Speculation about takeovers lifted brokerage shares Monday after a report that the chief executive officer of Bear Stearns Cos. might be open to selling it.
Shares of Bear Stearns and Lehman Brothers - two companies investors often name as takeover candidates - rose to 52-week highs. The catalyst was a report by Guy Moszkowski, an analyst at Citigroup Inc.'s Salomon Smith Barney, on his interview last Thursday with Bear Stearns CEO James Cayne. In a research note dated Friday, Mr. Moszkowski said Mr. Cayne "signaled somewhat of a change in attitude."
"He made it quite clear," the analyst wrote, "that an acquisition is not out of the question, but [that] a buyer would have to be willing to pay at least four times book value, or nearly $120 per share today."
In an otherwise listless session in which bank shares generally weakened, brokerage stocks rose as analysts and consultants began considering potential combinations and the ramifications of different mergers.
Bear Stearns climbed $3.4375, to $49.75, and Lehman $0.8125, to $117.625. Two other full-service brokerages, A.G. Edwards & Sons Inc. and Advest Group Inc., also hit new 52-week highs Monday.
American Banker's index of 50 largest banks rose 0.28%, while its index of 225 banks fell 0.1%.
W. Christopher Maxwell, a consultant with Maxwell & Associates of Rock Hall, Md., said that UBS AG's recent purchase of PaineWebber Group has rekindled expectations that consolidation between banks and brokerages could soon accelerate. "Everything was escalated" by the acquisition, he said.
The UBS-PaineWebber deal has some analysts thinking potential buyers for Bear Stearns also might lie overseas.
"Bear Stearns had a deal with an Asian bank a few years ago that unwound very early," said Geoffrey H. Bobroff, an analyst with Bobroff Consulting of Providence, R.I. "But the Pacific Rim banks don't have the appetite right now to take on an American investment bank. A buyer is going to have to come from Europe."
Mr. Maxwell said that though overseas banks are always looking to buy American financial institutions, domestic banks can never be ruled out. Bear Stearns seems to fit well with a bank like Chase Manhattan, he said.
"Chase needs to increase its bulk in that business," Mr. Maxwell said. "Banks need to be careful about a potential cultural clash. That is what leads me to believe that a leading-edge bank in going to be needed to create the perfect integration. This leads me to believe that Chase would be a good buyer."
Steven Eisman, an analyst with CIBC World Markets, agrees that a culture clash is definitely a consideration for any potential buyer. "There is a most unique culture at Bear Stearns," he said. "It is a hard entrepreneurial culture, and I don't think that a major institution could tolerate that culture. I am recommending the stock, but I don't think Bear Stearns is a reasonable takeover candidate because of their unique culture."
Mr. Bobroff said that domestic banks do not have the valuation to make such an acquisition. Chase is still digesting its September acquisition of the equities underwriter Hamburg & Quist for $1.35 billion, Mr. Bobroff said.
In his report, Mr. Moszkowski said that despite Mr. Cayne's open-mindedness, any talks that may have occurred between Bear Stearns and potential buyers have yielded little if any fruit, and that he does not expect a deal in the immediate future.