MAY 1998 — In an article about Citicorp’s megamerger with Travelers Group, Institutional Investor described the deal as providing “a little insurance” for the firms’ gigantic market share at a time when financial services deregulation was imminent and size could mean safety. But the size and scale of this combination could also bring huge headaches, II warned, suggesting that the chief risk was not financial but rather a looming culture clash between the two CEOs driving the deal, Citi’s John Reed and Travelers’ Sanford Weill. As predicted, relations between the titans quickly deteriorated, and Reed left in September 2000. But the greatest liability turned out to be Citi’s massive exposure to mortgage markets, whose collapse has devastated the bank. Its shares hovered at about $1 in early March — down from $55.70 on December 29, 2006 — as investors scramble for the exits. CEO Vikram Pandit is now unraveling the Travelers deal by combining Citi’s broker-dealer business, Smith Barney, with that of rival Morgan Stanley to form a new venture. It won’t be enough. On February 27, Citi reached a deal under which the U.S. Treasury owns 36 percent of the bank’s common stock — hardly the kind of insurance Reed or Weill had in mind.
