Banks in the United States have long eyed insurance as an avenue to increased revenues. Judging by the experience of banks in Europe over the last two decades, however, they may be chasing a mirage.

This became more evident when Britain's National Westminster Bank PLC found itself the target of a $35 billion hostile takeover bid by Bank of Scotland. That move was precipitated by a 6% crash in Natwest's stock price after its offer to buy the British life insurance company Legal & General for $17 billion-plus.

The stock market's savage thumbs-down to Natwest's bid for Legal & General confirmed what many observers have believed for a long time: It is unlikely that banks will ever become serious contenders in the insurance business.

"Cross-selling insurance isn't a plausible strategy for banks. You need a dedicated sales force, and banks just don't have one," said Andre Cappon, president of CBM Group, a New York-based financial consulting company.

European banks have had a long head start when it comes to building an insurance business. Unlike the United States, where banks are barred under the Glass-Steagall Act from underwriting insurance, European banks have so-called universal banking powers. They can engage in any financial activity including retail and commercial banking, securities underwriting, and insurance.

European banks coined "bancassurance" to designate the merging of banking and insurance.

U.S. banks considering entering insurance have been pressuring Congress to repeal laws that bar them from doing so. In anticipation of a decision by Congress to approve HR-10, the bill eliminating Glass-Steagall restrictions, Citicorp last year boldly merged with Travelers into a conglomerate capable of offering banking and insurance alike.

Observers say few European banks have gone beyond selling annuities, which most people view as simply an investment vehicle packaged as insurance. Despite a rash of acquisitions of banks by insurance companies, such as Internationale Nederland's acquisition of Nederlandsche Middelstandsbank and Fortis' more recent purchase of Belgium's Generale Bank, banking and insurance remain largely separate businesses.

"The jury is still out on whether banks can sell insurance,'' says Lawrence Cohn, a banking analyst with Ryan, Beck & Co. "There's no question that proving there are synergies is hard to show."

Congress could take years to revamp restrictions, observers warn, and even if banks eventually get the right to sell insurance, building up large sales teams will take years.

In the meantime, the best banks can do is to ally with insurance companies and hope to get a piece of the commission by referring business to people who know how to handle it. Any increase in revenues is going to be incremental at best.

Carmen Effron, president of CF Effron Co., a Westport, Conn.-based consulting company that advises banks on how to develop insurance activities, said: "It is only a matter of time before banks sell more insurance, either on their own or in affiliation with an insurance company, but building up an insurance sales-force culture is going to take a long time. This is going to be an evolution, not a revolution."

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