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Brokerage Merger Talks Are Reported

Prudential Financial and Wachovia are in preliminary discussions to combine units and form an independent business, sources say.

October 21, 2002|From Reuters

NEW YORK — Prudential Financial Inc. and Wachovia Corp. are discussing ways to combine their brokerage units and create one of the world's largest independent stock research and advisory operations, sources familiar with the situation said Sunday.

The talks, which are in their preliminary stages, would combine the two brokerage operations under a joint venture boasting more than 13,500 brokers, sources said.

Several important details, including management, ownership stakes and what resources each side would commit to such a venture, are being negotiated, and talks could fall apart any time, the sources cautioned.

A spokesman for Prudential, the No. 2 U.S. life insurer, declined to comment. A spokeswoman for Wachovia, the No. 4 U.S. retail bank, could not be reached for comment.

An agreement would mark the first significant step by any U.S. financial institution to establish an independent brokerage business since regulators began investigating several Wall Street firms, including Wachovia. The investigations concern allegations that the firms provided favorable research for clients in exchange for more lucrative investment banking business.

An agreement also would address problems for both institutions. Prudential Chairman and Chief Executive Arthur Ryan has stressed repeatedly this year that he would explore ways to make the brokerage business more profitable as part of an overall effort to restructure.

Despite already boasting a sizable independent brokerage unit, Prudential has experienced difficulty expanding the operation recently as volatile market conditions have kept many investors on the sidelines.

The company, based in Newark, N.J., has quietly tried to sell the operation, said several investment banking sources. However, it found few willing or capable buyers.

Wachovia, meanwhile, is one of more than a dozen firms being probed by regulators and is eager to put the issue behind it, sources said.

The bank, based in Charlotte, N.C., is still digesting its acquisition of First Union Corp. last year, making an outright acquisition of Prudential's brokerage unit difficult, banking sources said.

However, the joint venture structure would still provide enough separation to allow the bank to more aggressively market its investment banking business, which is dwarfed by other large U.S. retail banks.

Combined, the two brokerage units would boast a size rivaled only by Merrill Lynch & Co.

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