Financial stocks rallied Wednesday on news of UBS' deal to buy PaineWebber Group.
Brokerages and asset managers got the biggest boost as investors bet on which company in the sector would be the next to be bought. Shares of A.G. Edwards, the U.S. brokerage that analysts say most resembles PaineWebber, were particularly buoyant. They rose $3.8125, or 7.46%, to $45.9375.
"The retail firms are very much in play since the announcement of the PaineWebber-UBS transaction," said Michael Flanagan, an analyst at Financial Service Analytics in Pittsburgh. Investors believe that A.G. Edwards is a prime takeover candidate because it is the No. 2 regional brokerage behind PaineWebber and is similar to PaineWebber in structure, he said.
A spokeswoman for A.G. Edwards said the St. Louis company wants to remain independent. "It has been our position that we remain independent and feel it is in the best interest of our shareholders, clients, and our employees that we do so," she said.
Brokerage stocks also gained because this is probably the least troubled group in financial services, said Stephen Eisman, an analyst at CIBC World Markets.
"Commercial finance companies are having problems with credit; stalwarts Fannie Mae and Freddie Mac have political risk; and many of the specialty finance firms are involved in subprime, which has been looked upon unfavorably," Mr. Eisman said. "Asset managers and investment banks so far have been clear of major troubles."
Consolidation in the group, however, probably will not happen soon because many companies do not want to be bought, Mr. Eisman said.
"And even though there are many strategic reasons why these companies should sell, personality is what eventually will make a deal," he said. "If the head of the company does not want to sell, the company will not be sold. It took Donald Marron, the chairman of PaineWebber, years to finally sell the company."
Asset managers also rose on news of the UBS-PaineWebber deal. Shares of Waddell & Reed Financial Inc. was up $2.4375, or 7.78%, to $33.75, and Federated Investors Inc., $1.875, or 5.13%, to $38.4375.
"Over the last two to three months, a flurry of transactions have occurred, which is not likely to diminish," said William Katz, an analyst at Merrill Lynch & Co. "There have been more announced transactions year-to-date than there were in 1999."
A notable example was Alliance Capital Management's deal to buy Sanford C. Bernstein & Co.
Meanwhile, American Banker's index of the 50 largest banks rose 0.07%, and its 225-bank index rose 1.09%. Investors piled into some banks because of the perception that the UBS-PaineWebber deal could create an opportunity for banks to gain customers, said Andrew Collins, an analyst at ING Barings.
"There is always uncertainty about a deal, which can lead to an outflow of customers and people to other companies," Mr. Collins said. Beneficiaries of this outflow of business are likely to be Citigroup and Chase, which are trying to build up their equity underwriting business, he said.