New World of Behemoth Banking

The $70 billion merger of Citicorp and The Travelers Group - the biggest in US history - will affect the lives of millions of Americans and will probably change the face of banking worldwide.

Yesterday's announcement of the union of these financial behemoths takes place against a backdrop of mega mergers designed to enhance corporate efficiency and competitiveness. But it is also raising such questions as: How big is too big?

The new entity, called Citigroup, will serve some 100 million customers in 100 countries. It will allow consumers to conduct all of their transactions - from trading in securities to taking out a mortgage to using an ATM or credit card - under one financial umbrella of Brobdingnagian scale. Most analysts say this new "universal bank" will prompt more mergers as other banks scramble to compete.

If allowed, the merger will effectively mark the end of the Glass Steagall Act - a depression era law that banned the combination of banks and securities companies.

Investors greeted the proposed marriage of the nation's second-largest bank with a leading financial services provider with an early buying spree, pushing the Dow Jones industrial average over the 9000 level.

The merger comes at a time when the Justice Department is starting to challenge such huge combinations in the pharmaceutical and defense industries. Two weeks ago, the Justice Department asked a court to stop the $8.3 billion merger of Lockheed and Northrop.

In this merger, however, the two companies do not compete against each other in many areas and they are global in scope. "Wherever there's a Travelers' office of a Citibank, or a Citibank ATM, there will be a huge competitor with enormous size, marketing power, and brand identification," says Marty Farmer at the Independent Banker's Association of America.

For 10 years, proposals to reform the banking laws to allow such mergers have kicked around Capital Hill. Last week, the House again shelved a bill that would have cleared away the last legal impediments.

In the wake of the 1929 stock market collapse, legislation was created to prevent banks, securities firms, and insurance companies from mixing their assets and creating the potential for even greater financial disaster. But, as the economy has become more global, those restrictions are seen by some as limiting competitiveness.

Opposition to the latest bill arose from the banking industry because it created too many restrictions on their services and failed to merge thrift and banking deposit insurance funds as earlier ones had. Some Democrats also opposed it fearing it would feed the merger mania and create an anticompetitive atmosphere that would hurt consumers.

The new company will have enormous financial muscle. Citibank is one of the largest issuers of credit cards in the nation. As such it has a huge list of potential customers for the insurance and mutual funds sold by Travelers.

There are mixed views over whether the merger is good or bad for consumers. "Many Americans, I would say the majority, are pressed for time. If you have good service, good products, and pricing all in one place, it's something I would go for in a heartbeat," says Joe Belew, president of the Consumer Bankers Association in Arlington, Va.

Bob Litan, director of economic studies at the Brookings Institution in Washington, says that if the merger is approved "one-stop shopping would become a reality and we would find out whether it works."

Mr. Litan observes that alliances between banks and insurance companies have been around in Europe for decades without any noticeable problems. "We are late coming to the party and I see no major problems with such tie-ups in principle," says Mr. Litan.

Only eight years ago, Citibank was financially wounded. It stock was trading at $11 per share and there were rumors that the Federal Reserve was looking at its books. Today, says Litan, "Citibank is a healthy bank." It's stock, before the merger announcement, was trading at $140 per share.

The Travelers, which uses a red umbrella as its symbol, has been active in the merger markets. Its recent acquisitions have included Smith Barney and Salomon Brothers, two Wall Street powerhouses. It's chairman, Sanford Weill, is a long veteran in the financial services industry. Last year, he was one of the most highly paid executives - earning over $154 million.

Mr. Weill suggested the merger only 4-1/2 weeks ago and he and Citicorp chairman John Reed will share the running of the new company.

He says the two will get along just fine. "I've been married 43 years, and I've learned how to take directions."

* Staff writers Alexandra Marks in New York and James L. Tyson in Washington contributed to this article.