Wachovia Deal Stokes Brokers

Updated from 6:33 a.m.

Wachovia's (WB Quote) $6.8 billion buy of A.G. Edwards (AGE Quote) set off a huge rally in the regional brokerage sector Thursday as Wall Street wagered on which will be the next to be taken out.

Wachovia's cash-and-stock deal will create the second-biggest U.S. brokerage firm after Merrill Lynch (MER Quote). The plan, which gives shareholders of St. Louis-based A.G. Edwards a 16% premium to Wednesday's closing prices, set off a fierce rally in Raymond James (RJF Quote) and solid gains in other players such as Jeffries (JEF Quote) and Piper Jaffray (PJC Quote).

The CEO of one regional broker, who declined to talk on the record, expects consolidation to continue in the industry among regional brokerages and bigger financial institutions.

"It makes financial sense. There's going to be a natural consolidation in the financial services business," the CEO says, noting that teaming up with a bigger partner allows more efficiencies tied to expenses such as training staffers, technology and brand building. "In the end, there will be four or five firms. You don't need 30 choices," he adds.

In midday trading Thursday, Raymond James was up 9% while Piper and Jeffries were both up 4% to 5%.

Charlotte, N.C.-based Wachovia will combine Edwards with its brokerage operation, creating an outfit with 15,000 brokers and $1.1 trillion in client assets.

Wachovia said Daniel Ludeman, CEO of Wachovia Securities, will lead the combined brokerage firm, with A.G. Edwards chief Robert Bagby becoming chairman of the brokerage operation. Prudential (PRU Quote), which owns 38% of Wachovia Securities, called the deal "highly attractive" and expressed "complete confidence" it will work.