Wachovia thinks deal will prove Prudential.

• Author: Maley, Frank
• Position: Money Matters - Wachovia Corp. to merge with Prudential Financial Inc.

Buying low is a key to success in the market. Wachovia Corp. hopes it applies to building stock brokerages, too.

Charlotte-based Wachovia (NYSE: WB) will pay no money up front to combine its retail brokerage with Newark, N.J.-based Prudential Financial's. It will own 62% of the new Wachovia Securities. Prudential can sell its 38% to Wachovia after two years, and Wachovia can buy out Prudential after 15. Expected to close in the third quarter, the deal will take a year or so to integrate.

It will create the nation's third-largest retail brokerage network, with $537 billion in assets, and cut costs $220 million a year by 2005. That will boost earnings 3 cents a share next year and 9 cents a year after that. Wachovia will take $422 million in charges -- 31 cents a share -- in 2003 and 2004 to cover integration costs, which means it'll probably take four years to recoup that cost.

Is Wachovia getting a bargain -- or exactly what it's paying up front? Prudential's brokerage lost money the last two years -- including $41 million in 2002. Wachovia spokeswoman Mary Eshet says $39 million of that was a one-time restructuring cost. Plus, she adds, $52 million from mutual-fund and managed-account fees are part of the deal but not in the profit-and-loss calculations.

Some analysts wonder if now is a good time to buy any brokerage. "If Goldman Sachs is right, households have lost $10 trillion in the last three years," says...