Now anything's possible.

That, in a nutshell, was how rival financial services companies sized up the blockbuster merger agreement unveiled Monday by Travelers Group and Citicorp.

"It's a bold, aggressive, and progressive move," said Albert R. Gamper Jr., chief executive of CIT Group, New York, a leading finance company. "It's hard to find a hole in the deal."

All of a sudden, "everything is for sale," added Jeffrey Evanson, a banking analyst at Piper Jaffray Inc., Minneapolis. The deal has ushered in "the scramble to be the top dog."

It could be years before the merger is completed, but even in its incubation phase the new Citigroup Inc. seems certain to alter the financial services scene.

Offering a powerful mix of consumer and commercial banking, investment banking, asset management, and insurance capabilities, it would be the first truly diversified U.S. financial institution and one of a handful anywhere with the heft to compete globally.

Against this backdrop, the wave of mergers between securities firms and commercial banks, so novel just one year ago, now seems almost quaint.

"A lot of people were scratching their heads about what would be the next great bank/securities firm merger," said Peter L. Bain, principal of Berkshire Capital Corp. "This one has all three legs of the stool-banking, securities, insurance. There was a lot of bilateral thinking going on; the triangulation of this business is what's interesting."

As Citicorp chairman John S. Reed put it, "Our ability to serve consumers, corporations, institutions, and government agencies, domestic and foreign, will be without parallel." It was a boastful statement, perhaps, but one that few could quarrel with.

Executives from and observers of the nonbank financial services sector- finance, insurance, and brokerage companies-offered their perspectives on the deal.


Inevitably, the big question on Wall Street Monday was, "Who's next?" And just as inevitably, speculation centered on Merrill Lynch & Co. and Chase Manhattan Corp., the subjects of persistent merger rumors.

"Merrill and Chase are both going to have to do something," said Steven M. Landberg, a principal with New York financial services research firm Sibson & Co. The Citicorp/Travelers deal "is really the most dramatic testimony of the appeal of convergence."

To be sure, neither Merrill nor Chase has sat on the sidelines in the financial services merger game.

Merrill last year agreed to pay $5.3 billion cash for Mercury Asset Management of London, which controls $167 billion of assets. And Chase has pulled off two of the biggest banking mergers in history over the past four years, absorbing Manufacturers Hanover Co. in 1991 and Chemical Banking Corp. in 1996.

But neither company has yet attained the status of a fully diversified financial services company. In their much-publicized dalliance, Chase has been the suitor, Merrill the reluctant party. Now observers say the Citicorp/Travelers deal so utterly changes the financial services dynamic that Merrill may now have to entertain Chase's proposals.

"It will be tougher for Merrill Lynch" to remain competitive on its own, said Charles M. Vincent, an equity analyst with PNC Institutional Investment Services, Philadelphia. "This new company is coming at you with a whole raft of differentiated products."

Neither Merrill nor Chase, however, was giving anything away yesterday. Both institutions released statements saying the Travelers/Citicorp announcement is consistent with their respective views of consolidation in the marketplace.

Chase praised the merger partners and called on Congress to move more quickly on financial reform. Merrill's statement was somewhat more expansive.

The company said:"Merrill Lynch has responded to the competitive environment through a combination of selected acquisitions and internally generated growth" and will continue to follow that strategy.

The market, however, was hanging on to the hope that Chase and Merrill would eventually tie the knot-and if not with each other, perhaps with someone else. Chase's stock price closed up $6.75, to $146.875 yesterday, while Merrill's stock soared $10.125, to $96.625.


Richard L. Huber, the veteran banker who now heads insurance giant Aetna Inc., spoke of the deal with admiration-but no fear. "Providing it clears the regulatory hurdles, it would be an absolute breakthrough," said Mr. Huber, whose banking career included a stint at Citicorp. For the first time, he said, "an American institution is becoming competitive the way European and other financial institutions around the world have been for a long time."

Nevertheless, he said, there is ample room for companies that want to focus on specific business lines-and that includes Aetna. The Hartford, Conn., company is very comfortable with "organic growth" and will continue to develop existing business lines such as employee benefits and health- care policies.

For diversified companies and focused providers alike, Mr. Huber said, banks are an attractive distribution channel-and that makes Citicorp and Travelers a powerful combination.

"We sell an awful lot of insurance overseas through branch networks. Our partners in most countries abroad are banks. Believe me, it's a very efficient channel of distribution."

He noted that Travelers Corp. chairman Sanford I. Weill was one of several financial services company executives who have expressed interest in buying Aetna's international business, which he characterized as second to AIG.

As for the merger trend, he said, "I certainly don't believe it's over. We'll see more mega-buck deals this year."

Consumer and commercial finance

With more than 3,200 offices worldwide, the new Citigroup would have a vast network to serve both consumer and commercial customers. And with 100 million customers worldwide and a $119.2 billion consumer loan portfolio, the company is expected to make cross-selling products and services a top priority.

The company's global presence would far exceed that of rivals like Associates First Capital Corp., Dallas, which had 2,180 branches worldwide and $32.4 billion in consumer finance receivables as of March 31.

GE Capital Corp., Household Inc., General Motors Acceptance Corp., and Contifinancial Corp. are other formidable nonbank consumer finance company competitors.

Consolidation activity-already heated in the consumer finance arena, is only going to increase, analysts say. Huge consumer finance companies like Associates don't compete directly with Citicorp and Travelers right now, said Steven Eisman, an analyst at CIBC Oppenheimer. But they are likely to be snapped up by larger entities for higher prices than they would have been before the deal was announced.

Companies with large credit card portfolios may also benefit from the deal as competitors bid up for them in an effort to echo Citigroup's cross- selling strategy, said Mr. Evanson of Piper Jaffray.

"It's a great way to cross-market; you have a way to get into people's mailboxes," said Mr. Evanson. Rather than trying to compete, many credit card players may just opt to sell out, he said.

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