Wachovia, Prudential To Join Brokerage Operations

February 19, 2003 (PLANSPONSOR.com) - Ending months of speculation, Wachovia Corporation announced that it has agreed to merge its brokerage operations with those of Prudential Financial Inc. to create the third largest US financial advisory organization that will also provide 401(k) services.

According to the Wachovia announcement, the new Wachovia Securities will be based in Richmond, Virginia and is expected to field 13,600 brokers. The merged operation, with combined client assets of $537 billion and $4.2 billion in net revenue, will be made up of the companies’ retail securities, brokerage, and clearing operations. The transaction is expected to close by the end of March.

The deal could have particular implications for plan sponsors since the new firm will offer 401(k) plan services in addition to its menu of other products:

  • mutual funds
  • annuities
  • insurance
  • lending
  • trust

Ownership Structure

Under the terms of the agreement, Wachovia will have a 62% ownership interest and Prudential will own the remaining 38%. Wachovia will appoint three members to the firm’s board of managers and Prudential will appoint two members.

John Strangfeld, a vice chairman of Prudential Financial and leader of that company’s Investment Division, which includes the retail securities brokerage and clearing operations, will serve as chairman of the new combined firm, Wachovia announced. Strangfeld, a 25-year employee of Prudential, has led Prudential Securities for the past two years.  He will continue in his position as a vice chairman of Prudential Financial.

The new firm will report to Donald McMullen, Jr., president of Wachovia’s Capital Management Group.  Daniel Ludeman, currently president and CEO of Wachovia Securities, will be the president and CEO of the new firm.  He is a 24-year veteran of the brokerage industry. 

What’s In, What’s Out

The Wachovia announcement offered this description of Wachovia Securities’ operations:

The Prudential units included in the new firm are: the Private Client Group, which includes Prudential Securities’ domestic and Latin American branches and Wexford Clearing Services Corporation.  Excluded from the new firm are Prudential Securities independent equity research department and its domestic and international equity sales and trading group.

These will continue to operate as a unit of Prudential Financial and will be called the Prudential Equity Group. 

Other Prudential units excluded from the new firm are: Prudential’s international private client and global derivatives operations, and the Prudential Bank and Trust.  

The units of Wachovia included in the new firm are: the entire Wachovia Securities retail brokerage firm, including its Private Client Group, its in-bank Investment Services Group and its Independent Brokerage Group, which includes First Clearing Corporation.

The new correspondent clearing unit will operate under the Wexford name and will serve approximately 200 broker-dealers nationwide.

Wachovia’s Equity Capital Markets group, which conducts equity research, underwriting, and sales and trading for retail and institutional clients under the Wachovia Securities brand, will continue to operate separately from the retail brokerage group.

Merger-Related Savings

McMullen claimed   that the combined entity would benefit from annual expense efficiencies, estimated at $220 million after tax by 2005.  The new company will record merger-related and restructuring charges and exit cost purchase accounting adjustments of approximately $681 million after tax in connection with the transaction over the 18-month integration period.  

The deal comes after months of on-and-off-again negotiations that began as talks about combining their brokerage and research businesses in a joint venture (See  Pru, Wachovia Deal Back on Track ).  Reports of the proposed combination emerged last fall, but fell apart in late October over disagreements about who would have control of the venture

Wachovia Corporation, created through the September 1, 2001, merger of First Union and Wachovia, had assets of $342 billion, assets under management and administration of $802 billion, and stockholders’ equity of $32 billion at December 31, 2002.