Originally created 12/19/97

Citicorp buys card services company



JACKSONVILLE, Fla. -- Citicorp, the nation's largest credit card issuer, is buying Jacksonville-based AT&T Universal Card Services for $3.5 billion in cash, extending its lead as the nation's biggest credit card issuer. The deal, which had been rumored for two days, was announced Thursday.

Citicorp's Citibank division said it plans no immediate changes to the Universal card or its operations, but Citicorp is the one company that Universal Card employees are most nervous about, because its credit card operation already is so big it may not need them.

Universal Card employs nearly 3,000 in Jacksonville and another 1,000 elsewhere.

Another major bidder was Banc One Corp. of Ohio, which owns First USA, said Moshe Orenbuch, an industry analyst with the investment firm of Sanford C. Bernstein & Co. of New York. Bank of America was also identified as a finalist in the bidding.

In recent weeks, employees have expressed concern that a giant credit card company like Citicorp -- which operates the largest card company in the United States from Sioux Falls, S.D. -- would be interested in taking Universal Card's accounts but wouldnot need its people.

"If you are Coke buying Pepsi, you just want Pepsi's customers and Pepsi's formula, you don't need Pepsi's bottling plants and people," is the way one AT&T employee put it, asking not to be identified because of concerns about being penalized at work.

Other employees says that even Citicorp will take maybe a year to shift business out of Jacksonville to Sioux Falls, which would give people time to plan their futures.

Analysts say it is too early to write off the Jacksonville operation, pointing out that Universal Card and its 18 million cards and $14 billion in consumer debt would increase Citicorp's card portfolio by onethird to $60.5 billion.

"It's a big enough increase in Citibank's portfolio that it is not like buying 200,000 accounts -- they have to seriously think about how to service those customers best," said Mr. Orenbuch. The only one who has a good idea of what will happen is Universal Card's boss, who joined the company from Citicorp, where he was the highly regarded No. 2 manager of the credit card unit.

If it buys the AT&T cards, Citicorp is expected to take a close look at whether to start charging an annual fee on the AT&T cards, which were introduced in 1990 with a promise of no fees for life. Citicorp issues Visa, MasterCard and specialty cards, some of which charge an annual fee.

"I think Citibank might tinker with" AT&T's no-fee policy, said Jim Daly, editor of Credit Card Management, an industry magazine.

"But I think they might tread carefully, because they don't want to mess with the AT&T brand." Consumers often pay higher rates when their credit cards are sold to another company, said Robert K. Heady, publisher of Bank Rate Monitor.

"The new lender believes that to increase profitability, it has to raise rates. When cards are sold, rates are liable to go up. The poor consumer sitting there doesn't know what happened."

Stockholders greeted reports of the potential sale enthusiastically. AT&T rose 1 to close at 57 7/8 a share Wednesday on the New York Stock Exchange, where Citicorp gained 2 to 131 1/2.

This report contains material from The Associated Press and Bloomberg News.



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