Prudential Financial Inc (NYSE:PRU) in its 8-K filing, contested the Financial Stability Oversight Council move to designate is as systematically important.
The No. 2 U.S. life insurer received notice of a proposed determination by the FSOC that the company should be subject to stricter prudential regulatory standards and supervision by the Board of Governors of the Federal Reserve System.
Prudential Financial Inc (NYSE:PRU) requested a hearing to explain why it shouldn’t be tagged a systemically important financial institution, or SIFI.
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The Dodd-Frank act allowed the Treasury Department’s FSOC to designate non-bank firms for extra oversight. This is intended to avoid a repeat of the 2008 bailout.
Stricter Prudential Financial Standards
In the event of the FSOC designating Prudential Financial Inc (NYSE:PRU) as a covered company, the insurance major would be subjected to stricter prudential standards under the Dodd-Frank Act. This would include conforming to various requirements including risk-based capital, leverage liquidity, stress-testing, overall risk management, resolution plans, besides early remediation and credit concentration.
The insurance major would also be subjected to additional standards regarding capital, public disclosure and short-term debt limits.
Goldman Sachs Retains Buy
Goldman Sachs Group Inc (NYSE:GS) in its equity research report feels the potential for greater regulatory oversight will not impair return on capital for Prudential Financial.
Christopher Giovanni and Ying Hua of Goldman Sachs accordingly reiterated their CL-Buy on the insurance major, besides retaining their earlier price target.
The analysts note per regulations, the FSOC will schedule an evidentiary hearing within 30 days and will make a final determination on Prudential’s status as a ‘covered company’ within 60 days after the hearing.
Prudential – The Only Insurance Company To Content
Goldman Sachs Group Inc (NYSE:GS) analysts observe so far Prudential Financial Inc (NYSE:PRU), American International Group Inc (NYSE:AIG) and General Electric Company (NYSE:GE) have been designated as ‘non-bank SIFI’. American International Group and General Electric earlier noted that they will not challenge the title. Hence the analysts note Prudential becomes the only company to contest the designation.
Christopher Giovanni and Ying Hua justify their retaining rating on Prudential Financial Inc (NYSE:PRU) as they feel some of the more onerous capital frameworks such as bank-centric Basel III would be ‘watered down’ to more appropriately stress an insurance company framework.
Goldman Sachs Group Inc (NYSE:GS) analysts’ confidence echoes earlier action from Deutsche Bank analysts where the analysts raised their price target for American International Group Inc (NYSE:AIG), even if American International Group Inc (NYSE:AIG) is officially tagged as a SIFI.