Is IT just a convenient excuse for Santander pulling out of RBS deal?

I wrote an article yesterday about Banco Santander’s decision to pull out of a multi-billion pound deal with RBS to take over 316 branches and the accounts tied to them.

There were several reports claiming that problems integrating IT made the deal less attractive and as a result Banco Santander pulled out of the deal.

When I called a few people in the sector the general feeling was that IT was just being used as an excuse. It seems the deal might not be as convenient for Banco Santander as it was.
More weight is added to the argument that IT was used as an excuse if you look at Banco Santander’s strong record in integration acquisitions.

In recent years the bank has acquired companies such as Abbey and Alliance and Leicester. Part of this strategy is to make huge IT savings by moving acquisitions into its core banking platform Partenon (see list at the foot of this post for information about Banco Santander’s acquisitions and IT migrations.)

OK this is not necessarily an outsourcing story but one reader did point out that if there are integration problems it could be the result of offshoring work. RBS has offshored thousands of jobs and many people with a deep understanding of legacy systems have gone.

One reader said it seems unlikely that IT concerns would be the whole reason for this decision, but that RBS’s policy of offshoring IT work might be part of the problem. “On the other hand, any major migration project depends critically on having people around who understand the old system. RBS demonstrated quite forcefully this summer (when systems went down) that after firing most of its UK IT staff and shipping the work offshore, it no longer has much of a clue about how its own IT systems work,” said the reader.

In 2008 I wrote an article about the challenges facing German banks Commerzbank and Dresdner Bank in their attempt to merge and make huge IT savings as a result.  German banks use more proprietary systems than UK banks because of the complexities of German banking regulation so IT is even more complicated. It seems the banks have systems that nobody today understands. This is an extreme example but If you outsource or offshore too many people you will lose knowledge.

Banco Santander UK Acquisitions:

October 2004: bought Abbey for £9.5bn planned to reduce costs by £300m

July 2008: agrees £1.3bn takeover of Alliance and Leicester and expects to make efficiency savings of between £30m and £50m

September 2008: £612m acquisition of Bradford & Bingley agreed.

What Abbey’s integration to Partenon involved:

All customer records moved onto a single database, reducing the total number from 52 million to 20 million.

Abbey moved ten million savings accounts, four million current accounts and eight million card accounts to Partenon.

Renewed entire branch communications network.

Built more than 45,000 portals for staff and third-party organisations

Created a back-up datacentre infrastructure

Provided face to-face and e-learning, about new ways of working, to 25,000 staff