Andersen Deal Seen Helping CoreStates Look Past Merger

CoreStates Financial Corp.'s recent deal with Andersen Consulting is an indication that the bank is ready to move beyond absorbing Meridian Bancorp, which was a handful.

CoreStates acquired Meridian a little over a year ago, but consolidating its systems and operations proceeded more slowly than expected.

"Any time you do a merger like what we just did ... there is always a lingering sort of cleanup because of the size of them," said P. Sue Perrotty, chief information technology officer at CoreStates.

But now, "we don't have a lot of what I would call 'hovering technology issues' related to the merger," said Ms. Perrotty, who came from Meridian.

Under the 10-year deal signed last week with Andersen, CoreStates agreed to farm out applications development and system maintenance functions. Financial terms were not disclosed.

Analysts said the agreement indicates CoreStates has turned its attention from the merger integration to more strategic issues-such as how to improve the combined retail business.

"If a third-party provider can handle more of the nuts and bolts operational tasks, that could leave more time for management to focus on generating revenue," said Michael Mayo, a bank analyst at Credit Suisse First Boston Inc.

Thomas McCandless, senior bank analyst at Natwest Securities, added, "I think this is a step toward a more unified retail banking approach."

Through the Andersen deal, CoreStates is off-loading about 40% of its technology and operations functions. But executives at the Philadelphia banking company were quick to emphasize that it is not abdicating control.

The company will dictate "all of the strategic oversight direction, prioritization, decision-making, and cost management," said Ms. Perrotty.

CoreStates retains full control of core computer operations, network administration, and telecommunications.

About 300 CoreStates employees are affected by the deal. All are to be offered jobs with either Andersen or the bank, Ms. Perrotty said.

Andersen's help frees up the company to focus on strategy as well as "on the delivery of products and services to the market," Ms. Perrotty said.

This is of particular concern to analysts. "They need to work on their strategy and better define and execute it," Mr. McCandless said, "because right now the market is unclear as to exactly what the strategy is."

CoreStates traditionally has been strong in wholesale banking and transaction processing, and it has less strategic work to do in these areas than in retail.

Ms. Perrotty said CoreStates would complete a formal technology plan "over the next 60 to 90 days.

It will be very comprehensive and detailed."

A major part of the bank's attention in the short term will be on a workstation project.

It "will define how we deliver information and products and services to both our internal and external customers," Ms. Perrotty said.

"We are looking at a number of uses of our imaging capabilities and at some upgrades to some of our core application systems," she said.

Ms. Perrotty, whose background is in retail banking, said CoreStates also is looking into how best to use alternative delivery channels such as the Internet.

"We are working on some" next-generation versions of self-service delivery channels, Ms. Perrotty said.

With terms of the Andersen contract not expected to be settled before July, it may be some time before the industry sees results from the deal.

The "test of the success of this move will be whether or not the action helps CoreStates to improve its technology and, ultimately, its efficiency of operation," said Mr. Mayo of CS First Boston.

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