A long-predicted round of consolidation has begun among the remaining U.S. retail brokerage houses, with Wachovia dropping $6.8-billion (U.S.) this morning to buy A.G. Edwards & Sons. Will Royal Bank of Canada step up as a buyer before the last few independent firms are gone? Wachovia is the No. 4 U.S. bank, dominant in the U.S. southeast and a serial acquirer. With the A.G. Edwards bid, it will be home to $1.1-trillion in client assets, managed by 15,000 stockbrokers. In a sector that rewards economies of scale, Wachovia now enjoys serious scale. For months, American commentators have been forecasting that the last remaining independent brokerage firms are going to be sold as the market hits new highs. Along with A.G. Edwards, the plum picks are 4,600-stockbroker Raymond James and 10,000-advisor Edward Jones. Royal Bank got into the U.S. retail brokerage game with the acquisition of Dain Rauscher seven years ago. A follow-on acquisition in 2002 created the No. 10 U.S. player in this space, but the scale of the place pales beside the likes of Wachovia, as RBC Dain Rauscher has 1,650 advisors and $137-billion in assets. Since 2002, it has been all quiet on the acquisition front for the Canadian side. No other domestic bank is a player in the U.S. retail brokerage market. Executing a large U.S. acquisition would be difficult for Royal Bank, as American firms would also bid aggressively for the likes of Raymond James, which has a fabulous retail back-office business in addition to its advisor network. With its unique store-front approach to selling stock, Edward Jones would be a tougher acquisition to integrate. But it could be now or never for Royal Bank when it comes expanding its U.S. stockbroker network. If growth opportunities don't materialize, chief executive Gord Nixon will want to ask tough questions about whether his bank should be a seller of brokers in a market filled with buyers.
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