Bankers Trust New York Corp. is working with International Business Machines Corp. to build a new commercial lending system that the two companies plan to market to other institutions.

Called LS2, for second-generation lending system, the technology is intended to boost the productivity of commercial lenders and help pare administrative staff. The software will be designed to work over networks of personal computers, using a processing technique called client-server computing.

LS2 is also IBM's second attempt at developing software specifically for commercial lenders.

Its first project to develop a comprehensive system, called Officer's Workbench, was scrapped in in 1992 after it failed to meet bankers' expectations.

Vision of Top Management

Richard H. Freyberg 3d, the Bankers Trust managing director leading the development project, described LS2 in a speech at a New York Society of Security Analysts conference last week in New York.

This is the vision of the chairman of the board and top management," Mr. Freyberg said.

They're giving me lots of money to build this system, and I appreciate that," he added.

In his speech, Mr. Freyberg said that Bankers Trust hopes eventually to sell LS2 to between 20 and 30 banks. Continental Bank Corp. and First Chicago Corp. have already agreed to buy the software and are providing input regarding its development.

"We're real excited about it," said Karen Powell, a Continental vice president involved in the project.

Costs not Disclosed

Mr. Freyberg declined to say how much banks will pay to buy LS2, or how much Bankers Trust and IBM are investing to build the software.

But based on the manpower alone, LS2 will cost millions of dollars to develop. Mr. Freyberg said that 35 software programmers and lending experts from Bankers Trust and IBM have been worki ng a year and a half to develop the software.

Managing the |Jewels'

It will take another two years to finish LS2, he added.

LS2 is slated to become the core computer system for all of Bankers Trust's commercial lending activities world. Some 300 bankers will use the software to manage the "jewels of the bank." Mr. Freyberg said.

LS2 will replace 20 different software systems that Bankers Trust uses for origination, syndication, trading, and servicing of commercial loans.

Antiquated Systems

Many of these applications are 20 years old, and use nearly obsolete mainframe technology. They need to be replaced soon before they "blow up," Mr. Freyberg said.

Mr. Freyberg added that Bankers Trust now has about a third of LS2 up and running. it is being used by 80-bankers in New York, Chicago and Los Angeles for loan trading and origination activities.

Mr. Freyberg said, Bankers Trust hopes to use the software to "reengineer" commercial lending operations, with an eye towards shedding administrative staff.

Bankers Trust also wants to use LS2 to automate all loan coordination operations with other banks, and communications with borrowers, and for profitability and risk analyses.

"Ten years from now we want pure professionals in a distributed computing environment moving units of work that used to take hundreds of people," Mr. Freyberg said.

High Administrative Costs

If this goal is accomplished, it could be a boon to Bankers Trust. More than a third of the costs of commercial lending stem from administrative expenses, according to Lawrence A. Willis, executive vice president of First Manhattan Consulting Group, in New York. The rest of the costs come from loan losses, he said.

To make LS2 achieve these aims, Bankers Trust and IBM are using the some of the most advanced computer network technologies available.

LS2 will run on networks of IBM personal computers equipped with the company's OS/2 operating system. The computing chores will be split between powerful "server" computers, and less powerful client" computers.

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