However much bankers may want to buy brokerages, the pickings are getting slim.
Since the wave of bank acquisitions of securities organizations began last spring, banks have shown a clear preference for privately held brokers. Of the seven bank-brokerage mergers announced through last week, six involved private firms.
Fleet Financial Group's deal to buy Quick & Reilly Group, a public company, may be a sign of change.
"The reason you want a private firm is that it's an easier transaction to negotiate," said Richard J. Kelly, managing director at M.A. Schapiro & Co., an investment bank that specializes in financial services companies. "But there aren't a lot of private companies any more that could make any impact."
In recent months, such partnerships as Montgomery Securities, Robertson, Stephens & Co., Oppenheimer & Co., and Wheat First Butcher Singer Inc. have all agreed to sell to big commercial banking companies.
Investment bankers say these firms were the cream of privately held brokerages because they offered either strong stock underwriting capability or sizable retail businesses. All sold relatively inexpensively - NationsBank Corp.'s $1.2 billion price for Montgomery was double the next most expensive deal of this kind.
With few significant private brokerages remaining, investment bankers say banks will be following Fleet into the publicly traded category in search of retail broker networks.
Publicly traded companies probably will cost banks more than their privately held counterparts - in part because market speculation has driven up the share prices of nearly every public brokerage. Also, banks must pay to keep a firm's top talent and must satisfy shareholders.
Investor expectations of what securities firms are worth have been rising steadily since April, when Bankers Trust New York Corp. announced it would pay $1.7 billion for publicly traded Alex. Brown & Sons Inc.
In the past five months share prices of entities such as Donaldson, Lufkin & Jenrette Securities Corp. and Lehman Brothers Holding Inc. have skyrocketed in anticipation that they will sell to a commercial bank. (See chart.)
Despite such speculation, Donaldson has indicated it is not selling.
But investment bankers say it is a matter of time before most brokerages are bought, even the biggest ones.
"Eventually you're going to see at least one big Wall Street brokerage go to one of the money-center banks," one investment banker predicted, "but I doubt it will be this year. It's the top of the market right now, and people want to see things calm down first."
Regional firms such as A.G. Edwards Inc., Raymond James Financial Inc., and Piper Jaffray Cos. would all be attractive to commercial banks, according to bank merger advisers. They all rank in the top 35 among stock underwriters, according to Securities Data Co., and deal with companies of a size similar to those that regional banks typically serve. They also have large numbers of stockbrokers.
"Of course, any deals are predicated on the continued appreciation of the equity markets," M.A. Schapiro's Mr. Kelly observed. "What's to guarantee that is going to happen?"