B of A Abandons Costly Computer for Trust Clients : Most of Unit’s $34 Billion Assigned to Seattle Division
Bank of America acknowledged Monday that it has abandoned a computerized accounting program after spending $60 million over several months in an unsuccessful attempt to fix the system.
The system was supposed to provide the most advanced accounting and reporting services to the bank’s lucrative institutional trust division. Instead, recurring problems meant months of delays in issuing account statements and a system that was supposed to attract customers wound up driving away some and angering others.
A bank spokesman said most of the $34 billion in institutional trust accounts administered by B of A will be transferred to Seafirst National Bank in Seattle, which is another subsidiary of San Francisco-based BankAmerica.
The spokesman said 5% of the accounts are not going to Seafirst. He said those customers would be informed later what will happen to their accounts.
However, a source familiar with the new arrangements said a small percentage of the B of A trust business representing its largest institutional customers is too complicated for Seafirst’s computerized accounting system, which was last updated seven years ago.
Layoffs Being Evaluated
The source said those accounts will be given, not sold, to State Street Bank of Boston, a major trust institution. B of A and State Street Bank declined to comment.
The computer debacle was centered in a B of A division that administers billions of dollars in pension funds and other assets entrusted to the bank by corporations, government agencies and labor unions. The funds are not bank assets, but the bank collects millions of dollars a year in service fees.
Sources said scrapping the system is expected to lead to substantial layoffs in the data processing and trust divisions of California’s largest bank. The company spokesman, Jack Houseman, said staff reductions are still being evaluated.
BankAmerica has eliminated 18,600 jobs in the past two years to cope with record losses blamed largely on bad foreign loans. The bank’s quarterly earnings report last week indicated that more jobs would be eliminated in 1988 without specifying the number.
B of A’s abandonment of the state-of-the-art computer system for its institutional trust division means that the bank will no longer handle the computer operations, although the accounts will still be administered by B of A trust officers in California. In late 1986, the bank sold its consumer trust division to Wells Fargo.
Bank of America’s trust accounting system, called MasterNet, originally cost $20 million and took five years to develop. It was supposed to be up and running last March.
But from the outset, MasterNet was plagued by computer crashes that shut it down for days at a time. Despite extra shifts of workers and consultants, the bank fell three months behind in delivering account statements to clients.
May Have Lost Billions
Pensions funds require monthly statements and computer access to accounts so they can monitor asset value and instruct the people who do the actual trading. Late statements can mean losses because the funds are unable to respond quickly to market changes.
Houseman said the bank has lost some trust customers since the problems began but he refused to provide any figures. Departures, however, may have run into the billions of dollars.
When the troubles first surfaced last summer, the bank said it administered about $38 billion in assets for about 800 customers. The numbers used Monday were $34 billion and more than 700 customers. More precise numbers were not available.
Among the customers that left as a result of the computer woes was the Directors Guild of America, which transferred administration of its $350-million pension fund to Bankers Trust of New York on Jan. 1.
“Quite frankly, up until the time that they implemented their new system, we were very, very high on Bank of America,” Derek Rowlett, administrator of the guild’s fund, said Monday. “Unfortunately, when they switched computers, the whole system fell apart.”
Alan F. Pegg, controller-treasurer of the Southern California Rapid Transit District, said the agency plans to solicit new bids for trust operations covering its $350-million pension fund as a result of problems with the B of A system. He said the RTD is not interested in having its account handled through the Seattle bank.
B of A first acknowledged the computer problem last July when it created a reserve of $25 million to cover anticipated losses connected with the accounting system, including such things as fee waivers and overtime help. The company also began an internal investigation and two executives were forced to resign in November after being held responsible for the difficulties.
The company said Thursday that another $35 million would be required “for estimated costs to correct problems” and did not mention that the business was being transferred to Seattle.
Houseman, the bank spokesman, said the data processing will be handled by Seafirst using a computer system devised by SEI Corp. of Wayne, Pa.
SEI is a leading data processor for bank trust accounts and clients include Wells Fargo and First Interstate Bank of California. Its IBM-based system was updated in 1981 after being designed 15 years ago.
A source familiar with SEI and Seafirst said the system could not handle the largest trust accounts administered by B of A, which led to sending the business to Boston. “There was no use taking on business that could not be handled at this point,” said the source, who spoke on the condition of anonymity.
