Maryland just learned a couple of lessons from Citicorp, which might come in handy the next time the banking giant wants to play "Let's Make a Deal."
Lesson No. 1, perhaps, is never underestimate the power and resourcefulness of Citicorp. Lesson No. 2? Don't attempt to make deals that could leave you holding the bag.
Citicorp announced last week that it won't build a $10 million expansion of its Hagerstown credit card processing plant after all. The facility will be built, instead, near Las Vegas, where Citicorp has another such processing center.
A Citicorp spokesman said the Nevada site was chosen because the company's West Coast credit card business had doubled in the past year.
So, what if it has doubled? Citicorp certainly has a right to build a credit card processing plant where it chooses. In this instance, however, it's the timing of the decision, coming so soon after Citicorp offered to expand the Hagerstown facility, that raises questions.
In February, Citibank Maryland, a Citicorp subsidiary, asked the Maryland General Assembly for authority to buy banks in the state, a proposal that the state's lawmakers eventually rejected.
While the proposal was being debated, however, the Schaefer administration turned to Citibank Maryland with a quid-pro-quo proposal that also fizzled.
The state sought to have Citibank Maryland bankroll a plan to free savings and loan deposits that were frozen shortly after the S&L crisis broke two years ago. Ostensibly, Citibank Maryland would have received backing from the Schaefer administration for a bank acquisition bill in exchange for help in cleaning up the frozen deposit debacle.
Citicorp raised the stakes, however, linking the bank acquisition bill, sources confirmed, to future expansion of the credit card processing facility in Hagerstown.
Sources familiar with the discussions said Citicorp indicated that it might build the expansion in another state if it didn't get its way.
The planned expansion was expected to double employment at the Hagerstown facility within a few years. Citicorp began operating the Hagerstown center last year, completing the first phase of an agreement that it reached with Maryland in 1985.
Earlier this year Citicorp said it expected to process 2.8 million new bank card customer applications and that the center would service 625,000 accounts by the end of the year. Obviously business is increasing rapidly at the Hagerstown center, as well as in Las Vegas. Officials expect employment in Hagerstown to increase from 500 to 750 by July 1988.
Citicorp agreed to build the credit card center in Western Maryland two years ago, in exchange for approval of special legislation that allowed it to offer full-service banking for the first time in the state. The legislation required Citicorp to invest at least $25 million in Maryland and provide at least 1,000 new jobs.
Citibank Maryland's right to expand in the state, however, was limited to 10 new branches in each of its first two years as a full-service bank, and unlimited branching thereafter. Citibank Maryland is barred, meanwhile, from merging with or acquiring other Maryland banks, unless national interstate banking is approved.
Citicorp seemed willing to go along with the restrictions, but then the S&L crisis broke. Two big rivals of Citicorp, Chase Manhattan Corp. of New York and Mellon Bank of Pittsburgh, received full banking privileges in Maryland in exchange for taking over two sick Maryland S&Ls.
That, in bankers' parlance, changed the playing field, and Citibank Maryland obviously wanted its side to be level with Mellon's and Chase's.
Citicorp in effect had helped to write its own ground rules. A new banking game developed in the interim, however. After approving special legislation for Citibank Maryland, the state enacted a reciprocal interstate banking law that allows banks in the District, Virginia and several southeastern states to acquire Maryland banks and vice versa.
Citibank Maryland wanted parity, but not badly enough to buy bonds to help the state unfreeze S&L deposits. It would be cheaper for Citibank to cut a deal, using an expansion at Hagerstown as leverage.
The original building cost only $16 million to build. Besides, Citicorp had won over state officials before by offering jobs and and other inducements. Certainly they would do it again.
Citicorp guessed wrong and so did Schaefer. Schaefer is still stuck with the S&L problem and Citicorp can't buy banks in the state -- yet. But Nevada will get the $10 million credit card center expansion.
A former chairman of a District bank recalled a conversation with D.C. Mayor Marion Barry, in which the mayor boasted of his ability to deal with Citicorp. Upon hearing that, the banker advised the mayor: "Marion, Citicorp tells countries what to do. What makes you think you're any different?"