In a rare and unusually candid public speech, former Citigroup Inc. co-chief executive officer John S. Reed said that before he had agreed to merge Citicorp with Travelers Group he seriously considered a merger with AT&T Corp.

When he placed a call to Robert E. Allen, the CEO of AT&T in the mid-1990s, "I always had the idea that a network supplier and a content provider would be a good combination," Mr. Reed said.

Speaking Monday at an electronic commerce symposium in New York sponsored by the Internet research firm Forrester Research, Mr. Reed, who retired from Citi in April, apparently felt free to let loose more thoughts than he did as a media-shy corporate titan. He said that the idea of a technology merger stuck with him even as Citi began contemplating the Travelers deal. During the premerger talks, he said, one of Citi's board members - whom he did not name - repeatedly told him the company should merge with a technology giant rather than an insurance firm.

"I really listened hard and thought about that," Mr. Reed said. When the final decision was made, "The belief basis was that Travelers gave us a better product array, from which then we could take the next step."

Judging by the speech he gave at Forrester's Finance and Technology Forum, Mr. Reed still thinks technology companies can help financial institutions shore up their might in an Internet-driven economy. He recommended that banks spin off "e-companies" that take advantage of important aspects of the established company, but are run by different managers, ideally people who are steeped in New Economy values.

In the vision he set out, a bank would give the e-companies the legal right to the parent's brand name, products, and customer data base. The spinoffs could then "exploit your knowledge in this new space," he said. "This way, you are not asking your terrestrial business to migrate."

Most banks are still operating under the flawed assumption that the Internet is an extension of their brick-and-mortar business, Mr. Reed said.

"This is a revolution," he said. "The advantage in creating a new world lies with those in the new world, not those in the existing one."

Mr. Reed's e-company scenario sounds similar to Citi f/i, an Internet-only bank that Citi introduced last August as an alternative to branch banking. Since Mr. Reed's departure in April, Citi has pulled the plug on Citi f/i, citing a desire to combine the best features of the Internet-only bank with the best of its established online banking program, Direct Access.

Mr. Reed acknowledged during a question-and-answer session that Internet-only banking presented difficulties, even though acquisition costs for online customers are one-third of what they are in the offlinephysical world. The drawback is that "you may want to have offices in certain places to give customers the assurance that they are in control," he said.

Mr. Reed said financial services companies should take risks with new technology, and cited a historical example. In 1973, when he ran Citi's global consumer business, credit cards were sold primarily through branches. But Mr. Reed had wanted to sell them by phone and mail as well.

But Paul Volcker, who was then the chairman of the Federal Reserve, had just boosted interest rates to 18%, which prompted a lot of consumers to put aside their credit cards.

"Within a couple of months, we lost about $300 million," Mr. Reed said. Walter Wriston, the CEO of Citi at the time, remained calm, he said. "The payoff ended up being immense," Mr. Reed said. "If they had fired me, they would have written me off as stupid, but now the card brings in about $10 million to $15 million a year after tax for Citibank."

Credit cards were an area where Citicorp and AT&T shared common interests throughout the 1990s. In December 1997, AT&T sold its credit card business to Citicorp for $3.5 billion. Richard J. Srednicki, who previously had worked at Citi for 13 years, was at the helm of AT&T's $14 billion portfolio at the time of the sale.

Despite Mr. Reed's impressive track record, at least one observer said a merger between Citi and AT&T would have been a bad idea.

"The reason that AT&T got out of the credit card business was that their focus was so broad that they were unable to do one particular thing really well," said Paul Jamieson, senior analyst for banking and payment services at Gomez Advisors of Lincoln, Mass. Plus, the cultural differences between the two companies would have posed "huge challenges," Mr. Jamieson said.

Mr. Reed said he is taking his time as he contemplates his future after Citi. "I am not going to making any decisions about what I am going to do until the fall," he said.

"I am surely tempted to take my dream of an Internet business and find another house for it," he said. "But I am not sure at age 61 that this is a smart thing to do."

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