Commerzbank aims to make £4.1bn savings by 2011 following the
announcement of its
plans to buy Dresdner Bank for £8bn.
The merged bank will make savings by reducing headcount and
selling parts of its business in the short term, but integrating IT
systems in the merged banks is a longer term opportunity.
Commerzbank is Germany's second largest bank behind
Deutsche Bank, operating in commercial and retail banking and
mortgages. It has a presence in London, Luxembourg, Poland, Spain
and Switzerland.
Dresdner Bank, which has been owned by insurance giant Allianz
since 2002 has a strong presence in the UK, through the investment
bank
Dresdner Kleinwort, which employs about 2,500 people.
The banks, which have a total headcount of 67,000, have already
announced 9000 redundancies of which 70% are the back office,
control and production units and investment banking.
Although each bank's operations are similar, a merged bank will
have two separate core IT infrastructures made up of systems that
are very different.
"There are so many systems and so many interdependencies I do
not think they will save money through IT in the next few years,"
says Bob McDowall, analyst at Towergroup.
German banks use more proprietary systems than UK banks because
of the complexities of German banking regulation. Dresdner and
Commerzbank have hundreds of IT systems which have grown up and
been modified over time. Although many are small-scale they are
critical to each business, says Robert Morgan, director at
consultancy Hamilton Bailey.
"Trimming costs by integrating [systems] is in many cases not
possible," he says. "There is very little that can be done because
the systems use proprietary software, notoriously have little
documentation and few people know and can run them."
One example is Dresdner's fund accounting system called
Paladign, which it uses to balance the books at the close of
business. It is old and has been modified so often that few IT
people can work with it. Dresdner's trading platform called
Imagine, which covers parts of the bank's investment business, is
another.
The merged bank must also renegotiate its outsourcing contracts
if it is to meet the targeted cost savings. Commerzbank has IT
outsourcing agreements costing over £108m and Dresdner Bank has
contracts costing more £113mm.
Tony Rawlinson, managing director of financial services at
sourcing consultancy Equaterra, estimates that it will take between
one and three years for the banks to fully rationalise their
outsourcing contracts. He says, "It depends on the flexibility of
existing contracts to take on higher volumes, absorb change and
address new requirements together with the associated exit
provisions."
But a merged bank could make quick gains in areas where IT is
less core to the business. "Cost savings can be made in
consolidating and standardising the desktop, networks and mid- and
back-office applications," says Morgan. But contracts for business
critical services may have to run alongside each other for a
period.
To meet its short-term targets for savings the bank is likely to
cut its headcount and divest businesses, with its London Investment
business expected to see major job cuts. But the complexity of each
bank's internal systems will make IT rationalisation a longer-term
goal.
Commerzbank outsourcing contracts
BPO financial process management/Business process outsourcing
processing services.
Atos Origin
36 months
£9m
ends 21 feb 2011
Application design/Application hosting/Processing services.
Atos Origin
36 months
£9m
ends 21 feb 2011
Desktop management/Helpdesk management/Infrastructure
management/Maintenance/support
Hewlett-Packard Co
£28m
ends Oct 2012
Infrastructure management/Network integration/Network
management
Colt Telecom
£18.10m
ends 06 Oct 2010
BPO financial process management/Business process outsourcing
processing services
Atos Origin
£17m
ends 01 April 2011
Maintenance support/Managed security services/Network
management
Siemens AG
£23m
ends 26 Jan 2010
Dresdner Bank outsourcing agreements
Application development and support/Application
management/Maintenance support/Offshore contracting
Atos Origin
£57m
ends 08 Oct 2014
Maintenance support processing services
First Data
£6m
ends 20 Sep 2010
BPO financial process management/Business process outsourcing
processing services
First Data
£6m
ends 04 June 2012
Application development and support/Application management/IT
Consulting
IBM
£57m
ends 01 Jan 2014
BPO financial process management/Business process
outsourcing/Infrastructure management/Systems integration
Bank of New York
£12m
ends 08 Sept 2009