Brokerage woes to test Prudential's new chief

October 31, 1994|By Bloomberg Business News

NEWARK, N.J. -- Can Arthur Ryan, expert cost-cutter and retail-banking whiz, save Prudential Securities?

Mr. Ryan's talents will be put to the test when he becomes chairman and chief executive of the brokerage's parent company, Prudential Insurance Co. of America, in December, moving from his current position as president of Chase Manhattan Corp.

The brokerage unit has been dogged by customer claims from the sale of energy limited partnerships, mostly in the 1980s. The scandal has already cost it $1.1 billion.

Analysts and colleagues of Mr. Ryan expect him to focus on strengthening Prudential's consumer businesses, controlling costs and boosting employee morale when he takes the helm of the nation's largest insurance company on Dec. 1.

A concentration on consumers, lower costs and higher morale were the 52-year-old Mr. Ryan's hallmarks at Chase Manhattan.

Mr. Ryan gets high marks from securities analysts for championing profitable business segments at the nation's sixth-largest bank, which has $114 billion in assets.

"From what I know, those skills will be very useful at Prudential," said Thomas Labrecque, chairman and chief executive of Chase. "Art is a very solid businessman. He is very good operating officer and can really get to the bottom of an issue."

One issue that will demand Mr. Ryan's attention is the problem at Prudential Securities. Mr. Ryan will want to boost profits and could even explore selling the unit, the nation's fourth-largest securities company, analysts said.

If Mr. Ryan does sell the securities firm, it would go against the strategy of his predecessor, Robert Winters, who is retiring as chairman of Prudential Insurance.

Mr. Ryan wasn't available for comment last week.

Mr. Winters, who has been chairman since 1987, said Prudential intended to "stand behind" its securities unit when he addressed reporters in March at Prudential's annual meeting with the press at Tavern on the Green in New York.

Any buyer would have to consider the lingering fallout from Prudential Securities' limited partnership scandal. In July, Prudential almost doubled its reserve for customer claims to $678 million.

Last week, Prudential reached an agreement with authorities to avoid a criminal indictment in the case, which stems from the use of fraudulent sales tactics during the 1980s.

"Somewhere down the road Prudential Insurance is going to sell Prudential Securities, just as General Electric sold Kidder Peabody," said Perrin Long, an independent brokerage industry analyst.

"To help make a sale possible, the new management must find a way to improve the brokerage unit's profit margins and return on equity," Mr. Long said. "Prudential Insurance would like to get out of the brokerage business as fast as possible. But this is a bad time for Wall Street. GE is taking a blood bath just to get rid of Kidder."

In both Prudential's brokerage and its insurance business, Mr. Ryan will focus on costs, said Frank Suozzo, an analyst with S. G. Warburg & Co. "His hallmark has been business-line management and forcing a budgeting process to improve profitability. He will focus on the cost structure, and run it like Dean Witter: extremely efficiently."

Exactly how large is Prudential Insurance's customer base? The figure of 50 million Prudential customers represents a higher number of votes than the 44.9 million that Bill Clinton received when Americans elected him president in 1992.

Since Mr. Ryan, a native of Brooklyn and a mathematics major at Providence College, became president and chief operating officer of Chase in 1990, the New York-based bank's earnings rose to $966 million in 1993 from a loss in 1990. In the first three quarters of this year, Chase had profits of $976 million.

"This is a very lucky day for Prudential," said David Berry, research director at Keefe, Bruyette & Woods.

Mr. Ryan is "the kind of leader the employees would lay down on train tracks for," said Mr. Berry. "He has a very clear sense of what he wants to accomplish, which at Chase was to fix the place and return it to pre-eminence as a global-services provider."

In 1993, Chase had net income of $585 million in its retail division or 61 percent of its total of $966 million. "By comparison, it was a tiny number 10 years ago," said Mr. Suozzo of S. G. Warburg.

Mr. Ryan joined Chase in 1972 from Control Data Corp. He began his Chase career as a project manager in the data-processing division. He was named executive vice president for corporate operations and systems in 1982. He became executive vice president in 1984 and was vice chairman in 1985. From 1984 to 1990, Mr. Ryan supervised the worldwide retail bank.

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