Merging Financial Companies Face Technical Hurdles

Recent legislation on financial-services modernization knocks down a lot of the walls that once separated banks, brokerages and insurance companies from one another.

But it doesn't collapse the digital barriers that make it challenging for firms in these sectors to meld their information technology operations.

For example, banks, brokerages and insurance companies each house different types of applications and operating platforms to run their respective businesses (for example, banks process deposits, and brokers process trades).

The challenge of consolidating those disparate back-office environments "is a huge hurdle to get over," said Richard T. Chase, general counsel at U.S.

Bancorp Piper Jaffrey Inc. in Minneapolis.

Since regulatory reform was introduced late last year, industry experts have said they expect a wave of merger activity among banks, brokerages and insurers to create the kind of universal financial shopping centers that have succeeded in Europe.

Chase was one of the speakers at a Securities Industry Association conference held here earlier this month that focused on the ramifications of the new legislation, known as the Gramm-Leach-Bliley Act.

Internet's Wide Open

But even though merging banks and brokerages might have difficulty consolidating their back-office systems, they should be able to leverage the Internet to help them cross-market and distribute products across their customer bases, said Amanda L. Gimble, co-head of corporate strategy and planning at Merrill Lynch & Co. in New York.

"What this [legislation] says is that the financial community can enter the Internet any way it wants," said Rep. Jim Leach (R-Iowa), chairman of the House Banking and Finance Committee and a principal author of the legislation.

Since banks have stronger balance sheets and greater assets than brokerage firms, they most likely will be the acquirers in most deals.

As such, brokerage firms "will feel more competition than opportunities" as a result of the new financial landscape, said Adam Schneider, a partner and head of e-commerce initiatives for financial services at Deloitte Consulting in New York.

To compete, savvy brokerages will "arm their customers" with electronic trading tools while expanding the communications capabilities for their salespeople to interact and respond to customer needs, Schneider added.

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