SAN FRANCISCO - Citigroup Inc. is betting that its $5.8 billion deal for Golden State Bancorp, the parent of California Federal Bank, will bring it a rich new vein of younger customers to whom it can cross-sell investment products and other fee products.
But this may prove tricky. Cal Fed's marketing efforts and ad campaigns have persistently cast the company as a friendly alternative to big banks. The Citi deal would make it part of one of the world's largest banking companies - and it now has to persuade customers once drawn by its folksy feel and low-fee deposit products to stay.
Part of Citi's attraction to Cal Fed in the first place was that it had made progress in shedding its thrift image and become more banklike, Citi executives said Tuesday. Cal Fed has been attracting new checking accounting customers, increasing its sales per customer, and expanding its investment product offerings at the expense of its big-bank competitors in California. The thrift also hired senior executives from major retail banks, including a head of retail from the old Norwest Corp. and a head of marketing from the former Bank of America Corp.
And in the last two years, Cal Fed has blanketed the state and neighboring Nevada with advertising aimed at distinguishing its service and offerings from the likes of Wells Fargo & Co. and Bank of America Corp.
The marketing campaign, which features Elvis Schmiedekamp, the real-life manager of Cal Fed's customer service unit, has captured the imagination of a younger, hipper demographic. Oversize images of Mr. Schmiedekamp's face and torso, plastered on billboards, buses, and subway cars, have reminded customers for the last year of Cal Fed's accessibility and friendliness. Mr. Schmiedekamp has appeared on radio talk shows and at barbecues, and is even the subject of a computer game on Cal Fed's Web site.
The company's retail momentum "is the culmination of a three-year intense focus" on the business line, Golden State president Carl Webb told investors earlier this year. As a result, he said, "we have more success going up against Bank of America than any other competitor in our marketplace."
But Schmiedekamp's popularity points to a key image gap between Cal Fed and its would-be buyer: Cal Fed has positioned itself as the down-home bank next door, while Citi's image is more worldly.
"It's a significant cultural change that they have to pull off," said Charles Wendel, president of Financial Institutions Consulting. He sums it up the differences this way: "If you want a warm and cuddly bank, don't go to Citi - go to a community bank or credit union. If you want an efficient, professional bank with a lot of products, go to Citi."
Citi says it does cultivate a home-grown image. "We're local in the markets where we live and work," a spokesman said.
Citi is one of the few large banks with a history of buying and integrating thrifts into its consumer bank model. Indeed the New York company's first acquisition in California was the 1982 purchase of troubled Oakland thrift Fidelity Financial Corp.
Citi now has 80 branches in California, and considers the state an important growth area. It acquired Mexico's Banamex last year and has said it wants to appeal to the Latino population in the Southwest.
Citigroup executives said Tuesday that they were impressed by Cal Fed's youthful customer base. Cal Fed's average customer age is 50, and customers it has gained in the last 12 months are an average of 41 years old, Citigroup said.
"That's much more in line with the customer we're looking for, who is not just searching for high-interest CD products," said Marge Magner, the chief operating officer of Citi's consumer group, on Tuesday. Cal Fed customers' relative youthfulness gives Citigroup the "opportunity and leverage" to sell them its own vast array of credit and investment products.
Combined, the new entity would be the state's fourth-largest depository institution, with $28.3 billion of deposits and a 5.8% market share. But the differences between the two franchises - ranging from account structure to public image - mean that Citibank has to make sure the transition doesn't scare off the new customers that made Cal Fed attractive.
Citibank's offerings in California are aimed at a wealthier demographic than Cal Fed's. To use its "EZ Checking Product," which has the lowest minimum balance requirement, customers must have at least $1,500 in FDIC-insured deposits to avoid the $9.50 monthly maintenance fee.
Cal Fed, by contrast, waives the fee on one account if a customer has either $750 in checking, uses direct deposit, or has $3000 or more in combined savings, checking, or money market accounts and CDs. Another account, called Economy Checking, charges $3.50 a month but has no minimum balance requirement.
But far more dramatic is the difference in public image.
Cal Fed's Schmiedekamp campaign "has been about putting a personal face on a financial institution," said Russ Meyer, the executive director for strategic services at Landor Associates, a branding consultancy in San Francisco. Citigroup, on the other hand, sends the message that customers are dealing with a global, connected, and technology-savvy bank.
"The question is: how do you maintain that when you're a institution the size and breadth of Citigroup?" Mr. Meyer said.
It's not a light one, given the shifting competition on both coasts. Seattle-based Washington Mutual Inc., also a thrift and the second-largest depository institution in California, has just entered the New York market with its acquisition of Dime Bancorp. Wamu chairman and chief executive Kerry K. Killinger has said he thinks the New York market - the stomping ground of Citibank and J.P. Morgan Chase & Co. - is ripe for Wamu's blend of low-cost accounts and folksy service.
Observers said Wamu, with a strategy closer to that of Cal Fed, could likewise benefit from any fallout that results from the Citi merger. "I would expect Wamu would be playing at disenfranchised customers" there, Mr. Wendel said.
