Smith Barney's bid to become a major player in the lucrative world of bank merger advisory work got a big boost this week via a pair of credit card deals.
The investment banking unit of Travelers Group advised Chase Manhattan Corp., which announced Tuesday it would acquire most of Bank of New York Co.'s $4.2 billion credit card portfolio. And the firm won the plum assignment of finding a buyer for AT&T Corp.'s $14.2 billion credit card business.
These two deals alone would boost the volume of Smith Barney's M&A deals announced so far this year by 45%, according to the brokerage Sanford C. Bernstein & Co. And the announcements give Smith Barney a much-needed lift as it fights to distinguish itself amid a consolidating investment banking sector.
But despite the week's bonanza, Smith Barney's M&A business still trails Salomon Brothers', which Travelers is buying. And the first round of 1,500 expected job cuts are to come this week.
Smith Barney ranks 11th on the league tables in M&A work, advising on $40.5 billion worth of deals through Sept. 30, while Salomon ranks sixth, according to Securities Data Co., advising on $61.7 billion worth.
"Smith Barney is one of the top two in moving credit card assets around," said Michael Auriemma, president of Auriemma Consulting Group. "It's a good show of what they can do."
John C. "Hans" Morris, head of Smith Barney's financial institutions group, said the merger with Salomon Brothers means his division would further concentrate its efforts on credit cards and other niche business of bank M&A.
"Our merger with Salomon changes a lot of our thinking," he said. "They have quite an active practice in bank mergers."
The credit card business is now particularly important to Smith Barney, analysts say, because the investment bank has been unable to build its bank M&A practice beyond selected niches of the banking business.
The firm does not show up in listings of the top 50 bank M&A advisers prepared by Sheshunoff Information Services Inc. And the firm was criticized for hiring former chairman Robert Greenhill from Morgan Stanley but not getting his high-profile banking relationships.
But before acquiring the Chase and AT&T assignments, Smith Barney's bank M&A group landed such deals as selling Barnett Banks Inc.'s credit card portfolio to Household International Inc., and advising MasterCard International in acquiring 51% of Mondex International.
Mr. Auriemma said Smith Barney has advised on $7 billion of the $7.5 billion worth of credit card assets that have been sold this year.
Analysts expect consolidation in the credit card business will continue as banks buy back the kinds of assets they spun off in the 1980s.
"I think you're going to see a lot of shifts in the credit card business over the next 15 months," said Donaldson, Lufkin & Jenrette analyst Thomas K. Brown. "These companies have to ask themselves if they are willing to commit the resources to information-based marketing, and do it in time to compete."
