THE CITI GRITTY

The pairing of Citicorp and Travelers Group Inc. got nearly as much attention on Wall Street as the coupling of, well, you-know-who did in Washington.

The $85 billion merger not only created the world’s largest financial services company, it opened a new era with banking, insurance and securities all under one umbrella – the combined Citigroup Inc.

The new company seemed poised to rule the world by offering huge opportunities to cross-sell and cut costs, but it got off to an ugly start.

Third-quarter losses of $700 million resulted from the $1.3 billion bath its Salomon Smith Barney securities unit took in junk bonds and emerging markets. Taking the fall was James Dimon, the unit’s president, who many thought would someday run the company.

He quit in November after Victor Menezes, a former Citicorp executive, and Michael Carpenter, the former head of Travelers life insurance and annuities unit, were chosen to head Citigroup’s corporate and investment banking.

Mr. Dimon had been Sanford I. Weill’s right-hand man for 15 years. Yet Mr. Weill, co-chairman along with John Reed, defended the decision, saying Citigroup was struggling to integrate its corporate banking businesses.

Wall Street has had its share of failed megamergers that promised cross-selling opportunities. But not since Depression-era laws prohibited banks, insurance companies and securities firms from competing with each other has a combo this size been attempted.

The Federal Reserve Board cleared the merger in October, giving Citigroup a five-year waiver from the rules. The combine is betting that in the next five years Congress at last will repeal the Glass-Steagall Act, which prevents a bank holding company from underwriting insurance.