Valuing the Potential Transformation of Banks into Financial Service Conglomerates: Evidence from the Citigroup Merger

The merger between Citicorp and Travelers Group on April 6, 1998 could have emitted two relevant signals for firms that provide financial services. The first signal is the endorsement by two prominent financial institutions that benefits from cross-selling of bank services with insurance services, brokerage services, and other financial services can be realized. The second signal is that regulators will allow the combination of commercial banking with insurance underwriting and full-service brokerage, paving a path for similar combinations in the future. We document a favorable share price response for commercial banks, insurance companies, and brokerage firms, which supports the argument that the merger sets a precedent for other combinations between banks and nonbank financial services that will facilitate cross-selling and efficiencies. Copyright 2000 by MIT Press.

[1]  M. Kwast.  The impact of underwriting and dealing on bank returns and risks , 1989 .

[2]  D. Fraser,et al.  On the wealth and risk effects of commercial bank expansion into securities underwriting: An analysis of Section 20 subsidiaries1 , 1998 .

[3]  W. Scott,et al.  The Financial Modernization Act: new perspectives for the finance curriculum , 2001 .

[4]  G. Benston.  The federal “safety net” and the repeal of the Glass-Steagall act's separation of commercial and investment banking , 1989 .

[5]  Myron S. Scholes,et al.  Estimating betas from nonsynchronous data , 1977 .

[6]  L. Wall.  Has bank holding companies' diversification affected their risk of failure? , 1987 .

[7]  Anthony M. Santomero,et al.  The corporate structure of financial conglomerates , 1990 .

[8]  K. Schipper,et al.  THE IMPACT OF MERGER-RELATED REGULATIONS ON THE SHAREHOLDERS OF ACQUIRING FIRMS , 1983 .

[9]  G. Szegö.  Bank asset management and financial insurance , 1986 .

[10]  Randall A. Heron,et al.  The interstate banking and branching efficiency act of 1994: A wealth event for acquisition targets , 1998 .

[11]  Marcia Millon Cornett,et al.  An Examination of the Impact of the Garn-St. Germain Depository Institutions Act of 1982 on Commercial Banks and Savings and Loans , 1990 .

[12]  Loretta J. Mester.  Traditional and nontraditional banking: An information-theoretic approach☆ , 1992 .

[13]  W. Davidson,et al.  Common Stock Returns in Corporate Takeover Bids: The Case of Brokerage House Acquisitions , 1994 .

[14]  Randall A. Heron,et al.  Capital Market Reactions to the Passage of the Financial Services Modernization Act of 1999 , 2001 .

[15]  R. Rajan.  WHY BANKS HAVE A FUTURE: TOWARD A NEW THEORY OF COMMERCIAL BANKING , 1996 .

[16]  Vincent P. Apilado,et al.  Expanded securities underwriting: Implications for bank risk and return , 1993 .

[17]  A. Saunders,et al.  Intra- and Interindustry Effects of Bank Securities Market Activities: The Case of Discount Brokerage , 1987, Journal of Financial and Quantitative Analysis.

[18]  John J. Binder.  On The Use Of The Multivariate Regression-Model In Event Studies , 1985 .