[PEN-L:212] Re: Citicorp-Travelers Merger

[Gary Dymski <dymski@xxxxxxxxxxxx>]

At 07:21 PM 9/23/98 -0400, you wrote:
>A bit back I remember some incensed comment about the Citicorp-Travelers
>Merger.  It seems they announced the merger prior to securing approval from
>Washington regulators; and the announcement was seen as a move to force
>Washtington's hand.
>
>Well, it seem it didn't take much forcing.  5-0 vote for it, behind closed
>doors.  Article follows.  Comment?

Comment:  I have a book on bank mergers in the US coming out with ME Sharpe
in January.  It goes into this question of regulatory stance at great
length.  Let me
just make a few basic points:
*the Fed regulatory stance shifted definitively in 1982 with Reagan's
installment;
rules were loosened in 1982 and 1984, defanging the antitrust laws.  These have
been weakened since, all on the basis of the now-familiar argument that
potential entry is a substitute for actual competition in any given market.
I have
some econometric results for the California mortgage market which show that
market concentration still matters in the old-fashioned way; but this leads
to the
second point.
*there is a kind of quiet generational war going on in the Fed between the older
structure-conduct-performance types and the newer efficient-market types. This
is to some extent a war between the staffs at the Fed Banks (esp. NY) and the
Board.  Some Fed economists have actually used event study methods to prove
the efficiency of a given action
*this reliance on market information will probably be less attractive for a
while. In
any case, I argue in the book that the merger movement in banking is largely
Wall-Street driven; and now that banking prices have tumbled (see the NYT
article Tom attached) the game is less enticing.  These players were buying
banks, a low-margin business at best, at 3 to 5 times book value!  Nice capital
gains if you can cash them in.  Just ask Phil Hazen
*The Fed has been so passive in evaluating mergers that there is no longer any
danger of a denial; hence the "jumping-the-gun" aspect to merger announcements.
The announcement date, in effect, is the merger date.
*The anti-trust law is actually still on the books.  Strange but true.

Gary D.
Gary Dymski
Department of Economics
University of California, Riverside
Riverside, CA 92521-0427
Phone: 909-787-5037 x1570
Fax: 909-787-5685
Email:  dymski@xxxxxxxxxxxx (office)
             gdymski@xxxxxxxxxxxxx (home)