Bank of America Corp. is preparing to overhaul it general ledger systems, a major technology investment that several analysts said was likely a response to increasing regulatory pressure on banks to provide details of their financial condition.
SAP AG of Walldorf, Germany, plans to announce today that B of A has signed a contract to use its enterprise resource planning system to provide financial reporting for management, legal, and regulatory purposes.
Robert Hunt, a senior analyst at TowerGroup, an independent research group owned by MasterCard Inc., said B of A probably needed a more modern system to track the financial details required by the Sarbanes-Oxley Act and to prepare for any new policies that may stem from the credit crisis.
"I think they're saying, 'Let's assure that our financial reporting is sound, strong, and accurate,' " Mr. Hunt said. "Part of risk management is having a very strong financial reporting system."
Dan Drechsel, a senior vice president at SAP and the general manager of its banking unit, said B of A signed a contract in March to use SAP ERP Financials to provide unified, global management of its finances "from the branch level up to the balance sheet." The software is "at the heart of the management system of the institution."
However, this project does not include Bank of America's core-account processing systems for customer deposit and loan accounts, and B of A has not announced any plans to upgrade them.
SAP would not put a monetary value on the contract, though analysts estimated it could be worth tens of millions of dollars to $100 million or more.
The $1.7 trillion-asset B of A would not provide an executive to discuss the decision, but Milton Jones, Bank of America finance services executive, said in an SAP press release that "as our company has grown, so has the size and complexity of our technology infrastructure." The Charlotte company expects the SAP software to "help streamline and simplify our financial systems, support timely analytics and provide better process insights."
Jeanne Capachin, the research director of corporate banking at Financial Insights Inc., a unit of the Boston specialty publisher International Data Group Inc., said general ledger software "really is at the heart of a bank's financial reporting system."
The credit crisis and the upcoming presidential election have created the "specter of more regulatory change," Ms. Capachin said, and banks would be wise to be prepared to provide more detailed financial records, or different types of financial data, than is required now. Installing a new general ledger application would help B of A comply with any new policies.
M. Arthur Gillis, the president of Computer Based Solutions Inc., a Dallas research and consulting firm, said B of A's decision was "a baby step to deal with the huge problem of what are they going to do to update their infrastructure."
Many big banking companies are hobbled by old core systems that do not enable effective customer management or new product introductions, said Mr. Gillis, and "if this is a step toward the ultimate, then it makes sense."
JPMorgan Chase & Co. also uses SAP general ledger software.
The B of A contract is the second announced this week for SAP. Commonwealth Bank of Australia announced Monday that it would do a core system conversion using its technology.
