U.S. insurance company Prudential Financial said that it will shut down its institutional stock research and trading business, Prudential Equity Group, ending a rocky 26-year stay on Wall Street.
The life insurance and money management giant will shutter offices and trading operations in nine U.S. cities as well as in London, Zurich, Paris and Tokyo. Prudential said it has dropped research coverage immediately and that 400 employees will be terminated as operations are wound down during the quarter ending June 30.
"Prudential's strategy is to be in businesses where we have significant scale," said Prudential spokeswoman Theresa Miller.
"The research and trading markets are really competitive, really challenging, and are not an area where we've been able to achieve that scale or success for our clients, for our shareholders and certainly our employees."
Prudential executives declined to comment.
The move furthers Prudential's withdrawal from the securities industry, where shrinking commissions and regulatory changes have weeded out dozens of traditional stock brokers.
Reforms in 2002 pushed through by then-New York Attorney General Eliot Spitzer make it more difficult for Wall Street firms to cover research costs, prompting cutbacks in coverage.
Stock trading for big institutions is also under pressure, thanks to thinning fees and competition from electronic systems and from the biggest Wall Street houses.
Prudential estimates shutting down the research arm will cost $110 million, or $72 million after taxes, for severance, retention, leases and other expenses to be reflected in the June quarter.
The spokeswoman said the company will retain Edward Keon, Prudential Equity Group's chief investment officer and the head of its quantitative group, along with his team.
Prudential Life Insurance Co. of America ventured onto Wall Street in 1981 when it acquired retail brokerage Bache Halsey Stuart Shields to form Prudential-Bache, at the time one of the largest U.S. brokers.
But the securities business generated its fair share of headaches. In 1993, the insurer agreed to pay about $371 million to settle allegations from regulators that it improperly sold $8 billion of investment partnerships to hundreds of thousands customers in the 1980s.
Prudential, meanwhile, struggled to break into the top tier of investment banks, even after its bull market takeovers of tech boutiques Volpe Brown Whelan & Co. and Vector Securities.
By 2000 concerns about the independence of Wall Street research analysts during the subsequent meltdown in stock prices prompted Prudential in 2000 to shut down investment banking.
That left brokerage, yet commission pressures made the business less profitable and encouraged dozens of firms to seek buyers. Despite its national reach, Prudential by 2003 sold its retail brokerage arm to Wachovia Corp retaining a 38% stake in joint venture Wachovia Securities.
That left Prudential Equity as a small independent research and institutional trading business. Last year the unit generated $260 million in revenue and $34 million in pretax income. It managed just $137 million of assets, compared with Prudential Financial's $630 billion.
Earlier this year Michael Mayo, one of Prudential's best known stock analysts and an outspoken critic of research conflicts, quit to join Deutsche Bank.