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Integration will be costly for Westpac

Integration will be costly for Westpac

Westpac will pump as much as $336 million into welding its troubled computing platforms to St George's.

St George Bank shareholders have fired the starter's gun on one of Australia's riskiest and most expensive information technology

projects with their approval yesterday of Westpac Banking Corp's $16

billion takeover.

Westpac will pump as much as $336 million into welding its troubled

computing platforms to St George's. Macquarie analysts estimate that

almost half that spending could come in the consolidation of BT's and

Asgard's wrap and master trust platforms.

Many suppliers face an uncertain future as the acquirer chases cost

savings through contract renegotiations and other measures.

Details of the integration are patchy, but work in coming months will

help to determine the fate of more than $4.7 billion of outsourcing

contracts at Westpac that are due to come back onto the market in

2010.

The bank is expected to strip as much as $46 million a year out of St

George's information technology and communications spending as it

chases synergies and capitalises on a boost to its buying power.

Westpac has said the integration program will cost $700 million.

Looming large over the IT component is recently appointed Westpac

chief information officer, Bob McKinnon, who previously served with

chief executive Gail Kelly and operations boss Peter Clare at

Commonwealth Bank of Australia.

Westpac has stressed that Mr McKinnon will guide the information

systems integration program, the re-tendering of multi-billion dollar

contracts held by IBM and Telstra and the replacement of its core

banking platform.

It is also understood that Westpac is hashing out plans to replace its

core banking technology - responsible for driving all credit and debit

transactions - when it carries out the IT integration with St George.

Analysts have said that such a move would heighten the risks of both

the integration and core banking systems program.

In contrast, CBA has indicated that it will move its $2.1 billion

acquisition, BankWest, onto its new core banking system only after the

$580 million platform is complete.

The author of the Westpac-St George merger's independent expert's

report, Grant Samuel, has estimated that, over the next three to five

years, Westpac's core system upgrades will require an IT investment

"50-60 per cent above current spending levels". Westpac spends more

than $700 million a year on computing and communications, but the

Grant Samuel estimate applies to only a portion of that expenditure.

In recent months the banks have shelved a number of projects. Westpac

wrote down software assets worth $157 million at the end of its 2008

financial year as it axed systems made redundant by the merger.

Westpac also trimmed its information technology staff roster, and

computing workers in both organisations are expected to be among

back-office employees made redundant as part of the integration.

Fairfax Business Media

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