Discuss the primary advantages and disadvantages that Citigroup obtained by merging with Travelers.

Question

What will be an ideal response?

Answer 1

Citigroup described the merger with Travelers as the merger of equals. But this merger came with an equal share of
advantages and disadvantages. Travelers was engaged primarily in investment and asset-management services,
consumer finance and insurance services. The insurance services were offered by two of Travelers subsidiaries
namely Travelers Life and Annuity which handled life insurance and related offerings, and Travelers Property
Casualty Corporation (TPC) which offered property-casualty insurance services including workers compensation,
homeowners and automobile insurance for individual customers. Salomon Smith Barney was that investment
banking and brokerage arm of Travelers. As a result of this merger Citigroup got to use the excellent sales and
distribution networks of Travelers within the US. The disadvantage was that their networks were limited outside of
the US, which was typically a strength of Citigroup. The distribution channels of Travelers included independent
agents, sponsoring organizations such as employers and consumer associations, and joint marketing arrangements
with other insurers. Citigroup decided that their banks would try to offer insurance through their databases of
information and established customer relationships, while Travelers would try to cross-sell banking products
through their widely distributed insurance agents. It were these cross marketing initiatives that Citigroup deemed
the backbone of the merger, playing off each other strengths to increased overall marketshare. One of problems that
Citigroup came across later on with Travelers sales agents was that rather than seeking quality consumers the agents
sought to maximize their personal commissions which brought in potentially bad customers which could lead to
increased payouts over the policies life. Travelers had lower strength in personal lines insurance and was not
completely congruent with Citigroup’s banking services. These were some of the disadvantages that Citigroup
faced.