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Prudential to Raise $1.25 Billion After Refusing TARP Funding

Posted on 01 Jun 2009

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The biggest life insurer, Prudential Financial Inc., approved for U.S. bailout funds, said it will raise $1.25 billion selling shares and refuse government aid after a share rally made it easier to tap private investors.

The insurer may use proceeds from the public offering to add capital to subsidiaries and repay short-term debt, Newark, New Jersey-based Prudential said today in a statement.

Prudential, which applied for funds from the U.S. Troubled Asset Relief Program in October, joins Allstate Corp. and Ameriprise Financial Inc. in turning down a bailout to guard against investment losses. Stock and bond markets have improved since March, allowing insurers to brace for more defaults on corporate debt and commercial mortgages by selling stock and debt to investors.

“Suddenly TARP money is last year’s out-of-style fad -- nobody wants to be seen wearing it in public,” said Kathleen Shanley, an analyst at Gimme Credit LLC, in a May 21 research note. “Investors’ newfound appetite for bank and insurance equity and debt offerings have made the decision to walk away from TARP money much less daunting.”

Improving Markets

Prudential Chief Executive Officer John Strangfeld cited improving markets on May 7 and said the insurer may sell debt or equity to private investors. The company, which reported a second-half loss of $1.7 billion, has posted more than $11 billion in unrealized losses and write-downs tied to the subprime meltdown since 2007.

Strangfeld expects to boost capital by exiting Prudential’s brokerage joint venture, Wells Fargo Advisors. Prudential has the right to sell a minority stake in the unit, valued last year by the insurer at about $5 billion, to the brokerage’s majority owner, San Francisco-based Wells Fargo & Co. Prudential, which created the venture with Wachovia Corp. in 2003, may have to wait until Jan. 1, 2010, to exercise the option to sell.