' "Many U.S. banks raise estimates for Y2K adjustment costs"
'From:
elcore@sgi.net (Lane Core Jr.)
vr 1:51
Subject:
"Many U.S. banks raise estimates for Y2K adjustment costs" (Call me Mr. Cynic VII)
[to alt.talk.year2000, comp.software.year-2000]
[my comments are in brackets]
CNBC & The Wall Street Journal (November 18, 1998?)
Many U.S. banks raise estimates for Year-2000 adjustment costs
By Rick Brooks
The Wall Street Journal
(http://www.msnbc.com/news/215835.asp)
For many U.S. banks, the cost of upgrading their computers to cope with the
year 2000 bug is proving to be much higher than expected. In quarterly
reports filed with the Securities and Exchange Commission in recent days,
many banks have disclosed that it will cost tens of millions of dollars
more to fix the problem than they estimated only a few months ago.
[Banks have disclosed its going to cost them "tens of millions of dollars
more" than they thought it would a few months ago: what are the odds that
they will do so again "only a few months" from now?]
The spending increases, which aren't expected to have any immediate impact
on earnings, are being reported by banks throughout the country, ranging
from giant money-center institutions to tiny small-town banks.
[Okay. Let's see. First, we're told that the banks are going to have to
spend a lot more than they had previously thought. Then we're told that the
banks aren't expecting this to have "any immediate impact on earnings". Two
obvious questions: (1) will that expectation change, just like their
earlier cost estimates have changed? And (2) do they already expect a
LONG-TERM "impact on earnings"?]
Chase Manhattan Corp., for instance, said it expects to spend about $363
million over three years, a 21% jump from its previous estimate.
BankAmerica Corp., the nation's second-biggest bank in terms of assets,
currently foresees a total bill of about $550 million, a 10% increase. In
all, eight of the top 15 U.S. banks expect to boost spending, bringing the
combined estimated cost for all 15 to $3.46 billion, up from about $3.15
billion as of June 30.
[Fifteen banks say they're spending $3.46 billion to get Y2K compliant. Not
the whole banking industry. Just fifteen banks.]
------------------------------------------------------
Rising Costs
Many banks are spending more to fix the Year 2000 problem than their
previous estimates. Increases in the third quarter among the 15 largest
U.S. banks:
Estimate ($ millions)
Bank Current Previous
Bank One $350 $315
BankAmerica 550 500
Bankers Trust 220-260 180-230
Chase Manhattan 363 300
J.P. Morgan 300 250
National City 65 40
Wachovia 80 55
Wells Fargo 300 273
Note: Previous estimates for Bank One, BankAmerica and Wells Fargo are
based on figures for predecessor companies.
Source: The companies
------------------------------------------------------
Although the year 2000 problem affects all industries, it has a
particularly profound impact on banks, which depend on computers to perform
virtually every function - from processing checks to operating
automated-teller machines. If the computers aren't reprogrammed to
recognize the new century on Jan. 1, 2000, everything from burglar alarms
to credit-card statements could be frozen.
[I guess it's going to be mighty cold in January 2000.]
BANKS UNDERESTIMATED PROBLEM
[You bet they did.]
Part of the reason the cost has risen, some analysts say, is that banks
have underestimated the sheer size of the problem. BankAmerica, for
instance, has identified nearly 24,000 separate business operations that
may need to be fixed. In addition, banks not only have to reprogram their
own computers, they have to make sure many of their corporate clients are
addressing the problem as well. Regulators have been pressing banks for
months to assess the potential credit risk of borrowers that aren't
prepared.
"Banks really didn't realize all the things they'd have to coordinate,"
said Lou Marcoccio, research director for year 2000 issues at Gartner
Group, a consulting firm in Stamford, Conn.
"It has kind of been like Chinese water torture," adds Michael L. Mayo, a
banking analyst at Credit Suisse First Boston Corp. "These expenses just
keep dripping out."
["Chinese water torture" for bankers? Somehow, the phrase "poetic justice"
comes to mind.]
Huge computer-upgrading expenses already are built in to the banks'
budgets, so the recent increases aren't expected to crimp earnings any time
soon, analysts say.
["Huge computer-upgrading expenses already are built in to the banks'
budgets"? Sure. But how much of a consideration was Y2K in any of those
"huge computer-upgrading" budgets? Not much, I bet. Which might indicate
that this statement means a lot less than it says.]
Still, the rise in year 2000 costs is diverting additional spending from
other areas, which may lead to fewer new bank products and slower profit
growth down the road.
[Ah. I guess that's the answer to question (2) above.]
EARNINGS SHOULD BE UNTOUCHED
[Well, we do have to reassure the shareholders, as long as we can.]
"This isn't a matter of changing earnings estimates," said Diane B.
Glossman, a banking analyst at Lehman Brothers Inc. "It's just that more
money will be spent preparing to keep your doors open in 13 months that
simply can't be spent on new product and market development."
[Really? How much of the "earnings estimates" was based on "new product and
market devlopment" that won't happen until later (if at all) because of
increased expenditure on Y2K remediation? I think that's another statement
that means less than it says.]
Regulators have been prodding banks since mid-1996 to get their computer
systems in order, and many large banks say they are well on the way to
essentially completing their upgrades by year end so that 1999 can be
devoted to testing. For instance, BankAmerica said its replacement or
modification of at-risk equipment such as ATMs and elevators was 64%
complete as of Sept. 30. The Charlotte, N.C.-based bank plans to boost its
year 2000 spending by $50 million so it can expand its testing procedures,
a spokeswoman said....
[Oh, my. Just look at all those weasel words in that first sentence:
"many", "large", "say", "well on the way", "essentially". I don't think
I've ever seen a single sentence hedged so heavily.]
[They're going to devote a year to testing? How are they going to deal with
The Core Quandary (http://users.sgi.net/~elcore/quandary.htm)?]
National City Corp., based in Cleveland, blamed its 63% increase in
projected year 2000 spending, which rose to about $65 million from the
previous $40 million, partly on the escalating cost of outside help needed
to make time-consuming fixes to its computers. "I don't think we'd be
surprised if we bid up the price of contract labor," a spokesman said.
[Finally, a bit of good news.]
© 1998 Dow Jones & Company, Inc. |
