Bank On Change

Last year the deal-a-day CEO of financial-services giant Travelers Group, Sanford I. Weill, called then Treasury Secretary Robert Rubin to impart important news. "You're buying the government?" Rubin quipped. Well, no. But the remark was more on the money than either could have known.

Weill was proposing to merge Travelers, deeply ensconced in insurance and stock brokerages, with the nation's second largest bank, Citicorp, in a deal that would tread all over Depression-era legislation prohibiting such an expansive combination. He would need bank regulators, immediately, and Congress, in short order, to clear a path. No surprise to Weill watchers, "Sandy" got what he needed, and more.

The Federal Reserve, the main bank regulator, quickly granted Weill and his new partner, co-CEO John Reed from Citi, a grace period to sort things out. Long before they would have to do any actual sorting, though, Congress is now fixing things for good. President Clinton is expected to soon sign a bill repealing the decades-old restrictions that have divided brokerage and banking into infusible industries. The bill sweeps aside the Glass-Steagall Act and blesses the brave new banking world embodied in Weill's $689 billion behemoth, Citigroup. Lest there be doubt as to how fully Weill routed the regulators: Rubin, who left government this summer, joined Citigroup last week as a co-chairman.

In theory, there's plenty in the Financial Services Modernization Act for everyone. Individuals should end up getting faster answers and better rates on things like home mortgages and insurance, and corporate clients will be able to issue stock and buy directors' insurance with a single call. One-stop shopping for financial services up and down the customer ladder is mainly what this bill is about. Yes, you've heard it before, and, yes, it failed miserably in the 1980s. (Remember Sears, which added another dimension--buy stocks where you buy socks?) But with the government's stamp of approval on Citigroup's no-limit money enterprise, that model is sure to get another, more thorough test.

The model has devout believers. "I'm absolutely thrilled," comments James D. Robinson, who as CEO of American Express in the 1980s tried to marry banking, credit cards and other products with brokerage services in a financial supermarket. His plan dissolved amid corporate infighting and data-sharing nightmares that are now easily remedied with more powerful computers and better software. Another booster is Congressman Jim Leach, chairman of the House Banking Committee. He predicts that the bill will save consumers $15 billion a year in lower rates and fees.

Be advised, though, that even if it all works, financial services could get more confusing in the short run as the industry adjusts. If the model ultimately fails--and make no mistake, the jury is still out--shareholders in these newfangled financial companies may feel a sharp sting.