$23-Million Computer Snafu Adds to B of A’s Troubles

BankAmerica, whose familiar catalogue of woes includes staggering loan losses, management upheaval and financial scandals, quietly acknowledged another stumble on Thursday: a $23-million computer snafu that is alienating key customers and will likely take months to fix.

The one-sentence disclosure was included in the company’s second-quarter financial report and was easy to overlook considering the magnitude of BankAmerica’s $1.136-billion deficit--a record for any period.

BankAmerica said that “the corporation established a reserve for estimated costs, arising from problems in Bank of America’s conversion to a new trust accounting and reporting system, which reduced net income by $23 million.” Bank spokesmen declined to provide much detail.

But sources familiar with the affair called it a major embarrassment that has required the intervention of Chairman and Chief Executive A. W. Clausen. “Heads are going to roll,” predicted one trust department official who requested anonymity.

The data processing debacle is centered in Bank of America’s institutional trust services department, which administers more than $38 billion in pension fund and other assets entrusted to the bank by more than 800 corporations, unions and government agencies.

If not resolved quickly, the situation could affect thousands of employees and retirees of such bank customers as Walt Disney Co., Pacific Telesis Group, Kaiser Permanente Medical Group and the Southern California Rapid Transit District.

The problems arose when a new system, MasterNet, was brought on line in March before being fully debugged to replace an aging system.

“They committed two cardinal sins,” the trust department official said. “They took down the old system before the new system was up and running. And they were the first big bank to install the system. A key rule in computer software is: Never go first.”

As a result, sources said, the system has crashed for days at a time, the bank is months behind in providing customers with their monthly statements and there have been potentially costly delays in trading securities.

“We are mortified the new system is not working as intended,” said a June 10 letter to customers from Clyde R. Claus, BankAmerica executive vice president for trust services.

Customers are not mollified. “We need our monthly reports,” said Henry Vilardo, administrator of the Motion Picture Industry Pension Plan, which has more than $700 million entrusted to Bank of America.

“Our financial advisers need the data to verify what’s in the account,” he added. Some statements have been two months late, he said, calling the situation “a real mess.”

BankAmerica’s $23-million reserve is intended to cover anticipated costs of fixing the system and claims from customers. A spokesman confirmed that the bank has retained an outside law firm to help contain the problem. Sources said the firm is Munger, Tolles & Olson in Los Angeles; the firm declined comment.

MasterNet was designed for Bank of America and several other banks by Premier Systems Inc., a Wayne, Pa., software services company. “It is not our practice to discuss successes or failures,” said Arthur A. Kock Jr., vice president and chief financial officer.

Sources said the system is designed around four Prime Computer models known as Leopards, powerful high-end minicomputers that sell for about $750,000 each. “Prime has had at least five people here full time trying to straighten things out,” a Bank of America official said.

One Bank of America official attributed the problem to diffused lines of authority within the bank. “We’ve got three different departments in this big bureaucracy trying to coordinate things,” he said. The departments are data processing, trust and securities handling, he said.

“This is going to be a really slick system, when it works,” he added.

Separately, Bank of America was dealt another black eye Thursday when it was censured by the Comptroller of the Currency, whose office had accused the company of failing to warn securities customers that it was unable to maintain adequate books and records.

To settle the proceedings, BankAmerica agreed to the censure without admitting or denying wrongdoing. The matters concerned B of A’s municipal securities dealer department.

Coincidentally, the problems were caused by a 1984 computer system conversion, a spokesman said.

A spokesman for the comptroller said it was unusual for such a big bank to be censured for record-keeping problems.