While much of Wall Street remains mesmerized by huge mergers sweeping the financial sector, notably that of Citicorp and Travelers Group, at least one analyst has the feeling of history repeating itself.
"As April blossoms in New York, a Yankees team filled with high-priced free agents begins the season, heavy favorites to win the pennant," wrote Sean J. Ryan, an analyst at Bear, Stearns & Co. in a recent report.
Meanwhile, "Sandy Weill seizes investors' attention with a mammoth merger that promises to remake the financial services landscape, and a headline in The Wall Street Journal proclaims: 'Wall Street Mergers Alter Basics of Financial System.'"
April 1998? No, the year was 1981, and the merger of the moment was the pairing of Mr. Weill's Shearson Loeb Rhodes with American Express Co.
Nor was that the only megamerger in financial services to grab Wall Street's attention in 1981.
In October of that year Sears, Roebuck and Co. acquired both Dean Witter Reynolds, then the fifth-largest brokerage in the U.S., and Coldwell Banker & Co., then the nation's largest real estate brokerage.
"When you look at what Sears is doing, the question is whether commercial banks can compete," lamented Citicorp's then- chairman and chief executive, Walter Wriston.
Later, General Electric Co., which investors consider one of the nation's best-run corporations, acquired Kidder, Peabody & Co.
And the beat went on. In 1984 Shearson American Express bought Lehman Brothers, and in 1988 it acquired E.F. Hutton, creating a firm that at the time, Mr. Ryan noted, had more brokers than Merrill Lynch & Co. "We have an opportunity to be the leading firm among U.S. securities firms, and perhaps in the world," said Shearson chairman Peter Cohen.
"Yes, they did," Mr. Ryan wrote. "But they didn't. And Cohen's boast would make a fitting epitaph for most financial conglomerates, past and present."
For all the enthusiasm generated by the proposed merger between Citicorp and Travelers Group, Mr. Ryan's report coolly notes, the history of financial conglomerates is littered with lofty goals and lots of disappointments. In 1993 Sears spun off its banking business. American Express spun off Lehman Brothers in 1994. And GE sold scandal-ridden, mismanaged Kidder Peabody to PaineWebber.
Though these deals ultimately went wrong, Mr. Ryan noted that all of them "appeared as well-considered at the time as current mergers seem today."
Are late-1990s mergers any different from those in the early 1980s?
Maybe, Mr. Ryan says. For one thing, the new financial conglomerates are forming between companies already in some part of the banking or securities business. Dealmakers are not repeating the Sears-Dean Witter "stocks and socks" experiment.
Also, the motivations behind the mergers appear to be different.
In the 1980s companies like Sears bought brokerages because they wanted to introduce financial services to their nationwide outlets, but regulators prohibited them from doing commercial banking.
Today's mergers are spurred by the idea that regulators are lowering the firewalls between commercial and investment banking and insurance. It is also believed that technological advances will help companies identify potential customers and the mutual funds, IRAs, or other accounts they would like to have. So, banking executives reason, why not buy a company that can help offer a full plate of financial goodies instead of just a sampling?
Mr. Ryan adds that the latest generation of financial conglomerates are in an economy much more stable than that of the 1970s and '80s.
But for investors, there are already some troubling signs about what the proposed Citigroup conglomerate could bring.
UBS Securities analyst Thomas H. Hanley, who has followed the financial services business since 1966, said last week that he is concerned that Citicorp will adopt Travelers Group's lazy disclosure habits.
Unlike Citicorp, Travelers waits 45 days after quarter-end to disclose consolidated expense and tax figures. Will Travelers start reporting financial information faster after the merger? That is questionable, most analysts say, because Travelers chief Sandy Weill and James Dimon are preparing to run the combined company.
"It's distressing," Mr. Hanley told investors in a conference call last week. "How can we make informed judgments if we can't get the data?"
But the weakest link in the proposed new financial conglomerates has nothing to do with disclosures or technology or regulation, Mr. Ryan said.
As always, these companies are no better than the people who run them.
"Greed, fear, and envy were the real culprits in the failure of American Express-Shearson and General Electric-Kidder Peabody," Mr. Ryan wrote. "New technology is no match for enduring human frailty. Investment bankers and commercial bankers remain natural antagonists.
"There exists precious little evidence that they can be made to co-exist in peace and harmony, and that is where we seethe risk to the current crop of mergers."
