A merger between Citicorp and American Express Co. has captured the imaginations of securities analysts, corporate strategists, and heads of many financial service businesses, especially credit cards.

And it's only a rumor.

Getting beyond the speculation-which has flared several times in recent months, fueling a rise in American Express' share price-knowledgeable observers see considerable logic in the hypothetical combination.

For what could be a $40 billion price, Citicorp could fulfill the ultimate objectives of the globalization strategy it has long been pursuing. It would more than double its consumer banking offices and assets under management for corporate and individual clients; bolster what is already regarded as the most sophisticated array of technologies at any banking institution; and open considerable distance between itself and the next-largest companies in the credit and charge card field.

In the American Express name, Citicorp would own the brand that marketing experts regard as second in financial services strength. No. 1 is Visa-Citicorp's Citibank is the largest Visa card issuer-and Citibank itself surely ranks among the top 10 industry brands.

The possibilities are mind-boggling. But so, apparently, are the obstacles, ranging from corporate culture issues to legal technicalities. These may explain why the deal has not gotten done-Citicorp chairman John S. Reed disclosed in April that the companies had done some talking-and why the market has been of two minds.

Last Thursday, as Amex's share price jumped by almost $7, a card industry consultant said he had knowledge of strategy meetings taking place between the two New York financial giants.

But another credit card source said Tuesday of the purported progress, "The latest we are hearing is it is going nowhere."

Perhaps the most obvious roadblock is Citibank's membership in Visa International and MasterCard International. Both card associations have rules prohibiting members from issuing American Express cards, and Citibank might have to go through contortions to retain the prized Amex brand.

A more farfetched possibility, though still unspoken in the card industry: Citibank could drop out of Visa and MasterCard and take a more proprietary course, converting its cardholders to American Express products.

"A big portion of that $40 billion of market value is the (American Express) brand," said analyst Moshe Orenbuch of Sanford C. Bernstein & Co. Citicorp should "absolutely keep the brand," he said.

Both Citicorp and American Express could in other ways be strongly motivated to make a deal that would shake up each of their business lines and the world financial services market as a whole.

"Citi has to do something right now," said James Accomando, a credit card consultant in Fairfield, Conn. "Competition has encroached upon them very rapidly," he said, noting that Banc One Corp.'s acquisition of First USA Inc. and growth of other monoline credit card issuers like MBNA Corp. and Capital One Financial Corp. have eroded Citicorp's market-share lead in its most profitable activity.

He said the recently announced demise of the Citibank-Ford cobranded credit card could affect 7.5 million of Citibank's 40-plus million U.S. cardholders.

"They are poised for something very large," Mr. Accomando said. "Whether it's Amex, who knows?"

American Express, meanwhile, has been desperately seeking ways to grow on its charge card foundation. The MasterCard-Visa rules have limited American Express' ability to ally with banks. It lost a court battle when it tried to do an end-run with Advanta Corp., tying American Express benefits to the bank-owned card brands.

"American Express almost has to be a bank to be viable going forward," said Alan Bergstrom, president of the Brand Consultancy, Atlanta. He estimated the American Express brand is worth at least several billion dollars, and has an upscale cachet that would help Citicorp.

American Express, under current chairman Harvey Golub, has rebounded from its financial woes troubles of the last decade. Net income grew 11% last year, and the 23% return on common shareholders' equity exceeded Citicorp's 18%.

Despite the profitability record, American Express has suffered a long- term loss of market share to the bank brands, particularly Visa. Credit card lawyer Anita Boomstein said that may be pushing Mr. Golub down new avenues.

"Harvey and his senior management team may have extracted all the operating efficiencies over the past couple of years," said Ms. Boomstein, a partner with Hughes Hubbard & Reed, New York. "At some point you've done what you can and if you can't expand market share to gain revenue, there's a limit to how much growth you can get."

But she said the deal would present a "very tough integration" challenge, with senior management on neither side "wanting to give up control."

She suggested a merger would make the most sense if Citicorp could "keep American Express as a discrete business unit" and not "destroy the infrastructure that makes the Amex brand what it is."

Ms. Boomstein and financial analysts have pointed out that the recent increase in American Express' share price raises the stakes and the risks to the acquirer. Given the likely price tag, she said, "I wonder if (Citicorp) can do better job at expanding the franchise than Amex."

The synergies in the card business would be considerable, even if the American Express brand remained "stand-alone." The American Express Optima products are functionally equivalent to MasterCard and Visa. And American Express has a sizable merchant card-processing business that Citicorp may see as a way to get back into a business it divested several years ago.

Beyond cards, the companies also could consolidate in the asset management business, finding ways for American Express Financial Advisors to complement Citicorp's consumer and private banking networks; and the addition of 1,700 American Express Travel Service locations would make Citi's global presence-now 1,100 banking facilities and 3,200 offices overall-second to none.

American Express even owns a $12 billion international bank that could fold nicely into Citibank's overseas operations.

But all conversations turn back toward credit card issues-the rules of MasterCard and Visa and U.S. antitrust law.

As the owner of American Express' travel and entertainment competitors, Diners Club and Carte Blanche, Citibank "violates the associations' rules as they exist today," said Lloyd Constantine, a New York-based lawyer and former head of the state attorney general's antitrust department.

At a minimum, legal experts say, the potential merger would create a T&E card monopoly that may cause regulators to order a piece of the business divested.

And if American Express were no longer independent, "someone would argue that a merger of this kind would dilute competition between the major card brands (Amex, MasterCard, Visa, and Discover) and then there would be a question about whether it has an adverse effect on the terms that card issuers offer consumers," said another antitrust expert.

Noting that Visa argued in court several years ago that brand competition would be reduced if it had to admit the former Dean Witter, Discover & Co. as a member, this lawyer said, "I suspect a lot of people would have a lot of words to eat and explain" if a Citicorp-American Express merger happened.

"A merger with American Express "could cause a realignment of everything Citibank does in its card business," including debit cards, Mr. Constantine added.

As for "social issues," card industry people were intrigued by Roberta J. Arena's decision this year to resign as head of Citibank's card business. A. Sami Siddiqui, formerly of Providian Financial Corp., joins this month as president of the North American card business, the bulk of Ms. Arena's area of responsibility.

One banker, who asked to remain anonymous, speculated that Citicorp chairman John Reed, may be saving the top Citicorp card job for an American Express leader, perhaps even Mr. Golub.

Others doubt that Mr. Golub would accept a lesser role in a new company, or they don't see him as fitting in at Citicorp.

"Harvey is a strong personality and good leader, but I'm not sure he is Citicorp executive material," said one consultant.

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