Bank mergers : LUSENET : TimeBomb 2000 (Y2000) : One Thread

I know that I read somewhere (and of course I can't find it) that if banks started to merge it could be an indication of not being able to solve the Y2K problem on time and that this would be an indicator to consider taking money out of the banks. Does anyone else remember this? If you don't, what do you think of not one but two big mergers in the past few days being announced?

-- Rebecca (, April 14, 1998


Rebecca! I don't recall any previous word on bank mergers as a cover for their internal Y2K trouble. However, like you, I was about what the biggees are thinking in these mergers, especially w/ regard to y2k. How's this: My money is with a broker, not FDIC'd. If deregulation allows banks to broker stocks, and they are FDIC then it looks like they have a pretty good pitch comin' down the home stretch. "Gee Dudley, do you think it's wise to have your portfolio with them? We're FDIC'd." Oh baby.

-- Dudley (, April 15, 1998.

A few months ago the last small bank in Phillidelphia sold out to a competitor. One of the reasons I have heard is that they couldn't solve there Y2K problems and sold out. Took the money and ran and left the new owners to solve the problem. I belive I read this at Gary Norths web page under banking.

-- John Ebert (, April 15, 1998.

Well, I'd have thought that merging might be one sensible approach to preventing a bank failure. Suppose bank A is well on top of the problem, and Bank B isn't. A merger may mean that bank B can abandon many of its efforts, because instead of fixing various software it just transfers customer data into the working systems that bank A already has. It may also mean that bank A now has more experienced programming staff to hand. Buying faster computers to run existing (fixed) software for more customers is far easier than fixing the software.

I doubt that this is better than any more technological magic bullet, but if Y2K really is the hidden rationale behind the merger and if the managements are both quite clear about it, then it's very probably better than the alternative for bank B's customers, and reasonably plausibly better for bank A's.

On the other hand, if the merger has nothing to do with Y2K and both banks managements haven't got a clue, then you have the makings of an even bigger disaster. For that reason I hope that the merger-mania *is* Y2K-related!

-- Nigel Arnot (, April 15, 1998.

The Royal Bank and Bank of Montreal announced their merger plan 2 months ago. In this case, each bank is (we are told) well along the path to y2k happiness.

I can't imagine a merger being the answer to one bank's a company's y2k problems -- imagine the enormity of merging 2 totally different computer operations in organizations of this size! This would be every bit as labour-intensive as a y2k project, maybe more so.

Mergers are not magic bullets.

-- steve francis (, April 15, 1998.

The recent mergers in the news were not done as an answer to Y2K. These large institutions have programs in place (there success yet to be determined). However Banks that do not show progress on Y2K compliance will eventually loose their FDIC insurance. Who wants to keep their money in a bank that does not have FDIC? Those banks that are at risk of this will at some point sell out as opposed to losing out.

-- MAP (, April 15, 1998.

Here's one. Not sure if it's y2k related though.

"On Monday, April 13, 1998, BAC and NationsBank Corporation announced a definitive agreement to merge in a stock-for-stock transaction that will create the first truly national United States banking franchise," said David A. Coulter, Chairman and Chief Executive Officer. "Our earnings announcement shows the tremendous financial strength we contribute to the combined organization. And, I am pleased to note that NationsBank also reported strong earnings this week. Together we will have the broadest range of products, delivered by the best people through the most extensive distribution system in the nation."


-- Tom Scully (, April 15, 1998.

The recent bank mergers raise a huge question that has not been discussed much:

Can these merging banks meld their computer systems and, simultaneously, take care of their Y2K problems? Both tasks are overwhelming by themselves, and together, given the time remaining before B (Bug) Day, they are probably going to be fatal to the merging entities. Putting two massive banks together this late in the Y2K battle is insane. There are going to be problems; the timing couldn't have been worse.

The Federal Reserve, which has to approve financial mergers, hasn't evaluated the three recent big mergers yet. If they don't put a stop to them, it will likely be because they don't want to create panic. Such as decision would certainly convey the seriousness of Y2K to the financial community and the general public. Keep an eye on the Fed's response to these mergers to gauge how honest they're going to be with the public.

-- Nabi Davidson (, April 15, 1998.

The impact of a bank merger upon the respective IT organizations is massive, and it usually leads to paralysis for 1-2 years while they try to get things sorted out.

By definition, each bank has its own data center, and one of the obvious cost-savings objectives of the merger is to consolidate everything into one data center. But bank A and bank B have different hardware, different networks, different database vendors, different technology of scanning checks, etc, etc. Even though they handle a lot of the same "fundamental" banking functions like deposits, withdrawals, interest calculations, etc., the implementation (at the detailed level) is usually vastly different. So it's not as if the CEO can just snap his fingers and say, "Voila! I hereby decree that all 10 million of bank A's customers will now move over to bank B's computer system!"

More important, there is a period of paralysis at the human level of the IT organization. Bank A and B each have their own political empire, with (literally) thousands of IT employees, and several levels of middle managers. Which CIO will survive the merger? Which mid-level managers will be plucked from the "acquiree" bank and offered a new job in the IT department of the "acquiror" bank? Which programmers will be offered a job in the new organization, and which ones will be let go? If all of these decisions could be made overnight, there would be a brief period of triumph and defeat, a lot of blood on the floor, and then things would move forward. Unfortunately, it takes a minimum of several months, and sometimes more than a year -- during which time, everyone shuffles about aimlessly, listening to rumors about who's going to get fired and who isn't, trying to decide whether they really want to stay or not, etc.

Needless to say, this isn't particularly helpful if you have a big, critical project underway in BOTH organizations at the time of the merger -- e.g., Y2K. So I think there's a good chance, as an article in last week's NY Times about Citicorp and Travelers also suggested, that both IT organizations will continue to muddle along on their own for the next couple of years before making any attempt at integration and consolidation. This sounds good in theory, and perhaps it will actually happen down at the bottom of the IT organization. But it seems unrealistic to me that you wouldn't see some kind of impact at the higher levels of the organization. If nothing else, lots of new committees will be formed, so that Vice Presidents can spend their time talking about common standards, long-term integration plans, etc.

Bottom line: at the very top of the organiztion -- i.e., the CEO's who orchestrated the merger -- there is a perception that Y2K is an expensive annoyance, but NOT a potentially fatal, risky problem that demands that all other activities be frozen until it has been solved. The CEO's would probably tell you that the issue of merging, or not merging, is ALSO a life-and-death issue, and that they have to make their strategic moves in that area now, because the other banks are busily expanding to become global powerhouses.

We'll see if they made the right decision in about 625 days...

-- Ed Yourdon (, April 16, 1998.

Even if the mergers are not Y2K related, I should think that dealing with the system issues surrounding the merger has got to make the task of Y2K preparation more difficult.

-- Paul Neuhardt (, April 16, 1998.

All we have to do is look at the Union Pacific railway merger and its nearly disastrous (actually disastrous to the farmers with millions of bushels of rotting grain on the ground) impact on that firm's operations. To me the implementation of mergers (or rather lack thereof) further supports the notion that y2k is going to severely impact the entire economy across every industry segment. To wit:

Union Pacific: big firm, many $billions in assets, huge IT/IS department, planned merger, full year's notice and lead time, no stress of a fixed date deadline, little outside competition for IT/IS staff. The best possible scenerio! But alas, software metrics kick in. All of the sudden, a year post merger, they are still losing track of hundreds of cars and are unable to satisfy the customer. Primary reason: inability to actually integrate the two software systems. Do you suppose the CEO has absolutely commanded that the CIO get this problem fixed and so on down the line? Has it helped? Are the IT/IS people working any differently than they were before? I think it is likely that they may be slightly less dedicated than before, not more. CEO commands don't change 30 years of software metrics. Why did Windows 95 come out late (with problems)? Why isn't Windows 97 on the shelves now?

I believe these mergers are evidence that the boardrooms of big corporate America still don't fully understand the implications of y2k and the seriousness. If they did, the command would be--nothing other than maintanence until all y2k problems in this firm are fixed!

-- P. Larson (, April 17, 1998.

I have a relative who is on a board(of a branch board) of one of the good sized banks. Recently that the Chairman of the Board of the combined branch banks said that they could not digest another bank and be Y2K compliant as it is much to much to do. (My opinion) But with what is going on, I don't figure that will stop additional mergers as the "smaller banks" don't want to get left out of the musical chair game and find out there are no "chairs" left. I see that another merger has been announced in Canada.

-- Gene Peterson (, April 20, 1998.

Well the answer is that the banking industry DOES see that Year 2000 costs and risks are going to contribute to bank mergers. This is well-known, and completely understandable.

When 2 banks merge, the Federal Reserve will approve of the merger only if the resulting conjoined institution can demonstrate that it has its Year 2000 program in order.

So it's kind of a paradox; having a Y2K problem makes you want to merge, but also keeps you from being acquired.

You can find information on M&A, the Fed, and Y2K at or .

-- Joseph E. McIsaac (, June 27, 1998.

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