Jefferies Group stock soars amid acquisition speculation.

Jefferies Group's stock price soared into record-high territory last week amid rumors that the Westside-based securities firm may soon be bought by a larger institution.

The stock hit a record $48-on Dec. 16, before falling back to $44.25 on Dec. 18, up from $18 at the start of the year.

"No question that they are a target. If they haven't already been approached, they will be," said one local investment banker.

The most persistent speculation was that Jefferies, the last major independent securities brokerage house on the West Coast, would be snapped up by a "super-regional" bank such as Banc One Corp., U.S. Bancorp or First Union Corp. Such speculation was heightened late in the week by unconfirmed reports that Jefferies had hired J.P. Morgan & Co. for a yet-unknown purpose.

Steve McMenamin, Jefferies' head of investor relations, would not comment except to say Morgan had not been hired.

With revisions to the Glass-Steagall Act removing the division between the banking and investment industries, there is pressure on banks to offer equity investment services to their retail customers, and underwriting services to their commercial clients.

Jefferies is seen as a particularly attractive target because of its expertise in corporate underwriting and high-yield financing. Furthermore, West Coast securities firms are seen as attractive because the region's economy is widely believed to be entering a long-term growth period and many East Coast financial institutions are under-represented in the region.

John Chalsty, chairman of New York-based Donaldson Lufkin & Jenrette, said Jefferies would be a good catch for anyone who could afford it.

Chalsty, in Los Angeles recently for DLJ's annual press dinner, also said he would be "delighted" to discuss the possibility of buying Jefferies.

But one Jefferies insider said a merger with DLJ is unlikely because there is too much overlap between the two firms. "We are like a small DLJ," he said. "You want to merge brokerages that have different strengths, not the same strengths."

A DLJ executive who asked not to be named agreed that the two houses have too much in common to make a merger worthwhile. "It would be cheaper to hire their talent one by one," he said.

Perrin Long, an independent analyst based in Hartford, Conn., speculated that Bank of America might be interested in Jefferies. His theory is that the firm, with its strong institutional capital markets operation, would complement the retail operations of Robertson, Stephens & Co., which BofA has acquired.

With its shares trading at a record-high level, Jefferies is no longer a bargain, however. The stock as of late last week was trading at around four times book value and is up more than 130 percent, year to date. That compares with around 80 percent for the brokerage sector as a whole and 31 percent for the S&P 500.

"A lot of brokerage stocks, including Jefferies, are reaching a level at which I would recommend a sell," said Michael Flanagan, president of Financial Services Analytics in Philadelphia.