Prudential Securities Inc. on Monday confirmed long-held expectations that it would significantly curb its investment banking business to focus on research and brokerage.
The shift comes amid sweeping change at its parent company, Prudential Insurance Co. of America, which said Monday that it plans to convert from mutual to stock ownership. Prudential Securities, which would continue to operate as an investment bank on a much smaller scale, would focus mainly on its retail financial services such as asset management, retail brokerage, and investment research.
In an interview, Prudentials president, Jamie Price, said the decision to scale back the investment bank was based on the conclusion that the company was losing ground against bulge-bracket firms.
But Mr. Price said Prudential plans to keep its research force intact and possibly expand it. Instead of supporting the firms investment banking division, he said, the groups work will be tailored to target the firms institutional and retail investors.
We believe that if we built out a robust research capability and geared it solely to the investor, we can tick that up significantly, he said. Executives at the securities operation realized that there was an unfulfilled need in the marketplace to provide research that is not slanted in favor of the issuer but targets investor needs, he said.
Mondays announcement marks a progression in Prudentials struggle to redefine its position in a marketplace that has witnessed intense consolidation over the past year, as smaller firms have left investment banking rather than spend their money to compete with the Goliaths formed in the summers flurry of consolidation.
Prudential eliminated 160 of its 290 investment banking positions, ending weeks of speculation about its intentions since the firm closed its institutional fixed-income division in November, cutting 400 jobs.
Prudential Securities has been working toward drastically reducing its investment banking unit since it replaced the firms existing senior management with executives from its retail business earlier this year.
John R. Strangfeld, previously the head of Prudentials global asset management group, became chief executive officer in early October. He replaced Hardwick Simmons, who announced his retirement after failing to convince Prudential Securities parent to sell the investment bank.
Mr. Simmons has since resurfaced as chief executive officer of the Nasdaq stock market. Mr. Price, as executive vice president at Prudential Securities private client group, became president.
Dean Eberling, an analyst at Keefe, Bruyette & Woods, said Prudentials strategy reflects the problem with being stuck in middle ground when youre not global and not a boutique. The move closely parallels a redirection implemented by PaineWebber, now part of UBS Warburg, in the 1990s.
Mr. Eberling applauded Prudentials efforts to expand the firms asset management capabilities but questioned its bid to expand its trading business.
Although it can fit into a retail brokerage strategy, expanding high-volume trading business is not necessary, and its high risk with a lot of different issues revolving around it, including regulatory, Mr. Eberling said.
The changes will leave a hole in terms of Prudentials ability to deliver initial public offerings to its clients.
If in fact we go this route, how do we have product flow? Mr. Price said. Prudential, he said, will step up the number of deals it co-manages to gain product flow for investors. Some 80% of its IPO flow is now driven by deals co-managed by other Wall Street firms, he said.
Prudential will retain roughly 35 investment banking professionals to respond to leads referred to it by its research division or other parts of the brokerage network.