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Rating:Three Things to Know from Prudential's Asset Management Earnings Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, February 19, 2013

Three Things to Know from Prudential's Asset Management Earnings

Reported by Tommy Fernandez

The asset management segment of Prudential [profile] suffered some setbacks in 2012. Senior management has outlined a number of plans to bolster this business.

If you look at the SeekingAlpha transcript of the February 7th earnings call, as well as the company's earnings information, you'll get at least three interesting takeaways on how Prudential intends to rev things up.

First, the basics. The asset management business reported adjusted operating income of $139 million for the current quarter, compared to $256 million a year ago. Current quarter results include a $9 million charge for impairment of capitalized software costs, while results for the year-ago quarter benefited by $96 million from the sale of Prudential's stake in a private pension fund manager in Mexico.

Current quarter results include approximately $49 million of costs that management estimates to be in excess of a baseline level, with the largest single item being about $20 million for costs associated with the launch of a new closed-end mutual fund. The segment's assets under management stood at $827 billion as of year-end, up about $110 billion or 15% from a year earlier.

Here are the three takeaways:

POINT #1: The Company Wants To Rev Up Business in Mid-to-Large Markets
POINT #2: The Company is Joining its International and Domestic Forces Together
POINT #3: The Company is Looking at Strategic Growth in Select Overseas Markets


Now to elaborate on these points:

POINT #1: The Company Wants To Rev Up Business in Mid-to-Large Markets
Vice chair Mark Grier had these direct words regarding business in their target markets:
We continue to see limited activity in the mid- to large-case market, which is our major focus.

POINT #2: The Company is Joining its International and Domestic Forces Together
Prudential's earnings release had this interesting detail regarding the two operations.
We have reclassified results from our international investments businesses including this sale to the Asset Management segment to reflect our alignment of the management of these businesses.

POINT #3: The Company is Looking at Strategic Growth in Select Overseas Markets
Edward Baird, chief operating office and executive vice president of international business, had this to say about expansion overseas:
Let me start with a broad, sort of philosophical approach to the M&A. Our general preference is to acquire companies in countries that we're already in, such as the Star/Edison acquisitions. [insurance business acquisitions in Korea and Japan, respectively] We have a long, and I think, fairly stated successful track record in that type of acquisition. So we always look for those, Japan, Korea, those kinds of countries would be places that we would be open to for that. But in addition, we also consider the possibility of entering new markets that we would do, as Mark expressed earlier in his conversation, on a careful and selective basis. But a cautious expansion of the footprint is something that we would consider. And so, and geographically, they would be in the kind of regions you've referenced. The intrinsic growth rates that are possible in Southeast Asian and in Latin America are places that interest us. We're not really interested, in general, in the mature markets of Western Europe, where we don't have any meaningful presence unto which we could alter business. But getting back to the core part of your question of Japan, specifically. Yes, at the moment, our group is still quite actively engaged although successfully over the major hump, with the integrations of Star and Edison, we do keep an open mind, looking at a kind of companies there. It will be interesting to see, now that the new solvency margin rules are out, whether or not that puts a certain degree of pressure on some companies that, under the old measures, I had adequate solvency margins, but under these new, more stringent solvency measures, may not feel quite so comfortable. So we do continue to monitor that, having made a handful of acquisitions there over the last decade. We do have a certain degree of quiet confidence about our abilities there.

For more information turn to the SeekingAlpha transcript of the February 7th earnings call, as well as the company's earnings information,  

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