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Schwab eyeing Jefferies
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August 16, 2001: 12:20 p.m. ET
Report says discount broker in informal talks with investment banking firm
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NEW YORK (CNNfn) - Discount broker Charles Schwab Corp. is holding informal talks about the possible acquisition of Los Angeles securities firm Jefferies Group Inc., according to a published report Thursday.
The Wall Street Journal, quoting an unnamed person familiar with the matter, said such a deal could be worth $1 billion or more. It would give San Francisco-based Schwab (SCH: Research, Estimates), which has concentrated on individual investors, more access to institutional investors.
News of the reported talks caused Schwab shares to drop nearly 7 percent in midday trading Thursday while Jefferies gained moderately.
Schwab has been trying to diversify its business. Last year, Schwab bought U.S. Trust Corp., a money manager for high net worth individuals, and CyBerCorp., which caters to day traders.
The story quoted Christopher Dodds, Schwab's chief financial officer, as saying Schwab is looking for purchases or joint ventures with other brokerage firms that could help Schwab replace revenue lost when stocks began trading using decimal rather than fractional prices, which limited the spread earned by the brokerage house. But he would not comment directly on a possible Jefferies deal.
Both Jefferies and Schwab declined Thursday to comment.
In June, Schwab said it was looking to buy a bank in order to offer services such as FDIC insurance and overdraft protection. However, the reported talks with Jefferies would not fulfill this strategy, a person familiar with the situation said.
Jefferies is attractive to Schwab because of its strong block trading desk that caters to institutional investors, said analyst Rich Repetto of Putnam Lovell Securities Inc.
Los Angeles-based Jefferies (JEF: Research, Estimates) specializes in investment banking for small and mid-size companies. The firm, which has a market capitalization of $900 million, has seen its stock bid up by speculation it was for sale for some time, according to the Journal.
Jefferies has been for sale for some time, analysts said.
However, a buy of Jefferies would come at an awkward time for Schwab. The nation's top discount brokerage revealed Wednesday it is looking at a new round of job cuts to deal with a 36 percent decline in trading volume. The company has cut about 15 percent of its work force since the beginning of the year to leave it with a staff of 22,400.
"Schwab is dealing with lots of issues," Repetto said. "They still haven't fully integrated U.S. Trust."
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A purchase of Jefferies might include aspects that Schwab isn't interested in, such as investment banking, research, and fixed income trading, he said. "Schwab is trying to shore up their capital markets and expand revenues," Repetto said. 
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