On the news that Prudential Securities was paring its fixed-income businesses - and eliminating as many as 400 positions at the firm - spreads on home-equity asset-backed securities widened as much as 10 basis points, according to research from First Union Securities.
Not only was Prudential a major provider of liquidity for the sector, but the firm has been among the top three lead managers for home-equity deals since 1994.
In fact, for the decade (1990-1999), Prudential underwrote approximately $56 billion, second only to Lehman Brothers' $61 billion, according to Thomson Financial Securities Data.
However, market response to Prudential's exodus wasn't limited to spread widening. There was talk circulating that a chunk of the asset-backed and mortgage-backed team could be picked up by Nomura Securities, which has embarked on a poaching spree (see story page 2).
A spokesman at Nomura did confirm that the firm is in talks with several Prudential vets, though declined to comment further.
"There's a lot of talented people over there that will find homes very quickly," said a banker who had been with Prudential's ABS group up until late last winter. "The only thing that was odd in my mind was that the group wasn't shopped or sold or somehow arranged for as a transfer."
A Winding Road
At the end of the first quarter this year, Prudential was at No. 7, and had been lead manager on approximately $3.2 billion worth of home-equity deals, according to TFSD. By second quarter, the firm had slipped to No. 13 for the quarter, and No. 10 year-to-date.
Prudential's slip in the rankings followed the departure of group head Joseph Donovan and several of his senior ABS staff to Credit Suisse First Boston late in the first quarter.
However, the company still managed a strong presence, and recovered some volume in the third quarter following a few key hires, including Andrew Piesch, who had moved over from Merrill Lynch.
In the third quarter, Prudential did $2 billion of volume in the public and 144A markets, up $500 million from the $1.5 billion in proceeds for the second quarter.
Prudential has not led a transaction this quarter.
According to a company spokesman, Prudential will maintain its fixed-income research groups, changing the focus from institutional to retail. Details were unclear. The spokesman added that the paring down of the fixed-income only applies to corporate underwriting and institutional trading.