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Hd Nudging Washington
Conspiracy theorists might want to examine the methods and motivations of Sanford Weill, the chief executive of Travelers Group Inc. and mastermind behind the nation’s largest, most audacious merger.
We’re only half joking, but Weill, deliberately or not, is setting the stage for what could be the most significant package of banking reforms in decades.
It was Weill who first approached Citicorp Chief Executive John Reed about the two companies joining hands and thus creating a mammoth financial-service empire that would provide one-stop shopping for everything from savings accounts to mutual funds to life insurance.
It also was Weill who has pushed for deregulating the financial-services industry (Reed has opposed it), so that the longstanding barrier between banks and securities firms would be taken down. For a while this year, it looked as if Congress would finally soften or even eliminate those antiquated restrictions, but lobbying by the smaller banks, which wield disproportionate influence in Congress, put an end to those hopes.
Until, that is, Weill came along with his daring proposition. Now, bank reform appears to be back on the front burner if not this year, then most likely by 1999.
It should be noted that this monster merger, with an estimated value of $83 billion, could probably pass muster with bank regulators even without congressional action. The only obvious requirement would be a divestment of the Travelers insurance operations over the next two years barring any change in the laws.
Still, there would be a maze of regulations to navigate, and Weill obviously would prefer to enter into this marriage with Washington’s full support. Which brings up our half-baked conspiracy theory: Was Weill interested in Citicorp in spite of congressional lethargy over bank reform or because of it?
Either way, it’s encouraging to see that Congress is taking the hint. Tearing down those stodgy financial walls is a long time coming, especially given today’s intricate global relationships.
As for the argument that the Citicorp-Travelers merger will lead to similar deals and eventually a financial-services industry made up of just five or six players it should be noted that on the day after last week’s big announcement, the stock of both companies went down. Investors, it seems, were having some second thoughts on whether the combination would result in the necessary cost cuts and earnings potential to make the deal pencil out.
Bigger is not necessarily better from anyone’s standpoint, whether it’s depositors or shareholders. That’s why the current outcry by self-appointed consumer crusaders that’s you, Ralph Nader is not only premature but off target.
In the final analysis, marketplace response will ultimately determine whether the joining of banks with other financial institutions makes good sense. On that front, the jury remains out.
Washington has an opportunity to craft legislation that, in essence, would get government out of the process. It’s a complex undertaking that’s heavily influenced by persuasive lobbyists on all sides. But it starts with a basic premise that the current system is outdated and in desperate need of reform.
Before bailing out for the ’98 elections, Congress needs to take that premise and make it stick.
