New York, Oct. 19: Prudential Financial is in talks with the Wachovia Corp. about a joint venture that would merge their brokerage and research businesses, executives close to the discussions said Friday night.
The deal is being driven, in part, the executives said, by an interest in creating a separate and independent brokerage and research company that would be free of any conflict of interest involving investment banking business.
Moreover, the deal would create a brokerage behemoth with 13,600 brokers, rivalling Merrill Lynch, the largest in the nation.
The executives stressed that the negotiations were far from complete and could still fall apart. “Joint ventures are notoriously hard to do,” one executive said. “Unlike mergers, joint ventures are about much more than price.”
A spokesman for Prudential Securities and a spokeswoman for Wachovia declined to comment on the discussions.
Terms of the venture, including the size of each company’s stake, are still being negotiated, the executives said, and it is unclear whether either company will pay a cash consideration to the other.
Prudential has considered selling its brokerage and research group, Prudential Securities, for months, the executives said, engaging in discussions with several rivals, including Lehman Brothers. Indeed, last year, Arthur Ryan, Prudential’s chief executive, said he planned to overhaul or sell the brokerage unit, which has been losing money since 2000, within two years.
Prudential’s talks with Wachovia come as brokerage and research operations at banks are coming under increased scrutiny as regulators and investors question the impartiality of the stock advice of firms that make millions of dollars in investment banking fees from the same companies whose shares they sell.
Wachovia, which has about 8,000 brokers, is among 14 securities firms that are being investigated by a task force set up by the North American Securities Administrators Association, a group of state securities regulators, for conflicts of interest.
Prudential, which closed its investment bank in December 2000, has recently tried to leverage the attention on the conflicts of interest at major banks, promoting its research as independent and unbiased. So far, however, the pitch has not raised Prudential’s fortunes, in part because of the market’s steep decline.
By merging the brokerage and research businesses of Prudential and Wachovia, executives hope to use the combined group’s sheer size and expertise in certain areas to propel the business, especially if the venture eventually competes against research departments that are spun off from Wall Street's major banks.
In addition, Prudential, which has 5,600 brokers, hopes to use the larger broker network to help sell its insurance products, the executives said, while Wachovia's investment banking business will benefit from the research group’s independence.
Wachovia, which is based in Charlotte, N.C., considered buying the entire Prudential division, the executives said, but determined that it was still too busy absorbing its merger with First Union last year.
Prudential Financial, which is based in Newark, was Prudential Insurance Co. of America when it was a mutual company.
Joint banking ventures have been notoriously unsuccessful. Merrill Lynch and HSBC recently dissolved a two-year-old venture that offered online banking and brokerage services in Canada and Europe. The venture was troubled by infighting about expansion plans. HSBC has since taken over the operation.