Chemical Banking Corp. is about to put into daily use a large-scale system for trust accounting that will be used after the bank merges with Manufacturers Hanover Corp.
The software and computers installed by Chemical will be combined with a securities accounting and reporting system that is under development at Manufacturers Hanover, a Chemical executives said.
The Manufacturers' project "has some duplicate features...but the two are also complementary," said Jeremiah F. O'Leary, senior vice president at Chemical. "We will blend both [systems] together, and eliminate the redundancies."
Tracking System
The Hanover system, scheduled for completion by mid-1993, will cost $25 million to develop, according to Chemical officials, and is designed to manage securities processing, tracking such things as dividend collections and settlement practices in different countries and in different time zones.
While Chemical's software focuses on customer reporting and accounting, Hanover's system may replace pieces of the Chemical software that handles securities processing, said Robert Roszkowski, vice president in securities processing at Manufacturers Hanover.
Both projects were started before the banks decided to merge this summer. The two banks expect to combine officially on Dec. 31.
Decision Due Soon
Mr. O'Leary said that in the next few weeks, the merged bank would disclose which parts of the two systems would be kept, "and the extent to which one will be blended into the other." The issue is sensitive because of the potential impact on customers.
By February, Chemical expects to have moved selected Chemical global custody accounts - where trust clients hold U.S. and foreign securities - to the new software.
Mr. O'Leary said he hoped to convert all of Chemical's global portfolio of about $20 billion to the new system by June.
If the software performs well, Manufacturers Hanover's global accounts will also be moved to by the end of 1992, representing a total portfolio of $30 billion in global custody.
Computers from Digital
Chemical purchased the software in May from Premier Systems, Wayne, Pa. The package runs on computers from Digital Equipment Corp. The bank would not disclose the cost of the system, but software for trust accounting can cost run into the millions of dollars.
Hanover's system is being developed Machines Corp. mainframe computers.
Chemical's first priority is to use the software to support the bank's expansion in global custody, where customers demand sophisticated systems to handle the safekeeping and portfolio valuation of foreign-issued securities.
Up to now, the bank has had modest success, but wants to become a major player.
The Premier software is designed to perform trust accounting and recordkeeping for domestic and foreign-issued assets, including the complex calculations for valuing foreing-issued securities along with the foreign exchange rate. All major global custodians either have this ability, called multicurrency accounting, or are trying to develop it.
Conversion Expected
"Global is more tightly controlled, so we'll do the stress testing there," said Mr. O'Leary. Later, Chemical may use the Premier software to replace its existing domestic custody system. If the software performs well, the bank will convert all of Chemical's domestic holdings to the new software.
Many bankers believe it is important for global and domestic trust systems to be compatible, so customers can see all of a pension funds' assets on a single screen. U.S. customers are increasing their investments overseas, thereby reducing the distinction between domestic and international services.
The deal with Chemical was a coup for Premier. The trust software has never before been used in a bank the size of the combined Chemical and Manufacturers Hanover. Installing the software "is a major undertaking in terms of size and number of customers and complexity of instruments," said Thomas Abraham, a consultant based in New York.
In addition, the contract may help the company to rebuild its image after a checkered past. Premier's of America, could not ge the software to work, and lost more than $80 million in the process.
