Do Bankers Rate Painewebber A Buy?

The big guessing game among brokers: Which bank will gobble up which brokerage house--now that the Federal Reserve has made it easier for banks to do so? Several investment managers are accumulating shares of PaineWebber Group (PWJ), one of the nation's largest full-service brokerages.

One New York investment manager thinks PaineWebber is being courted by BankAmerica, the No. 3 U.S. commercial bank, with $243 billion in assets and 2,000 branches, mostly on the West Coast.

PaineWebber's appeal? It controls assets of $250 billion through its 3 million clients. It's "a very logical acquisition for a bank that wants a vast retail-broker operation," says the manager, who's building up a 4% stake.

PaineWebber Chairman Donald Marron has had "extensive and detailed" talks with BankAmerica Chairman David Coulter about a merger or an outright sale, says this pro. He adds that two other institutions are eyeing PaineWebber: One of them has had talks with the brokerage's top brass.

One partner in a New York investment bank says he has also heard about a BankAmerica-PaineWebber "dialogue," which he believes occurred on several occasions. He notes that for PaineWebber to thrive in the deregulated era, it needs deeper pockets and a bigger presence in the broad financial-services business. BankAmerica, on the other hand, needs the kind of retail operation that PaineWebber has built. Spokesmen for PaineWebber and BankAmerica say they don't comment on rumors.

DO BANKERS RATE PAINEWEBBER A BUY?

In a buyout, one analyst puts the value of PaineWebber shares, now at 28, at 55--about three times the company's 1997 estimated book value of $18 a share. That ratio is higher than usual for brokerages. But in PaineWebber's case, three times book may be deserved because of PaineWebber's emphasis on the fast-growing retail end of the business, says the banker.

Analysts expect a swift consolidation of banks and brokerages after Mar. 6, when the Fed's new rule kicks in--raising from 10% to 25% the share of gross revenues that a bank may earn from underwriting securities.

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