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A Dream That Wont Die

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Change is at the heart of the news business and is the thing that most gladdens a journalists heart. In the financial arena, change can come in many formsa fall from grace, a rise to prominence, an entity changing hands, a new company where there was none before.

A lot of people dont like change in the nostalgia-haunted insurance business. Yet that doesnt stop it from happening, thank goodness.

What brings these ruminations to mind is that even though we are still very early in 2005, it looks to be shaping up as a year when an awful lot of shuffling and reshuffling is going to occur.

The announcement of MetLifes agreement to acquire Travelers Life & Annuity for the hefty amount of $11.5 billion is the years biggest case in point so far.

It just so happens that this came only a day before another interesting developmentAmerican Express decision to spin off its American Express Financial Advisors operation because the latter was a drag on the parents faster-growing charge and credit card business.

In another sizeable deal earlier last month, Ameritas Acacia Mutual Holding Company agreed to acquire Union Central Life Insurance Company through a merger.

And then there was also AIG Advisor Group saying it plans to combine three of its brokerages into a new entity, AIG Financial Advisors Inc., to build a stronger brand identity among independent broker-dealers.

This is a lot of activity for so early in the year, but my guess is that theres going to be a lot more in the pipeline. You almost can feel the pent-up energy of deals not yet done and reconfigurations just waiting to happen.

Some pundits are saying that the MetLife-Citigroup deal spells the end of what Gramm-Leach-Bliley promised and the end of that enduring dream of a financial supermarket that goes back to at least the early 1980s.

Im not so sure. The financial supermarket idea seems to go in cycles. First, its Wow, thats a great idea! And many players jump on the bandwagon, there being a strong lemming contingent in this business.

Then after a while, reality settles in. That synergy that looked so promising disappears like the morning dew or doesnt develop at all, much to the disappointment of management and investors alike.

Then there is the inevitable disassembling of what had been put together with such grand aspirations (usually by the assembling CEOs successor).

As far as Citigroup goes, the Travelers component as a percentage of bottom line profit was not very large at all, certainly very little compared to what Citigroups banking activitiesboth retail and investmentthrow off. For the year ended Dec. 31, 2004, Citigroup had net income of $17 billion. The businesses being acquired by MetLife in the Travelers L&A deal had net income of $901 million in that same period. You do the math.

Banking may seem dull on the surface, but can it ever churn out high and fast-growing profits compared to the insurance business, which is generally on a slower growth track.

So, for a while we will no doubt hear many pundits opine on the death of the financial supermarket dream.

But I dont believe it will be gone forever. Theres something that is abidingly alluring about the prospect of creating something that people look to for the majorityif not allof their financial needs. CEOs feel this and thats why the dream isnt dead, but just now going into a period of dormancy.

Steve Piontek


Reproduced from National Underwriter Edition, April 29, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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