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Wednesday, October 29, 2003

Mergers are Back in Fashion

This seems worthy to be sitting up and taking note of. Not only for the mergers and acquisitions increase we are seeing (and even looming IPO's: Google) but also for the data on new IT investment and business process outsourcing which will follow on the merger: this is exactly what 'restructuring' is.

The proposed acquisition of FleetBoston Financial Corp. by Bank of America Corp. blends economy-of-scale savings with an ambition to push the envelope in technology. Like Lewis and Clark two centuries ago, the companies seem intent on charting a trail across the North American landscape. With combined assets of about $930 billion, second only to Citigroup Inc., the company that would be created by the deal, announced Monday, continues a trend that began five years ago with deals that created Citigroup, Wachovia, J.P. Morgan Chase, and the present Bank of America. The banks hope to complete the deal in the first half of next year, although regulators from Connecticut and Massachusetts have said they will keep a close eye on it. The new Bank of America would have operations spanning the continent. It would claim 9.8% of bank deposits in the United States and will be among the three largest banks in 21 of the 29 states in which it does business. The entity is "only a stone's throw from the national franchise that the banking industry has been waiting for," says Bill Bradway, an analyst with Financial Insights..................

The game plan disclosed by the companies will generate more than $1 billion in cost savings by eliminating redundant systems, combining data centers, and other efficiency gains. The companies spend a combined $3.6 billion a year on IT. A chunk of those savings will be plowed into strategic investments, company officials say...............The deal comes at a time of renewed vigor in IT investment by banks. According to a report released Monday by the American Bankers Association and TowerGroup, technology investments by U.S. banks are trending away from short-term cost reduction toward longer-range objectives. Investment in branch renewal remains strong, the report says, redeeming the faith banks placed in their bricks-and-mortar assets at the height of the dot-com boom. Among banks with assets greater than $20 billion, technology spending is projected to grow at a 4.5% clip in 2004, up from this year's 4.0% growth rate. Spending on business-process outsourcing is expected to grow 28% next year, while software spending is expected to grow 9.4%. The highest IT priority is customer-relationship-management, according to the ABA/TowerGroup report. The top five technology infrastructure priorities are replacing communications networks, PC and server upgrades, mainframe upgrades, and operations center improvements. Virus protection and intrusion-detection software are also high on the hit parade.
Source: Information Week

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