Shares of regional retail brokers shot up Thursday in response to an announcement that Wachovia Corp. agreed to buy A.G. Edwards for $6.8 billion, creating the U.S.'s #2 regional broker. Speculation as to which firm would be the next takeover target sent shares of Raymond James higher by 7.3% on seven times the daily average volume, while shares of Jefferies Group and Piper Jaffray gained 4.7% and 5.7% respectively. While Raymond James seems especially ripe for a takeout move - the CEO of one regional firm who spoke anonymously believes "in the end, there will be four or five firms. You don't need 30 choices," - Raymond James CEO Tom James denied his company had plans to be acquired, saying, "Raymond James has consistently proven that remaining independent has rewarded our clients, employees and shareholders." James believes "the long-term benefits [to shareholders] will be achieved by staying the course." That likely won't end speculation for which regional firm will be the next A.G. Edwards, with a "revenue story for banks in general [that] is a lot more challenged than it was even a year ago, given the interest-rate environment and turn in credit quality," according to Oppenheimer & Co. analyst Jennifer Thompson.
Sources: TheStreet.com (1), (2), SmartMoney.com
Commentary: Wachovia To Buy A.G. Edwards, Forming Second Largest U.S. Retail Broker • Bank Shot: Jefferies’s Compelling Valuation
Stocks/ETFs to watch: Raymond James Financial (NYSE:RJF), Jefferies Group (JEF), Piper Jaffray Companies (NYSE:PJC), A.G. Edwards (AGE), Wachovia Corp. (WB-OLD). ETFs: iShares Dow Jones US Broker-Dealer Index (NYSEARCA:IAI), streetTRACKS KBW Bank (NYSEARCA:KBE), Regional Bank HOLDRS (NYSEARCA:RKH)
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