The Citicorp-Travelers megamerger would put one of the financial services industry's vaunted technology machines to its greatest test.
Citicorp, renowned for innovations in areas ranging from automated teller machines to home banking to corporate cash management, faces a system integration challenge that would be even more complicated than its size alone suggests.
Unlike a banking company such as First Union Corp., which developed technology integration into a "core competency" through dozens of acquisitions in the last decade, Citicorp has made precious few deals and therefore focused its considerable back-office energies on internal needs and strategies. And Travelers Group does not offer the easily cut redundancies of a typical bank merger.
Travelers, the product of the astute dealmaking of its chairman, Sanford I. Weill, has been focused on putting together the pieces of its own diversified puzzle in the insurance, securities, and investment banking fields.
But out of the inevitable confusion and uncertainty, technology consultants and other experts see emerging a technology juggernaut fully in keeping with the unprecedented sum of its parts. Citicorp chairman John Reed, they point out, rode into senior management through the operations department, and few companies in any industry match Citi's reputation for flexibility, forward thinking, or sheer horsepower.
Somehow, though by no means immediately after the deal's anticipated closing in a few months, Salomon Smith Barney's high-powered workstations, Citibank's immense customer information files, and other ingredients are seen as likely constituents of a potent, truly synergistic mix that cuts across organizational barriers and serves the entire globe.
Edward Horowitz, whom Mr. Reed brought in last year from the media company Viacom Inc. to pull together a bankwide advanced development group, would gain an even bigger arsenal for the campaign to be "one mile, one phone call, or one click" away from anyone on Earth. With Citicorp's and Travelers Group's combined customer list of 100 million, Citicorp's "stretch target" of one billion by 2010 may no longer seem so fanciful.
"They will be able to afford research and development in financial technology that few, if any, institutions have," said Diogo B. Teixeira, president of Tower Group in Newton, Mass. "That will create a host of opportunities-as well as management issues-that are not faced by anyone else."
Its leaders have predicated the proposed Citigroup on what has thus far been an elusive ideal-the notion that individual customers will want to go to a single source for the full range of financial services. Sears, Roebuck and Co. failed to make the approach work in one of the more notable strategic missteps of the 1980s. Mr. Weill himself has been chasing the dream since he put in a rocky stint at American Express Co. in the early 1980s.
But no organization has had the scope, scale, or portfolio that Citigroup would bring to the task.
"The issue is how to leverage the enormous customer base and bring about increased sales and share of wallet," said Thomas J. Theurkauf Jr., an analyst at Keefe, Bruyette & Woods Inc. "They want to make a single, integrated account statement that would show the full breadth of banking, insurance, and brokerage accounts."
Citigroup would have to take it slowly. Even if the technology integrations could be accomplished in short order, the regulatory complications of combining bank and nonbank activities under a single corporate umbrella might not allow such manifestations as single-view statements for two years or more. But that might just provide more time to get it right.
"Much of the organizations are going to be kept separate until all regulatory approvals are received," said Lehman Brothers Inc. banking analyst Diane Glossman. "I don't think they are even going to try for a couple of years" to fully combine customer information files.
Veteran financial technology executive DuWayne Peterson-he has been top technology officer at Merrill Lynch & Co. and the defunct Security Pacific Corp.-agreed that "they will go together very slowly. I would think they will not do any technology efforts until way down the road."
"They both have a mentality of letting the businesses run their own shows," said Mr. Peterson, who is currently immersed in the year-2000 computing problem as vice chairman of Software Testing Assurance Corp., Stamford, Conn.
He said that this freewheeling, entrepreneurial tendency "will keep someone from sitting down and masterminding a big technology integration project," which is good because such a massive task might interrupt the work both companies are in the midst of to address the year-2000 problem.
Mr. Teixeira, a consultant to large companies across the financial services spectrum, said decisions would have to be made on which of hundreds of products should be marketed together. Action would also be needed, he said, to coordinate customer interfaces and linking modern client/server systems with older "legacy systems," many still running on mainframe computers.
Legal restrictions on the information that can be shared by banking and insurance subidiaries further complicate the picture, and on top of that, Citigroup would have to level out the differences in the way insurance companies and banks deploy technology.
"It is possible to build front-end devices integrating different data bases, but it is extremely expensive and complicated," said Mr. Teixeira.
Though banks have moved in recent years to systems that permit distributed-or decentralized-access to customer service files, insurance companies tend to centralize their policy information at home offices, said Kenneth Kehrer, an insurance industry analyst in Princeton, N.J.
"The insurance industry has not had the same drive that banks have had to sell a lot of business to the same customers," said Mr. Kehrer. This is "partly because traditional insurance companies sold only an auto, home, or life product to their customers."
"From a technology standpoint, this is going to be an enormous management challenge and one in which the full fruits of technology will not be realized for many years," said Bert Ely, an Alexandria, Va.-based consultant who has worked for Citicorp.
"They are going to have so many opportunities in terms of who they deliver services to and how efficiently they can do it," said Mr. Ely. "This is the way the world is moving. We will see more deals like this, in which technology is the driver."
William Bradway of Meridien Research, a Needham, Mass., firm that specializes in financial technology issues, said the cumbersome process of building and compiling the prospective data warehouse and actually making use of it would be fraught with risks and imperfections-though certainly Citigroup would be aware of the pitfalls.
"For an organization with 100 million customers, even if (the data base system) works automatically 80% of the time, you'll still have 20 million mismatches," said Mr. Bradway. "This is beyond the scale that lets a bank hire some temps and do the homework."
Harking back to Sears' misadventure with Allstate Insurance, Coldwell Banker real estate, and the Dean Witter stock brokerage, Mr. Bradway said, "Part of the rationale was, 'We will cross-sell like crazy.'" Sears management wound up not only selling the business lines but also being diverted from dealing with competitive threats such as Wal-Mart, he said.
Mr. Ely said he doubts Citicorp and Travelers would fall into the "stocks and socks" trap. "These are both financial service firms; they are in complementary areas."
Given technological advances and deregulation since the 1980s, Mr. Ely added, "Sears may have been ahead of its time. Just because it didn't work then doesn't mean it won't work now."
One thing Sears and others did not have to contend with in the 1980s was the year-2000 problem.
Citicorp has said it would spend up to $600 million over three years to make sure its computers recognize the "00" in computer coding as 2000 rather than 1900. Travelers Group officials have put their cost at $200 million to $275 million over four years.
The concerns that have become known as Y2K could have complicated the merger "if it were announced six months later," said Michael Mayo, an analyst at Credit Suisse First Boston in New York. "This merger probably still comes within an adequate time frame" to address the problems, he said.
The merger is not expected to affect a Citicorp restructuring initiative announced late last year, a company spokeswoman said. Citicorp also recently announced an outsourcing arrangement with AT&T Corp. to manage its data communications network.
Though cost reductions would be less relevant than in the typical bank merger-Mr. Weill said Citigroup is likely to build a bigger work force, and Mr. Teixeira said savings are likely to be closer to 15% than the 50% that some bank deals achieve-the longer-term benefits could mount up.
"In an institution that large, you would have great economies of scale running and operating the core platform data centers and networks," Mr. Teixeira said.
Mr. Kehrer suggested that the two companies' strengths and interests can converge nicely. "Banks are good at being low-cost providers of commodity products using technology," he said. "That is the wave of the future for insurance, which can be best served by efficiently targeting prospects and providing low-cost delivery."
