Into A Widget Firm (PRU)

In a somewhat surprising move, Prudential Financial, Inc. (PRU-NYSE) has decided to jettison its institutional equity research, sales, amnd trading business known as Prudential Equity Group. This will affect equity research operations including its offices and trading operations in New York City and Washington, D.C., San Francisco, Kansas City, Chicago, Philadelphia, Cleveland, Atlanta and Boston, and outside the United States in London, Zurich, Paris and Tokyo. Effective immediately, Prudential Equity Group is dropping coverage of the sectors and companies it covers.

So if Prudential is now out of the institutional research and trading game, this leaves retail asset gathering operations. At March 31, 2007 it claimed $630 million in assets under management.  Prudential’s business includes life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services.

Interestingly enough, Cramer said that despite the fact that Prudential had top quality research he likes the move.  In fact, he said he’d sell AMERITRADE (AMTD) and Buy Prudential (PRU).

The problem with this is that it leaves the asset gatherers esentially offering NOTHING unique.  The sales staff is left to sell widgets.  To top it off, there has been a huge shift into ETF’s over the last 12 to 24 months.  It is still unclear if the ETF trend has been taking Joe Q. Public out of individual stocks or if it has taken him out of mutual funds, but there is a real question that exists today: why on God’s green earth would anyone still buy a 5-letter ticker mutual fund anymore if they have any knowledge of the market?  If you are a fairly sophisticated investor and have your main account at Prudential, this is the first question you should be asking.  They have no underwriting and investment banking department any longer, now canned the research and trading, so what is there?  Maybe they need to acquire more of an online discount trading firm to join that crowd.

Some may consider this a good move because of cost cuts, but now Prudential is just another "me too" brokerage house with basically nothing proprietary.   The good news is that other bulge bracket firms such as Goldman Sachs (GS), Morgan Stanley (MS), Bear Stearns (BSC), Lehman  Brothers (LEH), Merrill Lynch (MER), and others have one less competitor out there.

Jon C. Ogg
June 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.