Prudential's decision to shutter its Equity Group eliminates 420 jobs in sales, trading and research, including 33 senior equity analysts.
The company's June 5 announcement provides fresh evidence that the business of providing equity research and related services to institutional investors is withering. It also closes the door on a two-decade effort by parent Prudential Financial to diversify into the securities business from its primary base in insurance.
The final chapter in Prudential's foray onto Wall Street began with the 2003 industry-wide settlement with regulators over biased research reports. The settlement initially sparked hopes that commission dollars would pour into independent equity research, unfettered by ties to investment banking. Prudential, which had gotten out of investment banking in 2000 and sold most of its retail brokerage operations in 2003, became one of a long list firms that sought to capitalize on the new, independent-research business model.
However, as time went by it became clear that traditional sell-side equity research is a commodity with limited profit potential. Shrinking commission rates were the final nail in the coffin.
The research boutiques that have prospered are those producing targeted reports for a select clientele of hedge funds and other well-heeled, sophisticated investors willing to pay premium prices for ideas that aren't broadcast to a wide client base.
An executive at one focused research boutique, Majestic Research, told The Wall Street Journal, "We don't think (Prudential Equity) will be the last firm to fold its tent." New York-based Majestic charges a minimum of $100,000 for its reports, the Journal said.
Prudential's decision didn't come as a surprise. It had been reportedly trying to sell the equity unit. In March, its six-member financial institutions analyst team, led by star Michael Mayo, left to join Deutsche Bank Securities.