Thursday, September 24, 1998

Fed approves merger creating nation's largest financial services company

By ALICE ANN LOVE Associated Press

WASHINGTON - A megamerger between Citicorp and Travelers Group Inc. won approval Wednesday from the Federal Reserve Board. The combined company would offer consumers one-stop shopping for everything from credit cards and checking to insurance and investing.

The merger of the two New York-based companies, first announced in April, was approved at a closed meeting of the Fed by a vote of 5-0 vote, with Fed Governor Roger Ferguson abstaining.

"The cross-marketing and customer-data-sharing arrangements proposed in this case are not likely ... to result in any significantly adverse effects," Fed officials said in a statement.

The Justice Department also gave its blessing for the deal today.

"We conducted a thorough investigation. We have closed that investigation, and we have allowed the transaction to go through," said Justice spokeswoman Gina Talamona.

Citicorp is the parent company of Citibank, the world's largest issuer of credit cards with some 60 million in circulation.

Travelers is an insurance, brokerage and investment banking giant with operating companies bearing household names such as Solomon Smith Barney, Primerica Financial Services and Travelers Life & Annuity.

The merged company would be called Citigroup Inc., and would continue to use Travelers trademark red umbrella as part of its logo.

With more than 100 million customers worldwide and assets of more than $751 billion, Citigroup would be the largest financial services firm in the United States, able to cross-market an unusually broad range of financial services to consumers. Someone negotiating a mortgage at Citibank could be told of Travelers' homeowners insurance, for instance.

Travelers and Citicorp officials have said they believe consumers want that kind of one-stop shopping, which would, for example, allow people to move their money by phone or personal computer not only between checking and savings accounts, but also insurance and mutual funds products.

"The merger properly executed should represent broader diversification of products to consumers and could, over time, result in lower prices," said financial industry analyst Jim McDermott, head of Keefe, Bruyette & Woods Inc. in New York.

Some, however, have protested.

The Association of Community Organizations for Reform Now, known as ACORN, urged regulators to turn down the combo, saying neither Travelers or Citicorp do enough business in minority communities and low-income areas.

And consumer advocate Ralph Nader has called the proposed Citicorp-Travelers deal "a massive and dangerous concentration of economic resources."

Fed officials said they collected comments from more than 425 organizations and individuals and conducted a two-day public hearing in New York before making their decision.

The Fed approval included a standard two-year grace period from compliance with a Depression-era law that prohibits banks from getting into the insurance or brokerage businesses.

Up to three one-year extensions of the waiver are possible, but also, a recent trend toward consolidation in the financial services industry is putting increasing pressure on Congress to drop the law from the books.

The recent wave of corporate mergers has swept not only the financial sector, but includes telecommunications corporations, auto manufacturers and oil companies.

The Citicorp-Travelers deal was billed as the largest combination of companies ever when it was announced last spring, at a value of $70 billion.

But this summer, spreading global economic troubles have hurt U.S. stocks, and on Wednesday the deal - in which Citicorp and Travelers stockholders would exchange their shares to split 50 percent ownership of the combined enterprise - was valued at only about $46 billion.

That means a merger of NationsBank Corp. and BankAmerica Corp., worth $57 billion when it got the go-ahead from the Fed last month, still holds the record.