For decades, investment bankers have advised executives on matters of utmost corporate secrecy. So why did John S. Reed of Citicorp and Sanford I. Weill of Travelers Group leave investment bankers out in the cold when they negotiated the largest merger in history?
Simply put, they didn't need one, some investment bankers say, because few bankers have the insight into dealmaking or banking of the two chairmen. They unveiled plans Monday to create the first truly diversified U.S. financial services company, Citigroup.
More unsettling, some bankers say, was that neither executive felt he needed an investment banker to sell the merger to the investment community, or to provide a "fairness opinion," a document that says the company's acquisition will not gouge its shareholders.
Other investment bankers, sounding almost humbled by the sheer scale of the deal, said it was not surprising that none of their ilk were consulted.
"Who among investment bankers has the perspective to say this deal is fair?" said Andrew M. Senchak, executive vice president at Keefe, Bruyette & Woods Inc. "There isn't anyone with sufficient experience to make this deal other than Weill and Reed."
So far, Mr. Weill's and Mr. Reed's hunch that they could sell investors on their merger without an investment bank's help seems to be paying off. Shares of Citicorp and Travelers soared by double-digit percentages after the deal was announced Monday, though they retreated considerably on Tuesday.
Big banks for years have done in-house much of the work done by investment bankers, such as researching merger partners and advising executives about corporate strategy.
Still, they call Wall Street's most prestigious bankers just before their deals are announced.
