U.S. firm Prudential Financial, Inc. (PRU: sentiment, chart, options) is grabbing headlines this morning, thanks to some mixed brokerage commentary, while U.K. company Prudential PLC (PUK) is up on speculation of a potential acquisition from American International Group (AIG).
First up, the New Jersey-based Prudential was cut from "neutral" to "sell" at Goldman Sachs, while sector peer MetLife, Inc. (MET) was slashed from "buy" to "neutral." In a note to clients, Goldman warned that expected write-downs of $1 billion to $4 billion on PRU's residential and commercial mortgage-backed securities could exceed the company's excess capital of $1 billion. PRU was also added to the brokerage firm's "conviction sell" list.
As for MET, Goldman noted that projected write-downs of $1 billion to $6 billion could substantially diminish that firm's excess capital of $7 billion.
On the other hand, analyst Rob Haines of CreditSights argued today that the recent sell-off in life-insurance stocks is overdone. He argued, "While there is no doubt that the life insurance sector is facing a period of unprecedented negative trends, we would strongly argue that the risk of default for the high quality names in the sector is extremely remote and that they are well-positioned to weather current conditions."
As we approach midday, PRU is down 8%, extending its year-to-date drop of 55%. Sector peer MET has swallowed a more modest decline of 1.3%.
Meanwhile, the London-based Prudential PLC (PUK: sentiment, chart, options) soared today in overseas trading after reports hit the newswires that it may take a 20% stake in AIG and make a bid for the American insurance firm's Asian business.
According to a Sunday report in the Times of London, PUK is working under the advisement of UBS and Credit Suisse to launch a potential $15-billion offer for AIG's Asia-based American International Assurance life-insurance business. A spokesman for Prudential PLC declined to comment on the speculation.
However, AIG chief Edward Liddy has previously stated that only a minority stake in his Asian life-insurance business is up for sale. Analyst Raghu Hariharan noted that "The logic behind buying a minority stake is unclear," adding that PUK already has a strong presence in Asia. Hariharan observed that PUK's potential motive could be a defensive play to prevent another competitor from moving into the lucrative market.
In U.S. trading, PUK is following up its overseas rally with a 12.4% advance. Today's surge should help narrow the equity's year-to-date decline of 65%.
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