Quick & Reilly Group's stock leaped to a 52-week high Tuesday amid speculation that several big banks are vying to buy the discount brokerage.
The stock moved 8.1%, to $31.68, in heavy trading on reports that the Palm Beach, Fla.-based firm has put itself on the block.
First Union Corp., KeyCorp, and Barnett Banks were among those said to be in the hunt for the firm, the nation's third-largest provider of cut- rate investment products. However, a source with knowledge of Barnett's investment strategy said the Jacksonville, Fla.-based bank is not among the bidders.
One industry consultant said large mutual fund firms are also interested in the firm, possibly in a move to cement customer relationships with additional services.
The company's investment bankers-Goldman, Sachs & Co. and Gleacher Natwest-are circulating 19 books with the company offering. The asking price is said to be around $1.6 billion, which is "pretty steep," according to bank stock analyst Nancy Bush at Brown Brothers Harriman.
The last acquisition of a large discount broker was of Waterhouse Investors Services by Toronto Dominion Bank in 1996 for $526.3 million. That deal's price was about 20 times earnings, which is roughly in line with the price Quick & Reilly is said to be seeking, according to SNL Securities, Charlottesville, Va.
Quick & Reilly's 1996 net income was $69.4 million.
But measured another way-as a multiple of revenues-the $1.6 billion price tag would be high, said Kenneth Kehrer, a Princeton, N.J.-based consultant who advises banks on investment programs. That would be 3.49 times Quick & Reilly's 1996 revenues of $458.6 million-well above the 2.76 ratio paid for Waterhouse.
A Quick & Reilly spokesman declined to comment on a possible sale, citing company policy. He did, however, release a statement, that said they "are committed to continuing to build shareholder value, and see many opportunities to do so on our own."
Yet Quick & Reilly may not be able to fetch such a lofty price because it offers primarily discount brokerage services, said one financial services analyst who spoke on condition of anonymity. The largest discount brokerage firm, Charles Schwab & Co., not only offers other services, like its own mutual funds, but also drives industry trends, which Quick & Reilly does not, he added.
Elsewhere, stocks resumed their decline on Tuesday as investors awaited economic indicators, due Wednesday and Thursday. Economists are expecting the government to report a 0.7% rise in July retail sales-"a fairly good increase," said Scott Brown, economist, Raymond James & Associates. He said there is "fear that the numbers could come in a lot stronger, which may be what today's sell off is all about."
A private retail sales report from LJR Redbook Research showed a 0.9% jump in retail sales for the week ending August 9, shaking bond investors.
The projections fanned fears of inflation which could trigger an interest rate hike from the Federal Reserve. Bonds erased early morning gains, with the yield on the benchmark 30-year Treasury bond rising 4 basis points to 6.67%.
Mr. Brown called the market's mini-correction on Friday, when the Dow Jones industrial average dropped more than 150 points, "overdone," and said investors could be overreacting to the Redbook report on Tuesday.
Bank stocks began the day on an upswing, along with bonds, but fell in tandem as news of strong August sales reached traders. The Standard & Poor's bank index dropped 1.60% to 574.48, erasing Monday's gains, while the S&P 500 broad market index dropped 1.12% to 926.53. The Dow Jones industrial average fell 101.27 points, or 1.26%, in late day trading to 7,960.84,
Banc One Corp., with its heavy credit card portfolio, dropped $1.31 to $51.68 on fears that rising interest rates could choke demand for card loans. J.P. Morgan & Co. dropped $2.93 to $110.50.
Jay Suskind, head trader, Ryan Beck & Co., West Orange, N.J., said investors are taking their cue from the weak bond market, which continued its decline of last week. But by Thursday, he said, investors should have a better idea about inflationary pressures.
The consumer price index, due Thursday, is expected to show a small uptick for July, at 0.2%, according to Chase Manhattan Corp.'s economic research. A Chase bulletin said July wholesale prices are thought to have remained essentially unchanged,
Meanwhile, Gary Gordon, specialty finance company analyst, Paine Webber, cut his estimate on Flagstar Bancorp, Bloomfield Hills, Mich., to "attractive" from "buy."
The company, which focuses on mortgages, is close to his price target at $19.25, down 75 cents on the day. But he said the bank's expansion plans include a transformation from pure mortgages to retail branch banking which could bode well for earnings and future growth.