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Huge IT integration no walk in the park

Huge IT integration no walk in the park

Consolidating the information systems of Westpac and St George would be expensive and carry many risks, warn industry experts.

Consolidating the complex information systems that drive Westpac's and St George's operations is likely to provide the ripest targets for cost savings. But industry experts cautioned that any integration of the banks' computing platforms would be expensive and carry many risks.

"There would be huge synergies in the back office," recently retired St George chief information officer John Loebenstein said yesterday.

"Ultimately, I think there would be a rationalisation of core banking systems, of virtually all systems.

"You would only have one teller system across the group, one CRM [customer management system], one treasury. There is a lot of money to be saved. You might still run different brands, but you can run the same systems behind different brands."

Westpac and St George together spent more than $500 million on computer and communications hardware, software, services and outsourcing during the six months to March 31.

Amalgamating facilities such as data centres, which Mr Loebenstein described as "low hanging fruit" would lead to reductions in those costs and the banks would be likely to make a portion of their combined 1900 person IT workforce redundant.

The changes would delivers tens of million of dollars in annual savings but the duo would also incur heavy costs and face significant risks as they attempted to bring lending, internet banking, broking, superannuation and transactional systems under one roof.

The last major merger of Australian banks - Commonwealth Bank of Australia's takeover of Colonial First State in 2000 - created integration problems that took years to overcome.

Bendigo and Adelaide Bank are yet to encounter any issues merging their information systems but the organisations, which are considerably smaller than Westpac and St George, still expect to take 18 months to consolidate their computing platforms.

The managing director of IT consultancy S2 Intelligence, Bruce McCabe, said integration costs for Westpac and St George would run into the hundreds of millions of dollars.

"The scale of the potential integration is enormous and it would be one of the most significant IT projects in Australia, if you took it in its entirety," Dr McCabe said. "There are not going to be many quick wins in the integration. It is going to be a long and expensive process. But no doubt there will be plenty of opportunity to rationalise some core systems, particularly packaged software systems."

Other integration costs would likely include the write-down of software assets, some of which are only a few years old, as systems were decommissioned.

But Mr Loebenstein said the scope of the task was not insurmountable and would deliver significant financial rewards.

"None of these things is a walk in the park, but they are all manageable," Mr Loebenstein said.

"All those years ago it wasn't a walk in the park to do Advance Bank and St George, and Bank SA and Barclays, but you think these things through, put a strong team together, and you do them, because there is a fantastic prize at the end."

Westpac and St George have indicated that there will be no net reduction in the number of branches and ATMs - a move that will restrict some of the synergy savings that can be extracted.

But Southern Cross Equities analyst TS Lim said that cutting the number of branches could only result in about a 10 per cent cost saving in any case. He said the key source of synergies benefits would lie in integrating IT systems, as well as in cost cuts to middle and head office functions.

He said there could be an 80 per cent saving in operations, processing and support costs, in the form of savings in advertising costs, consulting, printing and, most significantly, staff. There might also be some property rationalisation.

Constellation Capital Management's head of investment research, Peter Vann, said it might be a bit of a stretch for Westpac to achieve synergies up to 30 per cent of St George's cost base (or around A$424 million), especially given that it was planning to retain the individual brands and distribution.

"But I think they'll need to extract that out to enable them to pay an appropriate premium to St George to get the deal away," he said.

Fairfax Business Media

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