CITICORP: A GROWING PRESENCE IN CALIFORNIA
The directory in the lobby of the glossy new Citicorp Plaza in downtown Los Angeles gives a hint of the breadth of the New York banking giant’s presence in California.
Citicorp Asset Funding. Citicorp Global Trade. Citicorp Industrial Credit. Citicorp Private Banking. Citicorp Finance. Citicorp Insurance. Citicorp Trust.
The list does not include Citicorp’s big real estate operation in Orange County. Nor its $4.7-billion Northern California savings and loan unit. Nor its huge credit card portfolio. Nor a score of other businesses, from inventory finance to equipment leasing to its recently acquired Quotron stock quote service.
What does Citicorp want in California? In the memorable word of American labor pioneer Samuel Gompers when asked what he wanted for his union members: “More!”
New York’s Citicorp, the nation’s largest bank, is straining to expand in California, perhaps the richest financial services market in the world.
Although hemmed in by state and federal interstate banking laws that prevent it from operating a full-service retail bank in California, Citicorp is challenging the limits of the law and aggressively pursuing every means of exploiting its position here.
Citicorp openly covets Bank of America’s statewide branch network and is probing the law for weak spots on several fronts in an attempt to acquire a piece of B of A’s awesome deposit-taking machine.
“Their notion is to devote as many resources as they can to expanding the envelope,” said a San Francisco merger specialist who works closely with banks. “They believe (that) if you push hard enough in enough places, something will eventually give. They want to sell everything to everybody everywhere.”
Citicorp is one of America’s oldest banks, dating to 1812, and was known for most of its history as First National City Bank--Citibank in industry shorthand. Citicorp is the holding company for Citibank and dozens of other banking and non-banking subsidiaries.
The company has a well-deserved reputation as an aggressive marketer and a trend-setter in expanding the frontiers of banking.
It grew rapidly under former Chairman Walter W. Wriston, who assumed the mantle of chief spokesman for the U.S. banking industry in the 1970s and early 1980s.
His successor, John S. Reed, maintains a lower profile but is keeping alive the Citicorp tradition of breaking new ground.
Citicorp is active in Sacramento and is thought to be the political and financial force behind current legislation that would allow it to buy ailing BankAmerica, parent of Bank of America, the nation’s second-largest bank and California’s biggest.
Citicorp also spent heavily in leading the five-year battle for legislation to permit out-of-state banks to move into California. The controversial bill, which was signed into law by Gov. George Deukmejian in September, will open California to Citicorp and its New York brethren in 1991.
But Citicorp does not want to wait that long to tap the golden vein of California’s $500 billion in commercial and consumer deposits.
Sources said it is considering an expansion of its San Francisco-based Citicorp Savings into Southern California by buying one of the large troubled thrifts currently under regulatory control.
It continues to vigorously market its Citibank credit cards and related services to California consumers, nearly one-fifth of whom already carry cards issued by the New York bank.
Citicorp’s Citibank subsidiary is the second-largest credit card issuer in California (after Bank of America) and the state’s top provider of student loans.
Its lending officers are combing the state for borrowers, particularly in real estate, manufacturing and service industries. Its salesmen are out pushing an array of business services, including computerized inventory control, freight expediting, cash management and international trade finance.
And it is talking to BankAmerica, First Interstate Bancorp and federal regulators about ways to pick up pieces of BankAmerica’s lucrative California franchise.
Los Angeles’ First Interstate has offered to buy BankAmerica for $3.4 billion, but its effort has been stalled by BankAmerica’s unwillingness to act on the proposed merger while it trims employment and sells off assets in a desperate bid to regain profitability and remain independent.
Citicorp sits patiently ringside, watching the contestants bloody each other, knowing that it stands to gain no matter who wins.
BankAmerica will have to sell some of its choicest assets to resist First Interstate, and Citicorp, with its $186 billion in assets and $20 billion in capital, is capable of buying almost anything from anybody anywhere.
If First Interstate succeeds in acquiring BankAmerica, it will want to spin off numerous overseas offices and as many as 200 overlapping California branches--a nice start on the statewide banking network that Citicorp intends to build.
The New York bank’s third alternative--considered unlikely but possible--is for Citicorp to bid to buy all of BankAmerica. California Assembly Speaker Willie Brown (D-San Francisco) introduced legislation last week that would permit such a bid.
Brown claims that BankAmerica shareholders, including the state employee pension fund, will be best served if all possible buyers (read Citicorp) are allowed to bid for the troubled San Francisco bank.
In the 18 months ending June 30, Citicorp contributed $119,875 to the campaign funds of California lawmakers and officials, making Citicorp one of the state’s biggest corporate givers.
Brown and Assemblyman Charles M. Calderon (D-Montebello), sponsor of the original interstate banking bill, each received $13,000. State Treasurer Jesse M. Unruh, who manages the state pension funds and who was unopposed for reelection, got $7,700 from the generous New York bank. Five dozen other lawmakers and officials where showered with Citicorp largess.
Reports on donations in the second half of 1986 have not yet been submitted.
James D. Farley, Citicorp vice chairman and one of its chief strategic planners, will be moving to California in the next few months to oversee the bank’s varied businesses here and devise ways to expand its presence and improve its image. It marks the first time that Citicorp has stationed an officer of his rank outside New York.
“I wouldn’t be coming out there unless the bank felt that the state of California and the Western part of the United States was a very attractive area for growth for our bank. Citicorp is active in most countries in the world but, except maybe for Japan, none has the sex appeal for the investor as does California,” Farley said in a telephone interview last week.
He said Citicorp is frustrated by state and federal laws that slow its growth in California but said the bank will continue to “lay the groundwork for the day when the law permits our being involved in commercial banking.”
Ultimately, he said, Citicorp would like to capture 20% of the California banking market, which would place it in the same category as Security Pacific National Bank and Wells Fargo Bank, behind Bank of America but well ahead of the smaller First Interstate Bank of California.
Today, Citicorp has about 4,000 employees in California and an estimated $10 billion to $15 billion in assets here. Citicorp wants more.
The bank sees California as not only a lush market in itself but as a gateway to the Pacific Rim with its fast-growing trade in goods and services.
“We participate in the flow of trade between the West Coast of the United States and the Far East,” Farley said. “We think we ought to do more. Japan and (South) Korea and Hong Kong are making important investments in California. We want to be astride that money flow.”
Although Citicorp’s corporate, capital markets and information technology businesses have been highly profitable, its Citicorp Savings unit has been a laggard. Citicorp Chairman Reed says improving the profitability of the bank’s thrift subsidiaries in California, Illinois and Florida is one of his priorities over the next couple of years.
But Reed and his top managers in New York are not squeezing the last drop of profit from the banking company to please shareholders and securities analysts. They are positioning the firm to be the dominant provider of financial services in the 1990s and beyond.
“They are doing their homework on where they want to go and how they want to get there,” said James McDermott, chief of research for the Wall Street investment firm of Keefe, Bruyette & Woods, which specializes in banks.
“They are very adept at long-range planning, and very patient. They are the banking franchise that has been most aggressive in peering down the road and developing a strategic game plan for the world of banking as it will exist in the next century. And they’re willing to take a loss in the short term for what they perceive to be a long-term gain.”
To that end, Citicorp is doing things that appear curious or even irrational when viewed individually, but which most analysts consider shrewd when seen as single frames in a long-running film.
Bought Ailing Banks
Citicorp recently bought relatively small failed or failing banks in Arizona, Nevada and Utah, none of which gives Citicorp a commanding market share or is likely to produce substantial profits anytime soon.
But, because the acquired banks were regulatory basket cases, Citicorp was able to gain exemption from laws barring interstate acquisitions. Citicorp got the banks on the cheap and bought some goodwill with regulators, who were anxious to unload them.
In the third quarter of this year, Citicorp bought huge blocks of BankAmerica and First Interstate stock.
Although the bank will not comment on its motives, Citicorp could be investing for trusts and pension funds it manages, staking out an early position in a possible later takeover attempt or simply playing both ends of an existing takeover fight against the middle.
Since Citicorp started buying, BankAmerica’s stock has risen almost $5 a share on the strength of expectations that First Interstate will buy the bank at a premium over the shares’ market price.
Citicorp stands to make a profit if First Interstate fails in its merger attempt, too, because First Interstate’s share price likely will rise if it backs away from taking on the well-publicized problems of BankAmerica.
Another Reed move, his $680-million acquisition of Los Angeles-based Quotron earlier this year, also has raised some eyebrows. Some consider the price too high, and others think the firm’s association with Citicorp will cause the defections of a number of key employees and customers. Many of the big brokerage houses which depend on Quotron for market data are also Citicorp competitors, and it was expected that several might defect. So far, however, no major customer has dropped the service.
Reed is in no hurry to prove the wisdom of the move and does not intend to impose massive changes on the successful computerized stock quotation service.
Quotron fits neatly with other Citicorp ventures in electronic data delivery, and Citicorp executives expect it to be a major contributor to earnings over the next five to 10 years.
A Frequent Target
Citicorp gets more attention than other banks because of its size, history and commanding position in American banking. It is a frequent target of the press and competing bankers because of its storied arrogance.
But California bank consultant Ed Carpenter said that Citicorp is not alone among Eastern banks in eyeing California as a prime platter for future feasting.
“What sets Citicorp apart is its visible aggressiveness,” Carpenter said. “A number of other major banks are interested in the same things but are not as visible as Citicorp because of its size and its past.
“It’s easy to focus on Citicorp as Goliath and not on the other 10 or 15 major banks. But they’re right behind Citicorp and they’re part of the invading army, too.”
