The new millennium will see a much-consolidated financial-services arena, where a handful of giants will forge alliances on a global basis, an industry leader has predicted.

Edward E. Crutchfield, chairman and chief executive officer of First Union Corp., told a crowd of 500 insurers, brokers and risk managers that continuing mergers and acquisitions in the U.S. will soon result in a small number of major financial-services companies offering traditional banking services, along with securities underwriting and insurance sales. The prototype for these financial services powerhouses is Citigroup, the new company formed when Citibank and Travelers Group merged last year.

Crutchfield was the keynote speaker at the 11th annual Risk Management, Insurance and Actuarial Science Awards for Excellence luncheon sponsored by The Fox School of Business and Management at Temple University.

Crutchfield told the audience that for banks to survive in the new millennium, they will have to diversify products as bank customers have been changing.

"They don't save anymore, they invest. And the trend is astonishing," Crutchfield said. In 1980, he noted, there were $9 in bank deposits in the United States for every $1 in mutual funds. Since that time, bank deposits have grown about 5% and mutual fund balances have grown about 20%. "So in 1998 for the first time in U.S. history, there was more money in mutual funds than there was in the entire U.S. banking system combined," he said.

This is "a defining moment for a small number, a defining moment for this industry," Crutchfield said. "Only a handful can afford this change, can have the will and the talent to transform themselves away from being a traditional bank into a financial services company."

"I'm not saying that there are only going to be a handful of banks in the world, or in this country," he added. "But I am saying there are only going to be about 10 financial services companies and they are going to dominate finance in this country."

In theory, Crutchfield said, it's not an unreasonable assumption to figure that if nationwide banking makes sense, global banking would make even more sense. "It won't be long before a top-10 U.S. bank, a top-10 European bank, and a top-10 Asian bank will sit down and decide they're going to invest 20% in each other's companies--and we're talking $20 billion investments," he said.

First Union itself has been riding the acquisition bandwagon since the 1950s, with the acquisition of CoreStates Financial Corp., completed last year and a recent $1.1 billion bid for Chicago-based Everen Capital Corp. "We are well on our way to transforming First Union so it'll look two-thirds like Merrill Lynch and one-third like a traditional bank," he said.  

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