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November 06, 2014 at 05:27 AM
(Bloomberg) — Prudential Financial Inc., the second-largest U.S. life insurer, said profit declined 50 percent on investment losses tied to derivatives.
Net income fell to $512 million from $1.03 billion a year earlier, Newark, New Jersey-based Prudential said Wednesday in a statement. Operating profit, which excludes some investments and the results of policies sold before the firm went public, was $2.20 a share, missing the $2.41 average estimate of 18 analysts surveyed by Bloomberg.
Prudential, led by Chief Executive Officer John Strangfeld, gets about half its profit from international units, mainly in Japan. The company uses derivatives to cushion the effects of swings in stocks, bonds and currencies. Japan’s yen declined about 7.6 percent against the dollar in the quarter, weighing on reported results.
“The yen is weakening and it will continue to weaken,” Sean Dargan, an analyst at Macquarie Group Ltd., said in an interview before results were announced. Still, Prudential “has very high returns in its Japan business.”
Prudential fell 1.9 percent to $87.25 at 4:33 p.m. in extended trading in New York, after results were announced. The stock had slipped 3.6 percent this year in regular trading, trailing the 9.5 percent advance of the Standard & Poor’s 500 Index.
Prudential said it recorded $576 million of pretax losses tied to currency fluctuations, fueled by changes in the yen. A year earlier, gains tied to currency swings were $1.17 billion. Some fluctuations are countered with adjustments to other accounts that aren’t included in net income.
Investment losses
The insurer said overall pretax net realized investment losses doubled to $1.13 billion from last year’s third quarter. The figure includes swings tied to derivatives used to cushion fluctuations in asset values.
Book value increased to $86.76 per share on Sept. 30 at Prudential’s main business. The measure of assets minus liabilities was $85.35 a share three months earlier. Prudential said it repurchased $250 million of stock in the quarter at an average price of $89.41 a share.
