Prudential Financial sees sharply lower Q3 earnings, suspends share buybacks

(RTTNews) - Insurer Prudential Financial, Inc. (PRU | Quote | Chart | News | PowerRating) on Thursday forecast sharply lower adjusted operating earnings for the third quarter, saying its results have been negatively affected by current financial market conditions. The company also said it has decided to suspend all buyback of common share, effective Friday.

The Newark, New Jersey-based company said it expects after-tax adjusted operating income for its financial services businesses to be in the range of $275 million to $375 million or $0.67 to $0.90 per share for the third quarter.

In the third quarter of last year, the company reported after-tax adjusted operating income for the Financial Services Businesses was $905 million or $1.97 per share.

On average, 17 analysts polled by First Call / Thomson Financial currently expect the company to earn $1.72 per share for the third quarter.

Prudential Financial's common stock reflects the performance of its financial services businesses, which consist of its insurance, investment, and international insurance and investments divisions and its corporate and other operations.

The expected results reflect an estimated negative pre-tax impact of $700 million or $1.26 per share on adjusted operating income of the financial services businesses for several items, the company said.

The items that will weigh on Prudential's results include estimated pre-tax income of $80 million or $0.14 per share relating to a net decrease in amortization of deferred policy acquisition and related costs for the company's individual life insurance business and estimated pre-tax charges of $380 million or $0.68 per share relating to a net increase in amortization of such costs for the company's individual annuity business.

The items also include estimated pre-tax charges of $115 million or $0.21 per share relating to investment results from fixed income and equity investment funds of the asset management segment's proprietary investing business.

Other charges include $235 million or $0.42 per share, relating to a previously announced settlement concerning the underwriting, sale and subsequent auction of certain auction rate securities by subsidiaries of Wachovia Securities, with which Prudential has a retail securities brokerage joint venture.

Results of the retail brokerage joint venture to be reported by the company's Financial Advisory segment will also include the company's share of transition costs, expected to be $45 million or $0.08 per share, relating to the acquired retail securities brokerage business of A.G. Edwards business.

Commenting on the expected third quarter results for the company's financial services businesses, Prudential Chairman and CEO John Strangfeld said, "While our results have been negatively affected by current financial market conditions, we are comfortable with our risk profile and believe that we are in a strong position to manage through the current environment."

The company said it expects realized investment losses for the third quarter to include pre-tax credit-related losses, and losses on sales of credit-impaired securities, of $325 million to $375 million, including losses and impairments on holdings of securities issued by the now bankrupt Lehman Brothers Holdings, Inc., American International Group, Inc., and Washington Mutual.

The realized investment losses are excluded from adjusted operating income but included in net income. Insurers emphasize operating income because it highlights the results from ongoing operations and the underlying profitability of their businesses.

Additionally, Prudential said it has determined to suspend all buyback of common share, effective Friday, in view of recent market volatility and extraordinary events and developments affecting financial markets.

During the third quarter the company repurchased 5.4 million shares of its common stock for $375 million, taking the total shares repurchased in the first nine months of 2008 to 28.6 million shares at a cost of $2.125 billion.

The company said it believes that its capital position as of September 30 is consistent with its "AA" ratings objectives and that it has the liquidity to meet requirements at the parent company and at all operating subsidiaries. The company also believes that its need for access to the capital markets through the year-end would be modest.

Prudential shares, which have traded in a range of $41.16 to $101.45 over the past year, closed Thursday's regular trading session at $33.27, down $10.02 or 23.15% and lost an additional 27 cents in after hours trading.

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