Academic journal article ABA Banking Journal

This Financial Department Store Works

Academic journal article ABA Banking Journal

This Financial Department Store Works

Article excerpt

As nobody needs to be reminded, the last few years have been trying times for all sorts o financial service providers. Yet Primerica Corp., a diversified financial services company, has, been producing strong growth in revenues and earnings fight through the worst of the period.

The school of thought that says "stick to your knitting in one narrow financial niche" will get no comfort here; Primerica has gotten good results by doing precisely the opposite.

New York-based Primerica, with some $23 billion in assets and four million customers spread across activities in consumer finance, brokerage and investment banking, mutual fund management and insurance, is no stranger to contrarian thinking. At year-end 1992, the company paid $722.5 million to acquire 27% of insurance giant The Travelers Corp., whose troubles have been well publicized. Sanford I. Weill, chairman and CEO of Primerica, called Travelers "one of the best franchises in the financial industry."

The two companies announced a "strategic alliance" going forward, and the move underscores two things: Primerica's willingness to risk its money on an eventual turnaround at Travelers; and Primerica's steady advance into the financial big leagues. Third and by no means a foregone conclusion, this could be an early step toward eventual control of Travelers by Primerica.

Although half the size of Travelers, Primerica is dealing from strength. On revenues of $5.1 billion in 1992, operating earnings were $593 million, up 22% from the previous year. Mainly reflecting one-time gains from divestitures and asset sales, net earnings were up even more sharply from $478.8 million in 1991 to $717.8 million in 1992. Excluding one-time gains, income from continuing operations has risen about sixfold since 1987, and the company has achieved rating agency upgrades for six consecutive years.

MULTIPLE LIVES.. A fairly young company in its present form, Primerica is actually the heir to some very convoluted history. In the early 1980s, what had been the old American Can Co. was gradually refocused away from food containers mainly towards becoming a financial services company led by Gerald Tsai, a well-known Wall Street investment manager and dealmaker. Under the new name Primerica were A.L. Williams, a fast-growing Georgia-based company, specializing in term insurance, and Smith Barney, a well established Wall Street brokerage and investment banking firm, along with a miscellany of odds and ends. In 1988, We entered the picture and changed it completely. Weill has a long and successful history on Wall Street. In 1960, Weill and three partners formed a tiny brokerage house that over the next two decades grew into Shearson Loeb Rhoades. The firm was sold to American Express in 1981 for almost $1 billion, and Weill emerged as president of American Express. In 1985, Weill struck out on his own by leaving American Express. A year later he acquired control of Baltimore-based Commercial Credit Co., until then a subsidiary of Control Data Corp. engaged in commercial finance, leasing, factoring, and to some extent consumer finance. Weill took Commercial Credit public and brought in Robert I. Lipp, a former president of Chemical Bank, to run the company, which was refocused almost exclusively as a nonbank consumer finance company. At the end of 1988, Weill acquired control of "old" Primerica from Tsai, merged it with Commercial Credit and transferred the Primerica name to the expanded company.

Structurally, Primerica is like a three-legged stool, with consumer finance services, insurance services, and investment services each accounting for roughly one third of revenues. Consumer services. Commercial Credit is the keystone of the company's consumer financial services and has been the steadiest success story of the new Primerica. In 1989-90, the company made two leaps in size by acquiring 280 branches from Barclays American/Financial and Landmark Financial Services. …

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