The Federal Reserve Board appears to be wrapping up its review of the controversial Travelers Group-Citicorp merger, and all indications are that it will permit the company to cross-market banking, securities, and insurance products.
A review of correspondence between the Fed and the merger partners indicates that only a few, relatively minor points remain unresolved.
The correspondence, legal experts said, suggests that the plan soon will go to the Fed's board of governors. Assuming approval, the deal could well be closed by Sept. 30, as originally planned.
Many of the most recent queries involve specific types of products, such as a financial planning service of a Travelers unit, not the broad, closely followed issue of whether the merged company could both underwrite insurance and offer banking products.
Meanwhile, the Fed approved another megadeal Monday-the merger of BankAmerica Corp. and NationsBank Corp. (See story on page 2.)
Travelers and Citicorp announced their $70 billion merger April 6. Under terms of the complex deal, Travelers would convert to a bank holding company and then acquire Citicorp. The new firm, to be known as Citigroup, then would have at least two years to eliminate any activity barred to a banking company, including insurance underwriting. For the long haul, the merger partners are betting on legislative relief.
A Citicorp spokesman said the Fed has not given any sign that the merger will not be approved promptly. "The follow-up questions just seem to be follow-up questions," he said. "They seem perfectly reasonable."
Banking lawyers who do not work for either party in the deal said the correspondence clearly indicates that the review is winding down. A Fed official, who requested anonymity, confirmed that this is the case. A Fed spokesman declined to comment.
"The refinement in the comments indicates they are getting closer to finishing work on the application," said Michael A. Greenspan, a former Fed lawyer who is now a partner in the Washington office of the Thompson, Coburn law firm.
"When they ask for confirmation it means they have narrowed the focus and they are just seeking commitments on how the business will be run," said Gilbert T. Schwartz, a former Fed lawyer who is now a partner at the Washington law firm Schwartz & Ballen. "That usually happens toward the end of the process."
There has been some speculation that the Fed may delay the merger until Congress recesses in early October for the fall elections. Sources, however, said such a delay was highly unlikely.
"It is not characteristic of the Fed to play games to that degree," said Karen Shaw Petrou, president of the industry consulting firm ISD/Shaw Inc.
Citicorp and Travelers are moving quickly to respond to the Fed so they may close the deal on schedule. To speed approval, they either have agreed not to engage in activities that the Fed has questioned or provided detailed responses explaining why the activity is proper.
For instance, the companies on Aug. 3 withdrew their request that the Fed let Travelers' Robinson-Humphrey Co. unit exceed the cap on revenue that banks' section-20 securities units may derive from underwriting or dealing in corporate securities.
The companies had proposed that the Fed combine Robinson-Humphrey's underwriting revenue with the revenue of Salomon Smith Barney units when determining compliance with the cap. The request drew fire from activists, who charged that the law requires the Fed to look separately at the revenue of each section 20 unit.
Also, the companies dropped plans to offer no-transaction-cost mutual funds. The Fed raised eight questions in a July 23 letter regarding how such a program would work.
The companies also sent the Fed seven pages Aug. 5 explaining how they will protect customer privacy. These pages expanded upon privacy pledges the companies had made to the Fed in July. For instance, the companies said they will let customers choose against having their data shared with third parties, including other businesses within Citigroup.
The Fed has sent at least 10 requests-an unusually large number-to Citicorp and Travelers for more information about the deal. The first request, dated April 28, was quite broad. "Describe how Travelers' insurance subsidiaries and their holding companies are supervised," read one question.
Subsequent requests were more detailed. On June 2, the Fed asked 46 questions covering everything from the Community Reinvestment Act to nonbanking activities. It included a seven-part question on Citigroup's $115 billion CRA pledge, seeking detailed information on lending to low- income groups by region.
By mid-June the Fed had begun to narrow its requests to specific topics. For instance, a June 17 letter included three-pages of questions on how Citigroup would conduct securities activities.
On July 23, the Fed sent a letter primarily asking Citicorp and Travelers to clarify their stands on issues. Many questions included phrases such as "Confirm that ... " or cited specific pages in responses by the companies to earlier Fed questions.
