Citigroup co-chairman John S. Reed said the banking industry has failed to fully understand and seize the potential of the consumer banking business.

Speaking at a Consumer Bankers Association meeting, Mr. Reed said banks have fallen behind in the market-share race by failing to deliver products and services consistently and offering mediocre ones.

Mr. Reed, who in many years with Citicorp never hid his passion for the consumer market, said the banking industry compares unfavorably to general consumer product companies that have developed successful formulas for product quality, uniformity, and customer loyalty.

"None of us, including Citi, has gotten it right," Mr. Reed said at the opening Sunday of the Consumer Bankers' 78th annual executive retail conference. "There is no proposition as compelling as the one by Coke or Sony."

In a similar vein, John G. Heimann, chairman of the global financial institutions practice at Merrill Lynch & Co., said financial companies must put more emphasis on personal relationships with customers if they are to gain market share.

"No one has a lock on the market," Mr. Heimann said in another conference address. "Companies have to spend time thinking about human relationships."

Navigating the current economy and developing new strategies to boost revenues in coming years were very much on the minds of the 250 high- ranking bankers in attendance.

Heavy third-quarter trading losses in the corporate banking operations of many of the nation's largest financial companies, including Citigroup and Merrill Lynch, "are a poignant reminder of the dangers of complacency," said James J. McDermott Jr., chairman of Keefe, Bruyette & Woods Inc., New York.

Mergers are creating more powerful and diversified competitors, Mr. McDermott said, adding, "Consolidation is a long-term threat to smaller banks as the larger institutions use technology to reach more customers."

Citicorp, which merged with Travelers Group this month to form the largest bank holding company, will benefit by being able to offer transaction, savings, lending, and insurance products to customers, Mr. Reed said.

"The driving force behind the merger was the consumer proposition," he said.

Citicorp was considered a pioneer in consumer services. Under Mr. Reed's leadership, it was more aggressive than most in the automated teller machine, credit card, and home banking areas.

But Mr. Reed said those efforts have not been enough. The industry suffers from fragmentation, he said. Customer attrition rates are "atrocious" and customer satisfaction surveys are "lousy."

He pointed out that no single financial company has more than a 2% to 3% market share. "Any consumer marketing person would tell you that if you don't have a 20% share, you don't have a compelling proposition," he added.

Pricing practices are part of the problem. "We have a tendency to practice what I call harassment pricing-stick an extra 50 cents on that ATM because you need the revenue," Mr. Reed said. "Most people want access to their money at no cost, and you can understand why."

"In quality, we are where the U.S. was in the auto industry before the Japanese came in and changed the paradigm," he said. "We have been socialized into accepting this. But I think that spells opportunity .... I am persuaded that consumer banking is an untapped opportunity of impressive proportions."

Corporate banking, the focus of many banks' activities in recent years, does not make money, the executive said.

"I wish my job were only to run the consumer businesses because I believe that's where the future of the banking business really lies," Mr. Reed said. Corporate banking, investment banking, and institutional brokerage "do not have the opportunity that exists on the consumer side."

Consumer businesses are expected to carry Citigroup's earnings for the foreseeable future. Mr. Reed said the bank expects to see double-digit growth as cross-selling activities pick up in the next year.

He views corporate businesses, by contrast, as mature and overpopulated with competitors.

Citigroup's Salomon Smith Barney unit lost $350 million last quarter amid global financial turbulence. Losses from investments in Russian bonds also contributed to Citi's corporate earnings problems.

"I have grave concerns about the ability of the (corporate) business to sustain return on equity," Mr. Reed said.

He urged his audience to come up with a better model for retail banking.

Citigroup has a goal of 20% market share worldwide, or one billion customers, by the year 2010. "That is not the comment of a greedy capitalist out to control the world," Mr. Reed said. "It's a challenge to my colleagues."

Mr. Reed said that goal would be impossible to achieve by running in place. The company must encourage use of electronic banking products, for example. "We have to redefine the nature of the relationship and the business," he said. "We need a compelling proposition, and we aren't going to get it doing things the way we do them today."

Branding will also play an important role in capturing market share, Mr. Reed said. Citigroup's dominant brand will be Citi, with the "t" as a red umbrella, the former symbol of Travelers.

"We will keep Salomon and Travelers, but Citi will become like all those other four-letter words-Coke, Sony, Nike," he said.

Mr. McDermott said branding is critical to the success of the industry. "Banks have a difficult time establishing uniqueness because customers can walk across the street to another," he said. "As companies move toward brand consciousness, public image will become increasingly important."

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