Possibilities for Merged Citicorp and American Express Abound

Article excerpt

A merger between Citicorp and American Express Co. has captured the imaginations of securities analysts, corporate strategists, and heads of many financial service businesses, especially credit cards.

And it's only a rumor.

Getting beyond the speculation-which has flared several times in recent months, fueling a rise in American Express' share price-knowledgeable observers see considerable logic in the hypothetical combination.

For what could be a $40 billion price, Citicorp could fulfill the ultimate objectives of the globalization strategy it has long been pursuing. It would more than double its consumer banking offices and assets under management for corporate and individual clients; bolster what is already regarded as the most sophisticated array of technologies at any banking institution; and open considerable distance between itself and the next-largest companies in the credit and charge card field.

In the American Express name, Citicorp would own the brand that marketing experts regard as second in financial services strength. No. 1 is Visa-Citicorp's Citibank is the largest Visa card issuer-and Citibank itself surely ranks among the top 10 industry brands.

The possibilities are mind-boggling. But so, apparently, are the obstacles, ranging from corporate culture issues to legal technicalities. These may explain why the deal has not gotten done-Citicorp chairman John S. Reed disclosed in April that the companies had done some talking-and why the market has been of two minds.

Last Thursday, as Amex's share price jumped by almost $7, a card industry consultant said he had knowledge of strategy meetings taking place between the two New York financial giants.

But another credit card source said Tuesday of the purported progress, "The latest we are hearing is it is going nowhere."

Perhaps the most obvious roadblock is Citibank's membership in Visa International and MasterCard International. Both card associations have rules prohibiting members from issuing American Express cards, and Citibank might have to go through contortions to retain the prized Amex brand.

A more farfetched possibility, though still unspoken in the card industry: Citibank could drop out of Visa and MasterCard and take a more proprietary course, converting its cardholders to American Express products.

"A big portion of that $40 billion of market value is the (American Express) brand," said analyst Moshe Orenbuch of Sanford C. Bernstein & Co. Citicorp should "absolutely keep the brand," he said.

Both Citicorp and American Express could in other ways be strongly motivated to make a deal that would shake up each of their business lines and the world financial services market as a whole.

"Citi has to do something right now," said James Accomando, a credit card consultant in Fairfield, Conn. "Competition has encroached upon them very rapidly," he said, noting that Banc One Corp.'s acquisition of First USA Inc. and growth of other monoline credit card issuers like MBNA Corp. and Capital One Financial Corp. have eroded Citicorp's market-share lead in its most profitable activity.

He said the recently announced demise of the Citibank-Ford cobranded credit card could affect 7.5 million of Citibank's 40-plus million U.S. cardholders.

"They are poised for something very large," Mr. Accomando said. "Whether it's Amex, who knows?"

American Express, meanwhile, has been desperately seeking ways to grow on its charge card foundation. The MasterCard-Visa rules have limited American Express' ability to ally with banks. It lost a court battle when it tried to do an end-run with Advanta Corp., tying American Express benefits to the bank-owned card brands.

"American Express almost has to be a bank to be viable going forward," said Alan Bergstrom, president of the Brand Consultancy, Atlanta. He estimated the American Express brand is worth at least several billion dollars, and has an upscale cachet that would help Citicorp. …