Prudential avoids bailout, will offer stock

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Prudential Financial (PRU) announced today that it is offering $1.25 billion in common stock. This move will raise money for general business expenditures, including adding capital to insurance and repaying short-term loans. Additionally, it will enable the company, American's second-largest insurer, to avoid borrowing government bailout funds.

Citigroup and Goldman Sachs are jointly working as book writing managers on the offering, and will have 30 days to purchase up to 15 percent of the stock. Meanwhile, the offering has slightly lowered Prudential's stock: on Friday, it closed at $39.91, but had dropped to $39.02 before the bell on Monday. By 9:30, the price had rebounded to $39.51, but was fluctuating widely. In September 2008, shares were priced at $88.

While most media coverage of the financial meltdown has focused on banks, many insurance companies have also been compromised by the recent crisis. Amid investment losses and other liabilities, the insurance industry lobbied the government for its own bailout. Late last month, six companies, including Hartford Financial Services, Allstate, Lincoln National, Ameriprise Financial, Prudential, and Principal Financial, were approved under the US Treasury's Capital Purchase Program.

Oddly enough, half of the insurers -- Allstate, Ameriprise and Prudential -- have rejected the fund offer. This refusal to accept a bailout, following aggressive lobbying for it, has generated speculation that insurers are rejecting bailout dollars in an attempt to avoid the restrictions that TARP rules have placed on banks.

Another reason for refusing bailout bucks lies in the fact that the US Treasury is no longer the only game in town. In late 2008, when insurers were lobbying for government money, credit and lending markets were essentially frozen because of the financial crisis. In March, however, the market began to rebound and investors became more open to buying shares of financial service companies. Now, two months later, the government is no longer the only option for an injection of much-needed capital.

For both of these reasons -- improving markets and government restrictions -- many banks that borrowed TARP funds have begun offering common stock to raise money for repayment. With more and more insurance companies electing to refuse bailout bucks, its worth asking if the financial crisis of 2008 might be nearing a turning point.
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