Given the headlines of the past two years, it's pretty difficult to feel optimistic about consolidations in the banking industry. And I know this isn't a political blog, but I'll be honest - the idea of further financial bailouts makes my stomach queasy.
I'm beginning to suspect my gut might be right to worry, particularly after reading this recent post by Gartner analyst Kristin Moyer, gloomily titled "The Looming Failure of post-Merger Integration." Moyer is a research director in Gartner's Industry Advisory Services/Banking and Investment Services division, and, frankly, her piece caused me even more apprehension-which, of course, I just had to pass onto you, dear reader. No, really-there's no need to thank me.
Moyer isn't talking about economics in her post-she's talking about how technology integration could make or break the consolidations we've seen in the banking industry. She says:
"Now the hard work of post-merger integration begins. Banking is an IT-driven industry. While there are many important post-merger activities, the ability of banks to execute IT integration is a key success factor to achieving merger objectives."
IT people will know how important this topic is, but I wonder if the politicians and business people involved do. This piece does an excellent job of explaining why integration is such a critical issue in banking mergers and acquisitions. Moyer points out that, historically, these M&As have not gone well:
"Even under normal circumstances, history shows that post-merger integration frequently fails. The Economist did a study in 1999 that showed that two of every three deals did not work (source: Economist, 1999). Other studies have shown that 50 percent of financial services mergers from 1990-2000 eroded shareholder returns (Capgemini 2001), and that large bank deals have tended to perform worse than smaller ones (Merrill Lynch 2003)."
It shouldn't be surprising that these big deals don't work, given how companies typically neglect IT and integration until the deals are closed. Consider these statistics:
- Seventy-five percent of managers worldwide admit they don't even consider how IT issues will affect operations until after the merger, according to a 2007 Hay Group study.
- Seventy-nine percent of mergers and acquisition activity ignores IT integration, according to another 2007 survey, this time by Bloor Research.
As Moyer points out, these aren't normal circumstances. These particular bank mergers and acquisitions are enormous and the IT integration issues are extremely complex. The deals are happening very quickly, with little or no due diligence or planning. Plus, we're still in the thick of what looks like a long financial crisis-Moyer believes it is unlikely banks will be able to fund IT at the level necessary to address the integration problems they face:
"In the midst of this, IT spending levels will be reduced. Gartner believes that internal IT spending will not recover until 2018. The daily fight for survival therefore makes it difficult to even begin post-merger IT integration planning, let alone execute it."
To quote Oh Brother! Where Art Thou, the "situation is pretty nigh hopeless." Or, to borrow another line from the movie, "Damn! We're in a tight spot!"
From Moyer's tone, I gather she finds little hope in the situation. But perhaps that's part of the sales pitch-the post does link back to a research note, for purchase, of course-that promises "10 ways banks can effectively address IT complexity in order to improve the success of post-merger integration."
I can't help but wish, if Gartner does know how to solve this problem, it would be a bit more civic-minded about sharing. But, hey, analysts have to earn a living, too.
Gartner may not be sharing, but Harry Karr and Hemesh Yadav, IT architects at the bank Wachovia, are. Dana Gardner, an analyst and blogger at ZDNet, recently interviewed Karr and Yadav about how they've used a service-oriented architecture and a service repository to solve the integration, reporting and and business challenges caused by Wells Fargo's purchase of Wachovia.
I can never find my iPod, so I was pleased to see there's also a complete transcript of the conversation available at BriefingsDirect. It's a pretty detailed conversation, with a discussion of governance, the importance of a single enterprise metamodel, and even testing issues, but it's also very accessible for business readers.
There's also a lot of good information available for free on Moyer's blog, so if you're in the financial sector, you might want to subscribe.