Correction: 11/6, 9:30 A.M.
FORTUNE -- Stifel Financial, a brokerage and investment firm based in St. Louis, will pay $575 million to buy KBW, a Wall Street firm that specializes in advising financial firms. The price, which translates to $17.50 a share for KBW (KBW), is less than 10% above the $16.30 KBW's stock had been trading at before the deal.
Nonetheless, the deal, which is being done as a mixture of cash and stock, is another sign that many believe the U.S. financial system is still in need of an overhaul in the wake of the financial crisis and Dodd-Frank regulatory reforms. Advisors like KBW, which is short for Keefe, Bruyette & Woods, should benefit.
Stifel has recently been looking to take advantage of changes in the financial markets. The firm recently made a strategic investment in restructuring firm Miller Buckfire. Shares of Stifel (SF) were up nearly 2% after the KBW deal was announced to a recent $32.40.
"It's fairly clear that 50% of the banks in the U.S. need to be recapitalized," says Rochdale Securities bank analyst Dick Bove.
Large banks have said that new financial reforms will make it nearly impossible for them to grow bigger. Bank CEOs like JPMorgan Chase's Jamie Dimon have all but ruled out acquisitions. But analysts believe there could be a wave of consolidation among smaller and mid-sized banks over the next few years.
Some small banks have complained that financial reforms and increased scrutiny from regulators have made it hard for them to continue. A number of mid-sized banks still need to raise money to fill the capital they lost in the financial crisis. On top of that, the shifting mortgage market is creating opportunities for new firms.
In the past year, KBW has advised on $245 million worth of equity deals, including offerings for Salt Lake City-based Zions Bancorp and mortgage REIT Annaly Capital. Three quarters of its equity deals were for financial firms. The rest of them were for companies in the real estate business. KBW's clients are generally small and mid-sized banks, but it recently landed co-underwriter positions on the IPOs of a number of private equity firms including Carlye Group and Oaktree.
KBW, which was founded more than 50 years ago and has over 500 employees, has had a storied and resilient past. In 1999, the firm's then CEO James McDermott was charged with insider trading for passing along stock tips to a porn star he was dating. McDermott was forced to resign. Two years later 67 employees of KBW, which was based in the World Trade Center, died on 9/11, including its chairman and co-CEO Joseph Berry.
The firm, which is now located in midtown Manhattan, survived and thrived in the mid-2000s. Recently, though, KBW has struggled, losing business to rivals. According to Thomson Reuters, KBW ranks 28th among investment banks in terms of completed equity offerings this year. That's down from 13th two years ago.
Last month, a judge said a trustee for Guaranty Financial Group could go ahead with lawsuit against KBW, claiming the firm used insider information to profit from the demise of the Austin-based financial firm, which filed for bankruptcy in 2009. Kenneth Tepper, the trustee, alleges that bankers at KBW repeatedly bet against Guaranty Financial's stock while acting as the firm's adviser. The suit seeks $20 million in damages.
Correction: An earlier version of this story said that Stifel bought Miller Buckfire. In fact, Stifel only made a strategic investment. Miller Buckfire is still independently owned.
A NBER study finds that most corporate deals turn out badly.
FORTUNE -- Beware of Wall Streeters bearing mergers and acquisition advice. That's the takeaway of a new study, and investors should take note as well.
The study by professors at the University of California, Berkeley, concludes that acquisitions, while nearly always initially cheered by investors, end up hurting a company, and in particular its share price, in the end. Winning by MOREStephen Gandel, senior editor - May 2, 2012 5:00 AM ET
The proposed merger of the NYSE and the Deutsche Börse is just the latest in a wave of similar deals, even as smaller competitors continue to grab business.
By Chris Redman, contributor
If Deutsche Börse manages to complete its acquisition of NYSE Euronext -- and that's a big if because of antitrust concerns and fears that the U.S. will chafe at losing control of the fabled New York Stock Exchange -- the MOREMar 9, 2011 5:00 AM ET
As regulators start to scrutinize the proposed combination of the NYSE and the Deutsche Börse, they'll need to take into account much more than just equity trading.
By Cyrus Sanati, contributor
The battle for the soul of Wall Street continues as the fate of the New York Stock Exchange remains up in the air. The NYSE's tentative $10 billion sale to Germany's Deutsche Börse will need to pass through a regulatory gauntlet MOREMar 2, 2011 10:13 AM ET
What's in a name? Nothing, in the curious case of the $10 billion exchange megadeal unveiled Tuesday.
Frankfurt's Deutsche Boerse will acquire NYSE Euronext (NYX) in a deal that will give the German exchange's shareholders 60% of the combined company and 10 of 17 board seats. The new company will have headquarters in both New York and Frankfurt, and the exchanges will continue to operate under their own names in their home MOREColin Barr - Feb 15, 2011 11:18 AM ET
Deal talk has exchange stocks grooving. But more mergers spell disaster for markets already tilted dangerously in favor of big companies and fast traders.
Shares of NYSE Euronext (NYX) surged 14% Wednesday after the New York Stock Exchange parent said it was in advanced discussions to merge with Germany's biggest exchange, Deutsche Borse of Frankfurt. The talks come on the heels of this week's tie-up between the London Stock Exchange and Canada's TMX MOREColin Barr - Feb 9, 2011 2:12 PM ET
Bank investors are getting hit with a wave of buyer's remorse.
Finance stocks tumbled Tuesday after Citigroup (C) posted a weak fourth quarter and Comerica (CMA) agreed to purchase Sterling Bancshares (SBIB) in a push to expand its reach in fast-growing Texas.
Citigroup tumbled 5% following the release of its fourth consecutive quarterly profit. CEO Vikram Pandit said the bank accomplished all it set out to in 2010. It earned $11 billion MOREColin Barr - Jan 18, 2011 12:08 PM ET
A little bank merger wave is starting to lap up onshore, but there are few signs this tide will lift the industry's many leaky boats.
On Wednesday we got news of the third decent-size banking sector buyout in a week, when Hancock Holding (HBHC) of Gulfport, Miss., said it would buy Whitney Holding (WTNY) of New Orleans for about $1.4 billion in stock.
Hancock, which runs the 112-year-old Hancock Bank, said the deal MOREColin Barr - Dec 22, 2010 10:12 AM ET
Maybe the regional banks aren't doomed to takeunders after all.
The shares of some big U.S. regional banks rallied Friday after Bank of Montreal (BMO) agreed to buy Marshall & Ilsley (MI), a Milwaukee-based lender that has lost money eight quarters in a row, for $4 billion in stock.
Bank of Montreal will issue about $7.75 a share worth of its own stock in exchange for each share of Marshall & Ilsley, MOREColin Barr - Dec 17, 2010 8:55 AM ET
Mergers and buyouts among food manufacturers are gaining steam, but there is one complicating factor: brands are fading, and the biggest consumer food companies are built on brands.
By Dan Mitchell, contributor
With improved access to credit and mountains of capital ready to deploy, private-equity and strategic buyers are hot to snap up food companies. Thanks to their stable cash flows, food firms are generally safe bets, especially for highly leveraged private-equity MOREDec 16, 2010 3:09 PM ET
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