From...

March 2, 1999
Web posted at: 10:59 a.m. EST (1559 GMT)

by Thomas Hoffman and Julia King

(IDG) -- The ax is falling across the banking industry, but it's not cutting through the ranks of IT professionals.

That's because there's simply too much work to do with year 2000 testing at full-throttle and merger mania driving systems consolidation.

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Plus, with the bulk of year 2000 work behind them, banks finally are moving ahead with money-making information technology projects that have been delayed by the millennium focus. High on that list are customer relationship management systems, data warehouses and other systems that enable banks to create customized accounts for individual customers.

Since January, a number of megabanks have announced steep job cuts as they brace for slower revenue growth, attack spiraling expenses and mop up after years of merger mania. Just last week, First Union Corp., the fourth-largest bank in the country, announced it would lay off 10% of its workforce, roughly 7,200 workers. A month earlier BankAmerica Corp., the nation's second-largest bank, announced it would lay off 18,000 workers, or 10% of its workforce. Both banks are based in Charlotte, N.C.

For these and other banks, such as Banc One Corp. in Chicago, which merged last year with First Chicago NDB Corp., most of the layoffs are expected to hit hardest in units where postmerger revenues are low and operations costly.

IT's role

That's where IT steps in. Customer relationship management systems and data warehouses are hot on the plate of many big banks as they try to better identify profitable customers and cross-sell additional products and services to them. The upshot for staffing: "Fewer sales and servicing people are required in proportion to the business they're [generating]" because more of these tasks are being automated, said Patricia McGinnis, an analyst at Mainspring Communications Inc., a Cambridge, Mass.-based research firm.

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Case in point: BankAmerica. The nation's second-largest bank, which merged last September with Charlotte-based NationsBank Corp. last September, is pilot-testing a customer relationship management system from Mountain View, Calif.-based Diffusion Inc. to help tailor delivery of information on wire transfers and maturing investments for its biggest corporate customers.

The seven-figure investment in the system should pay for itself quickly by generating more profitable services for existing and new customers, said BankAmerica senior vice president Rick Leander.

Another factor benefitting IT staffers during the current downsizing rage: Battle-scarred bank CEOs who have commandeered big mergers finally are learning that the savings they once expected from consolidating data centers and IT staffs just aren't realistic. "Banks go into these mergers expecting to lay off all of the application development people at the other bank and reap huge savings, but integrating the systems is so difficult and risky that extra contractors are needed and the costs go up," said Octavio Marenzi, research director at Meridien Research Inc.

Bank CEOs often expect 30% to 40% reductions in IT costs after a merger, but typically see no change because overlapping deposit and other redundant systems can take years to consolidate and are costly to maintain, he added.

"After a merger, your highest priority becomes not developing something new, but deciding what's going to stay and what's going to go. Everybody's so busy doing that work that everything else gets put on the back burner," said Jan Nicholas, a Perot Systems Corp. project manager on assignment recently at BankAmerica. But that isn't to say IT layoffs never occur.

First Union dismissed plenty of IT workers during a recent buying spree that included purchase of Philadelphia-based CoreStates Financial Corp., said an IT manager who requested anonymity. But the manager said First Union later rehired a lot of the people "because [management] realized they needed their skill sets."