A.G. Edwards Purchase Will Strengthen Wachovia

This morning, Wachovia announced that it will buy A.G. Edwards for $6.8 billion in cash and stock. The deal is expected to form the second largest retail brokerage in the U.S. after Merrill Lynch. The combined firm will have almost 14,800 financial advisors and 3,300 brokerage locations. Industry observers give the merger a thumbs-up. "Post-acquisition, Wachovia's business model will be unique as it will be one of a few firms that are top three in retail banking as well as retail brokerage," says Alois Pirker, senior analyst at Aite Group. "Today, many firms (like Charles Schwab, for example) are aiming for a dual business model, where they can provide both top-notch brokerage and banking products and services to their retail clients. However, increasing cross-selling amongst these businesses will be a crucial success factor for the combined unit." Wachovia will also need to turn its brokerage business into a successful wealth management business -- a transition firms like UBS Wealth Management USA and Morgan Stanley have found very difficult to make, he says. "Merrill Lynch is still a few steps ahead in this aspect. Size is not everything, but assuming Wachovia will be able to master the challenges mentioned above, the firm has the potential to become the benchmark for a new breed of retail brokerage/banking firms."