|
Are financial M&As good?
|
 |
April 7, 1998: 3:58 p.m. ET
Financial-service firms have urge to merge, but can these marriages work?
|
NEW YORK (CNNfn) - With three multi-billion dollar merger agreements the two days, the financial-services sector is rushing headlong into a major realignment.
The latest merger announcements came Tuesday, when consumer-finance firms Beneficial Corp. (BNL) and Household International Inc. announced a tieup worth $8.6 billion.
Separately, insurer Conseco Inc. (CNC) disclosed plans to buy consumer-loan firm Green Tree Financial Corp. (GNT) for $7.6 billion.
The two deals followed Monday's announcement of a planned $70 billion union between Citicorp and Travelers Group.
Market watchers had expected such financial-services mega-mergers for months.
The tieups apparently stem from a belief that through mergers, companies that now sell different types of financial products can offer one-stop shopping for all of a consumer's insurance, banking and brokerage needs.
But some experts remain skeptical.
Insurance analyst Colin Devine of Salomon Smith Barney wonders about Conseco's announced plan to have its insurance agents market Green Tree mortgage loans.
"It's a stretch," said Devine.
Even some companies already riding the consolidation wave have shown little enthusiasm toward cross-promoting their services.
Although Travelers chief Sanford Weill on Monday touted the unlimited cross-selling opportunities between his company and Citicorp, salespeople at Travelers' existing brokerage unit, Salomon Smith Barney, do not currently sell Travelers' insurance.
Investors began showing signs of skepticism about such deals on Tuesday.
Although many financial-services stocks surged Monday in the heady aftermath of the Citicorp-Travelers announcement, many fell back Tuesday.
Citicorp lost 15-7/8 to 164-5/8 in late afternoon trading Tuesday, while Travelers dropped 5-11/16 to 67-5/16 and Conseco lost 8-5/16 to 49-7/16.
Bud Ward, banking analyst at Ernst & Young, said that while the idea behind such mergers seems sound, their success will depend on each tieup's execution.
"These mergers are incredibly complex," Ward said. "They involve huge corporations with different businesses and different cultures."
Ward predicts that the rush toward consolidation could end with some merged entities spinning off product lines they find hard to market -- defeating the very idea behind the mergers.
Yet despite potential pitfalls, Vincent Farrell, chief investment officer at Spears, Benzak, Salomon & Farrell, expects more banks and brokerages to consider merging.
He said financial-service executives "are going to feel like if you don't do something, you might be left behind. You have this behemoth [a merged Citibank-Travelers] out there that can really swing its weight around."
So far, the most notable wallflower has been Chase Manhattan Corp. (CMB), the largest U.S. bank.
Analysts increasingly expect Chase to try to buy an investment-banking arm, with Merrill Lynch (MER) seen as a leading candidate.
Lawrence Cohn, banking analyst at Ryan, Beck & Co., said Chase "has built a good junk-bond business, but they have no equity capacity whatsoever -- and they've got to get it. They know they have to get it, the question is, 'When and how?'"
-- by staff writer Randall J. Schultz
|
|
|
|
|
 |
|
