Two of America's largest companies, Citicorp and Travelers Group Inc., agreed Monday to a merger that would create the world's largest financial services concern. Not since the freewheeling pre-Depression era would so many different financial businesses be corralled under one roof in this country.
The transaction, at $70 billion in stock the largest merger in history, is also remarkable for its brashness. While banks like Citicorp and insurance and brokerage firms like Travelers have made substantial inroads into one another's businesses, there are still ample regulatory restrictions on how actively banks can sell products like insurance.But Monday, investors were apparently betting that the deal would clear the necessary hurdles. The stock of Citicorp soared $37.625, to close at $180.50. Travelers stock rose $11.3125, to $73. The deal was also attributed to the Dow's record close above 9,000.
Whatever its outcome, the deal promises to ignite an intense legislative battle in Washington over the shape and future of financial services in America. It is also expected to speed the pace of merger activity across the financial landscape.
Travelers and Citicorp are betting that their profits and competitiveness would be enhanced by offering one-stop shopping for a broad range of services, from savings and checking accounts, credit cards, mortgages, stock and bond underwriting, homeowners, auto and life insurance, asset management, mergers and acquisitions advice, commercial loans, and derivative securities and foreign exchange trading.
Citicorp's chief executive, John Reed, and Travelers' chief executive, Sanford Weill, would jointly run the new company, to be called Citigroup Inc. "Frankly, we're probably talking about a restructuring of the financial services industry," Reed said of the agreement.
But it is not quite that simple. The transaction would have to negotiate a maze of regulations governing the banking industry that were put in place precisely to prevent the creation of the type of company Travelers and Citicorp now aim to put together.
Assuming that legal barriers are overcome, there are other sizable hurdles the merged company would face. Chief among those is the challenge of running a global company that would have revenues of about $50 billion, assets of $700 billion and a market capitalization of more than $140 billion.
With its suggestion that regulatory barriers might be forced down, Monday's transaction resounded like a starter's pistol to some analysts, signaling the beginning of a great race for the country's insurance companies.