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Gramm-Leach-Blileys Twilight

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What Gramm-Leach-Bliley joined together in the waning days of the last century market realities have now officially put asunder.

The $11.5 billion acquisition of Travelers Life & Annuity by MetLife announced last week put the final nail into the coffin of the storied merger between banking and insurance giants Citibank and Travelers that created Citigroup.

Actually, the two entities merged a year prior to GLB passage in 1998 without, in essence, benefit of clergy. The deal was predicted to transform the landscape of the delivery of financial services in this country in 21st century.

It certainly transformed the political landscape in Washington, giving a boost to efforts to tear down the walls between banking, securities and insurance set up in the aftermath of that other transformative event of the last century, the stock market crash of 1929.

The deal also turned Travelers CEO Sanford Weill into a Wall Street legend, particularly after he engineered the ouster of his co-CEO and Citibank holdover John Reed two years later. And his somewhat reluctant retirement in 2003 may have set in motion the unraveling of his vision that last weeks announcement represents.

Fitch analyst Doug Meyer said the Travelers life spinoff was notable for its admission that the life insurance business failed to provide the growth synergies envisioned in 1998. “The cross-sell of life insurance to retail consumers virtually confounds all banks,” Meyer said. “The strength of the [Citi-Travelers] merger stemmed from the consolidation of the corporate commercial business with trading and investment banking, and the scale of its consumer finance business.” But the mere 6% Travelers contribution to Citigroup net income last year, and the meager prospects for upping that number, seemed to seal its fate.

Today, Meyer said Citigroups Primerica Financial Services, with its quarterly average of $1 billion in consumer finance loans, represents one of the best cross-sell opportunities.

The first block to fall from the 98 deal was the property-casualty component of Travelers, which was spun off in 2002 and ultimately ended up in a merger with St. Paul under the aegis of its chairman and former Travelers CEO Jay Fishman.

Life sector consolidation has occurred but primarily from foreign giant insurance companies seeking a beachhead in the United States. MONY, John Hancock, ReliaStar and Transamerica all now report to cross-border parents. AIG also transformed itself into a life insurance powerhouse by beating out Prudential UK in its bid for American General.

The only sizeable post-GLB bank-insurance company merger was the 2003 acquisition by Bank One of Zurich Life. But banks, nonetheless, continue to purchase insurance agencies on the theory that distribution, and not underwriting, is where the ROE gold lies.

–Steven Tuckey

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.