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Prudential Financial Posts Loss on Derivatives

Wednesday, 02 May 2012 04:40 PM

Prudential Financial Inc., the second-biggest U.S. life insurer, posted a first-quarter loss as the value of the company’s derivative contracts fell.

Net loss was $967 million, compared with a net income of $561 million a year earlier, the Newark, New Jersey-based company said today in a statement distributed by Business Wire. Operating profit, which excludes the results of policies sold before the company went public and some investments, was $1.56 a share, missing the average estimate of $1.72 from 18 analysts surveyed by Bloomberg.

Chief Executive Officer John Strangfeld is expanding outside the U.S. and buying back stock as he seeks to boost return on equity. Prudential’s derivatives, which are used to guard against market risks, often lose value when interest rates rise and the company’s credit spreads narrow, as they did in the three months ended March 31.

“We expect PRU to deliver steady improvement in ROE,” Jay Gelb, an analyst at Barclays Plc who has an “overweight” rating on Prudential, said in an April 30 research report. Prudential and MetLife Inc., the largest U.S. life insurer, “have diversified international platforms enhanced by acquisitions, and share buyback activity could accelerate.”

Prudential has risen 22 percent this year in New York trading, compared with a 15 percent gain for MetLife.

Strangfeld, 58, told investors last year he was focusing on boosting ROE, a measure of how well the company reinvests shareholder money, to 13 percent to 14 percent in 2013. That compares with Prudential’s ROE of 11 percent to 11.5 percent last year and less than 10 percent in 2010.

Looking Abroad

Strangfeld is scaling back in some U.S. markets as he focuses on life insurance sales abroad. Prudential sold its real estate brokerage and relocation business in December and in March said it will halt sales of individual long-term care policies. Prudential bought two Japanese life insurance units from American International Group Inc. in February 2011 for more than $4 billion.

Prudential has raised its dividend three times since 2008, and in June it announced a $1.5 billion buyback. MetLife has been blocked twice in the last year by regulators from increasing its dividend and starting a share repurchase. New York-based MetLife is subject to greater U.S. scrutiny than Prudential because of its status as a federally regulated bank holding company.

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Wednesday, 02 May 2012 04:40 PM
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