Fueled by mounting global competition, worldwide consolidation in banking and financial services is gathering speed.

"Consolidation is only just beginning on a worldwide basis," observed Charles L. Coltman 3d, executive vice president and head of global corporate banking at First Union Corp.

Within the next few years, he and other bankers and analysts predict, large numbers of banks, insurance, and securities companies around the world will disapper as they fold into bigger and more diversified units in an effort to come to grips with deregulation and increased competition.

"As margins shrink, banks need to cut costs and the most-effective way of cutting costs is to merge," Mr. Coltman noted.

"It's an economic force that has become inexorable," he said.

Bankers and analysts say there are several reasons behind the current wave of consolidation.

In Europe, institutions like Union Bank of Switzerland, which recently merged with Swiss Bank Corp. to create the world's biggest bank, believe they need to merge in order to get the capital resources required to compete globally.

Increased competition after a single currency goes into use in 11 of the 15 countries of the European Union in January, combined with the need to revamp computer systems to deal with the year-2000 problem, is also pushing smaller and medium-size banks into the arms of bigger ones.

In countries confronted with economic crises, such as South Korea and Japan, small and medium-size banks faced with mounting problem loans and capital shortages will simply disappear as they either merge with stronger local players or get taken over by foreign financial institutions.

In Latin America, deregulation is spurring increased competition, which is in turn producing bigger, more efficient financial companies that can operate at lower costs across markets in several countries.

In fact, many of Latin America's biggest banks are now controlled by foreign institutions. ABN Amro NV, for example, has just reached an agreement to acquire Banco Real SA, Brazil's fourth-biggest bank, for $3 billion. HSBC Holdings has acquired Banco Bamerindus, another large Brazilian bank, and taken a signficant stake in Mexico's Banca Serfin. Banco Santander has acquired control of Mexico's Banco Mexicano while Citicorp has acquired control of Mexico's Banca Confia.

However, analysts remain reserved over just how far consolidation extend across borders and across different financial sectors.

They predict that most of the mergers among commercial banks around the world are likely to be in-market mergers. Investment banks, in contrast, will continue to pursue global expansion, while banks building asset management will also be going global.

"On the consumer banking side, the focus will remain primarily U.S. domestic and pan-European," observed Jeffrey Goldstein, co-chairman of BT Wolfensohn, the mergers-and-acquisitions arm of Bankers Trust Corp.

"On the capital markets/investment banking/corporate finance side, the trend toward globalization will continue through buying and building."

Last year's list of mostly in-market mergers among banks as well as banks and insurance companies largely backs up Mr. Goldstein's observations.

Alongside the two proposed mergers among the four Canadian banks and the already completed merger between Switzerland's two big banks, others included: Fortis AG, a Belgian insurance company acquiring Generale de Banque SA, a Belgian bank; Credito Italiano, an Italian bank, acquiring Unicredito, an Italian finance company; Firstrand Ltd. Centurion, a South African financial conglomerate, acquiring First National Bank Holdings Ltd., a South African bank; and Bankgesellschaft Berlin AG, a German regional bank, merging with Nordeutsche Landesbank, another German regional bank.

Most major cross border mergers were carried out by investment banks seeking to extend their global reach. Merrill Lynch & Co, for example, acquired the retail brokerage network of Japan's Yamaichi Securities, while the Credit Suisse Group, parent company of Credit Suisse First Boston, acquired Banco de Investimentos Garantia, one of Brazil's leading investment banks.

To be sure, the global wave of consolidation sweeping across the banking and financial services sector has not been completely smooth.

In Canada, where Canadian Imperial Bank of Commerce is planning to merge with Toronto-Dominion Bank and Royal Bank of Canada with Bank of Montreal, there is mounting opposition among regulators and consumers activists to the rise of what are perceived as banking cartels.

Questions have also been raised over whether the merger of banking and insurance companies, such as the proposed merger between Citicorp and Travelers Group will really produce any genuine improvement in sales that the two companies could not have achieved separately.

Analysts add that implementing that merger on a global scale could will be far more difficult to achieve that had the merger been a purely domestic one.

"Cross-selling has only worked when it's been done with internally generated products," observed Richard X. Bove, a banking analyst with Raymond James & Co. in St. Petersburg, Fla.

"It hasn't tended to work with multiple products distributed through multiple channels."

In order for the Citicorp-Travelers merger to work, Citicorp will need to make "massive changes" and reorganize its global network, something that could take anywhere from five to 10 years to implement, the analyst added.

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