Prudential Financial Ditches TARP Funds as Markets Rebound

Strategic Insights -

Prudential Financial Inc., the largest US life insurer approved for bailout funds, has decided to bypass the Troubled Asset Relief Program (TARP) and raise $1.25 billion through a share sale, citing the improved market conditions. This move allows the insurer to tap into private investors' appetite for bank and insurance equity and debt offerings, making the decision to reject TARP funds less daunting. As markets rebound, Prudential joins Allstate Corp. and Ameriprise Financial Inc. in turning down government aid to guard against potential investment losses.

Key Takeaways:

  • Prudential Financial Inc. will raise $1.25 billion by selling shares, bypassing TARP funds after a share rally made private investment more accessible.
  • The insurer may use the proceeds to add capital to subsidiaries, repay short-term debt, and exit its brokerage joint venture, Wells Fargo Advisors.
  • Allstate Corp. and Ameriprise Financial Inc. have also rejected TARP funds, joining Prudential in avoiding government aid to shield against investment losses.
  • Stock and bond markets have improved since March, allowing insurers to raise capital through public offerings and investors' growing appetite for bank and insurance debt.
  • Prudential CEO John Strangfeld expects to boost capital by exiting the brokerage joint venture, Wells Fargo Advisors, and has posted over $11 billion in unrealized losses and write-downs tied to the subprime meltdown since 2007.
  • The company's share price has more than tripled from $11.29 on March 5, while the Standard and Poor's Supercomposite Life & Health Insurance Index has increased approximately 184 percent over the same period.

Statistics:

  • Prudential Financial Inc. will raise $1.25 billion through a share sale.
  • The insurer posted a second-half loss of $1.7 billion.
  • Utilized losses and write-downs since 2007 total over $11 billion.
  • The Standard and Poor's Supercomposite Life & Health Insurance Index has increased approximately 184 percent since March.
  • Prudential's share price has more than tripled from $11.29 on March 5.
  • Allstate's share price has risen 83 percent since March, while Ameriprise has more than doubled over the same period.

Sources:

  • Bloomberg News
  • Gimme Credit LLC (research note from May 21)
  • Prudential Financial Inc. (statement from Monday, cited in the article)
  • The Standard and Poor's Supercomposite Life & Health Insurance Index
  • Wells Fargo & Co.
  • Allstate Corp.
  • Ameriprise Financial Inc.