1998

Citi, Travelers: A Global Leader Takes Shape

April 7 — Citicorp and Travelers Group, launching a bold bid for global leadership in financial services, said Monday they would merge in a deal valued at $70 billion.

The stunning transaction would create a company with top positions worldwide in commercial banking, asset management, global trading, securities brokerage, and consumer finance. It also would underwrite both property and casualty and life insurance.

With $698 billion of assets and a market capitalization of $135 billion, Citigroup, as the company is to be called, would dwarf European universal banks like Deutsche Bank, Union Bank of Switzerland, and HSBC Holdings. It would boast relationships with 100 million customers in 100 countries and have 3,200 offices around the globe.

"We are creating the model financial institution of the future," said Sanford I. Weill, chairman and chief executive of Travelers Group. "In a world that's changing very rapidly, we will be able to withstand the storms."

Added John S. Reed, chairman and chief executive of Citicorp: "It was a deal that you simply had to do."

The merger, which is expected to close in the third quarter, is being handled as a tax-free pooling of interests. The deal calls for Citicorp shareholders to exchange each of their shares for 2.5 shares of Citigroup. Each company's shareholders would own 50% of the new entity.

Citicorp stock closed Monday at $180.50, up $37.62. Travelers' shares closed at $72.750, up $11.0625. The run-up boosted the deal's value to about $84 billion, from $70 billion when announced.

Citigroup plans to apply to the Federal Reserve Board to operate as a bank holding company. Mr. Reed and Mr. Weill will serve as co-chairmen and co-CEOs of the new Citigroup.

"It's a spectacular merger," said Edward E. Furash, chairman of Furash & Co., Washington. "It's the first true creation of a universal bank.

"It's not the kind of merger where you worry about dilution, cost savings, and cross-selling," Mr. Furash said. "This is a major repositioning."

And one of which bankers are taking note. A wave of megamergers has already swept over the commercial banking industry and is now about to become a cross-industry phenomenon, bankers said.

"We have long viewed the consolidation of financial services as moving along a continuum," said Edward E. Crutchfield, chairman and chief executive officer of First Union Corp., Charlotte, N.C. "It seemed to me last week that we were probably at the bottom of the sixth inning. Today's announcement may indicate that we're now at the top of the seventh."

In the U.S., regional and superregional banks like First Union are less likely to feel an immediate impact from the deal, observers said. By merging with competitors and smaller specialized firms, these banks have already amassed the size and talent they need to compete in their markets.

"Domestically, I don't know if this will change the landscape much," said H. Jay Sarles, vice chairman and chief administrative officer at Fleet Financial Group in Boston.

But for financial services firms that want to be global powerhouses-like Chase Manhattan Corp., J.P. Morgan & Co., and Merrill Lynch & Co.-the Citicorp-Travelers combination has serious ramifications. This group includes large foreign banks that have long competed in both commercial and investment banking in the U.S. and abroad.

Citigroup would be far more diversified than most of the contenders.

"Deutsche Bank hasn't even attempted to build a retail franchise here," said Donald P. McNees, head of Towers Perrin's global financial services group. Meanwhile, the Citigroup would be able to provide consumers here and abroad with everything from mutual funds to credit cards to life insurance.

Clearly, the opportunity to serve consumers was a driving factor behind the deal. While Mr. Reed cited Salomon Smith Barney, Traveler's newly emboldened investment bank, as an attractive part of the deal, he said the opportunities in the retail business "were even more compelling."

The two executives said they planned to transform the way consumers relate to financial institutions. Travelers wants to sell its annuities and mutual funds through Citicorp's branch network, and it hopes to package its life insurance and property and casualty products to sell through Citi's branches and credit card business.

Citicorp hopes to attract new customers for its banking products through various Travelers subsidiaries, including originating student loans through Primerica Financial Services, selling mortgage loans to Smith Barney's retail brokerage customers, and offering trust services through Travelers' sales agents.

"The job is really to develop good quality products in a cost-efficient way that delivers value to the customer," Mr. Weill said. "The more we know about these customers, the better job we will be able to do."

But according to some observers, how the new entity plans to compete is less important than the message that the two partners are sending to the industry.

"This means nothing is unthinkable," said Seamus McMahon, an executive vice president at First Manhattan Consulting Group.

"Even if this doesn't go through, people will be waiting for the other shoe to drop," he said. "What it says is that at least you can get two chief executives to sit down together and talk about how this works."

Unlike most big bank mergers, this blockbuster deal offers little in the way of cost savings due to redundant businesses. Travelers and Citicorp overlap in capital markets, credit cards, and in some sales areas, but the two executives, as well as industry observers, say the deal is not about cost-cutting.

"It would be fine if there were no attempts to disturb the components," said Mr. Furash. The challenge is to continue to grow revenue, not diminish it.

The partners said they would have a lead position in many corporate finance businesses, including investment banking; equities, fixed-income, foreign exchange, and derivatives trading; and commercial insurance.

At Citicorp, Mr. Reed has shied away from making a major push into some of these businesses, notably equity underwriting, even though some of his lieutenants supported it.

"People had been pushing me in that direction and I had been resistant," Mr. Reed said. "But there was this feeling that it would solidify the bank franchise."

In the retail banking business, the new company would have several distribution channels at its disposal, including Citibank's branches, a private bank, Smith Barney offices, and a worldwide force of insurance agents.

But the sheer the size and breadth of the new entity could pose problems, some observers said.

"The danger is the needs of the businesses get trampled on," said Mr. McNees. "The challenge is not to lose the individual value when putting the parts together."

Mr. Reed said he and Mr. Weill would each meet with their senior managers over the next month to work out the details of the new structure.

Citigroup would be based at Citicorp's Park Avenue headquarters, but would retain Travelers' offices in lower Manhattan. It would take for its logo the red Travelers umbrella but its corporate color would be Citicorp's blue.

"They are going for global dominance in personal financial services," said Peter Davis, a partner in the financial institutions practice at Booz- Allen & Hamilton in New York. "Their strategic imperative will be to build non-traditional retail distribution and expand internationally."

1913

7,460 National Banks

May 3 — Acting Comptroller of the Currency Kane on Thursday announced that during the month of April, 1913, 25 applications to organize National banks were received. Of the applications pending, 23 were approved and one rejected. In the same month 25 banks with total capital of $1,530,000 were authorized to begin business, of which number 15, with capital of $380,000, had individual capital of less than $50,000, and 10, with capital of $1,150,000, had individual capital of $50,000 or over.

On April 30, 1913, the total number of National banks organized was 10,378, of which 2,910 had discontinued business, leaving in existence 7,460 banks, with authorized capital of $1,062,021,175 and circulation outstanding, secured by bonds, $731,044,591. The total amount of National bank circulation outstanding was $753,076,674, of which $22,032,083 was covered by lawful money of a like amount deposited with the Treasurer of the United States, on account of liquidating and insolvent National banks and associations which had reduced their circulation.

1970

Three New Bills Signed by Nixon

Oct. 28 — President Nixon has signed legislation regulating operations of credit bureaus and guaranteeing consumers access to their credit files.

The new law applies to the credit reporting activities of commercial banks and thrift institutions although the extent of its coverage in this area is a point of dispute in Congress.

Although Mr. Nixon signed the bill this week, it will not take effect for six months. The Federal Trade Commission will be the primary enforcement agency.

One of its key provisions requires that the credit seller must notify the consumer when he has been turned down for credit, and provide the name and address of the consumer reporting agency making the adverse report.

The new law also gives the consumer access to his credit record, providing he follows certain routine procedures. He is permitted to examine his records without charge after a rejection.

The statute also prescribes the type of information which credit reporting agencies may keep in their files, and in some cases, sets limits on the amount of time which adverse data may be held.

The extent of the new law's applicability to financial institutions depends on how the courts interpret two sections.

One defines a consumer reporting agency as follows: "any person which for monetary fees, dues, or on a cooperative non-profit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports."

The other defines a consumer report as: "any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living…"

However, this section excludes "reports containing information solely as to transactions or experiences between the consumer and the person making the report."

House members who helped draft the final version of the law issued a statement which said this exclusion would exempt insured financial institutions that exchange credit data.

But the Senate disagreed. Sen. William Proxmire, D., Wis., who also helped write the final draft, said the House statement did not really add anything to the law, and instead raised the danger that it might be misinterpreted by the courts.

Mr. Proxmire argued that the law will allow financial institutions to swap data which was learned as a result of a customer's relationship with the institution.

He said that if the bank or thrift institution begins passing on information picked up from a third party, then the institution is in the credit reporting business and is subject to the law.

Mr. Proxmire said the House statement did not change this.

Although financial institutions would have preferred a consensus statement fro Congress on the subject, it appears that the wording of the law is still flexible enough to allow present practices in the banking field.

Under the new law, a credit reporting agency must show the consumer his file if requested to do so.

The agency is excused from liability in the case of some errors. The law permits the customer to sue for injury only in instances where false information has been furnished with malice or willful intent to injure.

The statute also sets time limits for the reporting of adverse information such as an arrest record or a bankruptcy proceeding.

If the applicant is seeking a credit extension or a life insurance policy of $50,000 or more, then all adverse data is made available by the credit reporting agency, regardless of how long it has been in the consumer's file.

This also is true of the applicant is seeking employment at a compensation of $20,000 or more.

However, on all other credit checks, the agency is limited as to how long it can continue to report adverse information on consumers.

For instance, bankruptcies cannot be included in the consumer's credit report after 14 years. Suits and judgments may be reported only for seven years, unless the governing statute of limitations extends beyond this period.

The seven-year limitation is placed on data bearing on paid tax liens; accounts placed for collection or charged to profit and loss; & records of disposition, release or parole involving an arrest, indictment or conviction for a crime, and all other adverse items of information.

The new law regulating credit reporting agencies was part of a package, approved by the President, which also broadened government supervision over foreign bank accounts of American citizens and placed restrictions on credit card operations.