There was nothing wrong with Northern Trust's old global custody system, but that didn't stop Peter Magrini, svp of trust and custody application development, from building a new one that could adapt better to a business the institution planned to grow.
The $18 billion-asset, Chicago-based institution supported its global custody business with a proprietary system running on an IBM 3270 mainframe that dated from the 1970s. It worked fine, says Magrini, but it lacked the scalability that Northern Trust felt it needed to grow its global custody business, which has $779 billion in institutional assets under management.
Part of that scalability issue was implicit in the proprietary legacy system, which required plenty of support and fine-tuning by Northern Trust technicians at the client site. The result: a new trust and global custody support/client delivery system that the institution calls Passport. "We wanted to take advantage of the power that was growing on the desktop to create an open architecture, so that where we found commodity functions being performed, we could choose to buy. Before we had to build it all ourselves," says Magrini. "Also, we wanted to have a blueprint in front of us that was the complete picture of the trust and custody business of the 21st Century." The idea, he adds, was to build an essentially plain vanilla system into which any client's computers could be plugged without technical challenge. Among the components purchased from New York-based Financial Technologies International: a global financial accounting engine and institutional asset pricing model. "We used (the FTI components) as a base, added what we wanted to and saved ourselves time and money," he says. "Otherwise, we built a lot of the applications from scratch because that is the nature of the beast," adds Magrini. "But we built an open architecture with the advantage of a lot more consistency; the more you're dealing with standard platforms (the less ) you're imposing a proprietary system on (your clients)." Some of the applications that Magrini's team was responsible for developing in-house include those for reporting and transaction capture.
The result is full interoperability between systems. For instance, says Magrini, customers can take one of his system's toolsoa query tool called Sherlockofind the data they need in Northern Trust's database, and bring it directly into their own spreadsheets. Clients can communicate with the institution in almost any way; most use either ISDN lines or the Internet.
The system, of course, didn't come cheap; Magrini says Northern Trust sinks about $100 million a year into technology. He declined to break out the development costs for Passport; his development team however, amounted to between 250 and 300 people working for two years on the first phase of what is still an on-going project. Northern Trust began work on Passport in 1992; the first modules rolled out in 1994. The global custody business is an expensive league, played in by the likes of Bankers Trust New York Corp., State Street Bank, the Bank of New York, and Mellon Bank; so from Northern Trust's perspective, it's money well spent.
Also, since much of the institution's net income was coming from non- interest sources, it reinforced the direction of the company; in 1996, total interest income was $940.7 million (net interest income was $274.2 million), while non-interest income was $548.8 million. The rest came from lending and foreign exchange operationsothe latter, says Magrini, mainly conducted for their global custody customers. Northern Trust officials say it's the nation's eighth largest forex bank.
The advantage that Northern Trust gains from Passport? "More rapid change," says Magrini. For instance, he says, his shop designed, built and implemented a product called Alert in nine months. Alert tells Northern Trust's institutional clients about investment activity, based on exceptions. Magrini estimated the same process would have taken two years under the old system.
Magrini's Passport system runs on an IBM DB/2 relational database. He's about to move to IBM's new CMOS mainframe for increased flexibility and scalability purposes. "It won't change things for us from an applications perspective," says Magrini. "But it will give us more flexibility in running the data center and managing our costs there."--reinbach tfn.com