Executives at Prudential Financial Inc. say the company wants to sell its stake in Wachovia Securities to the other co-owner.
The other co-owner, which has a contractual obligation to buy the stake, now is Wachovia Corp. By the end of the year, the counterparty will be Wells Fargo & Company, San Francisco, according to Prudential, Newark, N.J.
Prudential executives talked about the securities venture today at their annual investor day conference.
Prudential and Wachovia created the joint venture in 2003, when Prudential sold its highly regarded securities brokerage to Wachovia.
When Wachovia acquired A.G. Edwards & Sons Inc., St. Louis, Wachovia compensated Prudential for dilution of its stake in the venture by giving Prudential a “put option” to sell its stake to the other co-owner of the venture.
Wells Fargo is now in the process of acquiring Wachovia.
“We intend to exercise our lookback put,” Prudential says in a copy of an investor day slide presentation filed with the U.S. Securities and Exchange Commission.
The valuation was established Jan. 1, 2008, and should be about $3.7 billion after tax, Prudential says.
Prudential says it hopes to collect the proceeds from the exercise of the option in January 2010.
“We will record Financial Advisory as a divested business beginning in the fourth quarter of 2008,” Prudential says.
Prudential executives also reported at the conference that the company has “robust sources of liquidity,” such as cash flow from operations, lendable securities, credit lines and membership in the Federal Home Loan Bank of New York at the insurance company level, and cash, short-term investments, the Federal Commercial Paper Funding Facility and credit lines at the parent-company level.
Prudential reported that it has a total of about $35 billion in variable annuity living benefits guarantee risk.
About 47% of the living benefits account value “self hedges” through automatic account rebalancing mechanisms, the company says.
In addition, “long-dated hedging instruments limit exposure to hedge cost volatility” for most of the rest of the guarantee risk, Prudential says.
The retained risk comes from run-off guaranteed minimum income benefits that had about $5.1 billion in account value at the end of the third quarter, Prudential says.