European Banks Are Already Euro Veterans

U.S. banks' international executives learned about the advent of a unified European currency from afar and took time to study it before acting.

Their European counterparts had no such luxury. For one that does business in the United States, the experience will be helpful in getting the whole bank on the same operational page.

ABN Amro, the Dutch bank with a presence in 71 countries, has been working on its systems for two years in Europe and for the past eight months at its U.S. headquarters in Chicago.

Eric Steeghs, executive vice president and euro information technology manager for ABN Amro in Am-sterdam, said the bank will spend about $250 million on euro-related technology alone.

"We have a very strong euro project headed by a board member," said Mr. Steeghs.

The bank seems typical of European financial institutions that have been steeped in euro conversion issues for some time. A 300-company survey published on the Internet by KPMG Management Consulting in the United Kingdom indicated that three-fourths of financial companies intend to implement euro solutions by 1999. But of all types of companies, about a third said it would take more than two years to meet their technology specifications, and 23% either did not know how long it would take or were not even making plans.

ABN Amro set up a central project bureau in Amsterdam to address both the commercial and technical issues. Another aspect of its plan relates to public relations and marketing, touting the bank's progress. In each member country of the European Monetary Union and in other regions, the bank has a euro coordinator who reports to the central bureau.

The bank's backbone is GAN, the Global Access Network, which will be expanded this year to connect all branches in the EMU countries to the head office and to each other.

"We have systems in place in 40 countries that run on the same standard platform with processing on regional sites," said Mr. Steeghs. These sites include Amsterdam, Singapore, Dubai in the United Arab Emirates, and Hong Kong, and one is in progress in Miami to serve Latin America.

"We can deliver, from Jan. 1, all basic functionalities required by the introduction of the euro, which is a major challenge for a lot of banks," said Mr. Steeghs. "We can also deliver additional cross-currency services that will be in demand."

The bank has a total of 1,000 people on the information technology and business sides working on the euro transition.

"I have heard that U.S. bankers think we are so much occupied with the euro that we're not upgrading our service levels sufficiently and that will put us at a competitive disadvantage," said Mr. Steeghs. "But I contest that position.

"The euro is the trigger for us to upgrade our systems in a concentrated way to the service level requested by our customers. We are globalizing our business anyway. The euro is just another example of the internationalization of markets."

He contended ABN Amro will be "one of the few banks with an international presence (and) will have the ability to be a real global player," said Mr. Steeghs. "We know that our peer group of U.S. banks are our biggest competitors in cash management in Europe and they will continue to be so."

This spring and fall, ABN Amro, which includes Asian and Latin American representation in its ambitions to be truly global, will be conducting euro workshops and road shows for clients all over the world.

"I do believe European banks have taken a more aggressive position and are more prepared than their U.S. counterparts," said Marie Hollein, vice president and foreign exchange manager of corporate sales at ABN Amro in Chicago.

"On the foreign exchange side, we are determining the product capabilities we will offer and are helping educate our clients on the implications for them," Ms. Hollein said.

As ABN Amro jockeys for position as one of the elite, global few, other European banks see regional opportunities.

Allied Irish Bank, the largest in Ireland, with $50 billion of assets, is that country's European currency unit clearing bank. It has $20 billion of its assets in the United States.

With the United Kingdom staying out for now, the Irish punt will be the only English-language currency in the euro zone.

"This is a political issue more than anything else," said Brendan O'Connor, a vice president with Allied Irish in New York. But Allied Irish takes the opportunity seriously and does not buy some observers' contentions that a bank its size cannot play in the big international leagues.

"It will allow us to compete with banks we couldn't compete with in the past," said Mr. O'Connor. "We see it as a big opportunity, as opposed to a threat."

"U.S. banks are well aware of it but I don't think they are as far along the road as European banks," he said of the euro. "I still meet people in the U.S. who still don't know that it will happen."

Because he sees the euro creating business opportunities in U.S. corporate treasury, cash management, and currency management departments, "I would imagine they would be rushing to embrace EMU.

"By the third quarter, I hope to be able to walk into U.S. corporations that have bank accounts in Europe and tell them they need one euro account to consolidate all their information," Mr. O'Connor said. "We can do that for them before the euro comes into effect."

He said the transition to the euro will be quicker than people think and should prove economically beneficial to banks in smaller countries.

"The euro affects all financial information systems so this is a big system project for us," said Caitriona Murphy, head of the EMU planning unit at Allied Irish's capital markets division in Dublin.

The bank has spent $42 million on systems requirements and total EMU transition costs are estimated at 2% to 3% of 1997 operating expenses.

The transition period through Jan. 1, 2002, when domestic currencies will still be in circulation along with the euro, seems to cause the most frustration from a systems standpoint, Ms. Murphy said.

"The problem is it's happening in real time," she said. "It would be different if banks could stop business and do their preparations for EMU. But they can't and have to do it in live mode."

Ms. Murphy said based on her observation of multinational companies with operations in Ireland, she expects multinational companies to make their internal changeovers in a single "big bang."

"This will have a certain amount of leakage to the retail banking system and will affect cross-border payments and domestic currencies," she said. With more customers plugged electronically into the bank, "companies will have to change in order to do business," for example, by converting invoices to suppliers to the euro.

David Ovenden, head of global syndicates at Paribas, a European investment bank headquartered in London, said it has been a pioneer of the European currency unit market on behalf of its investor and issuer clients since the late 1980s.

"Our systems and the bank have been geared for the eventual single currency for over 10 years," Mr. Ovenden said. "Our accounts and risk have all been denominated in Ecu and all our systems have been in place and effectively able to handle the Ecu and euro for a long time."

He added that it was significantly easier for Paribas to adapt and change its systems because of its fervent belief in the euro and the makeup of its client base. Now, he stated, Paribas' systems are being refined to "collapse everything into one common book."

Deutsche Bank Group, the biggest of the European banking powers, started its euro project in 1995-a fact that might sound intimidating to competitors from across the seas.

"In Europe, the whole banking market will change and there are implications for all our products," said Gerhard Singer, Deutsche Bank project manager of operations. "We made our conversion guidelines available worldwide on our intranet."

It has technical and business strategy teams working concurrently. Technical hubs in Singapore, London, and New York are coordinated from the main processing center at Eschborn, near Frankfurt.

"The euro is not just another currency that we can handle like the deutsche mark," said Walter Werg, who is in charge of Deutsche Bank's information technology preparations for the monetary union.

"There will be one account but two different denominations to tender," he said. This will mean changing all 8,000 screens and also checking all lists and forms so a customer can choose to give an order for funds transfer in either deutsche mark or euro.

Deutsche Bank has up to 2,000 people worldwide working on the technical side of the conversion, which has already spent about $110 million. "We will have all our programs and applications finished by the end of June," said Mr. Werg. "In the second half of the year, we will test in all countries."

"Up to now, we have always grown the local payments business across borders with correspondent banks such as Chase, Citi, and Barclays," said Mr. Singer. "But we believe there will be five to six players in Euroland, competitors playing in the same league." He said one or two will be U.S. banks, the others European.

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