As details of Citigroup Inc.'s cutback plans emerged last week, new information about the company's ongoing technology projects sparked speculation that the company may be mulling a core processing upgrade.
The New York banking giant announced a major restructuring plan Wednesday aimed at cutting $4.6 billion in expenses by 2009, with about 40% of that expected to come from operations and technology initiatives.
Some of those projects were first discussed in October, but others, including plans to consolidate its credit card and mortgage platforms, were announced last week.
Robert Druskin, the chief operating officer, said during a conference call to discuss the cutbacks that Citi plans to reduce its total of U.S. card-processing platforms from 12 to two and the number of U.S. mortgage origination platforms from five to one.
He also discussed a data center project announced in October; Citi now has 42 centers, down from 52 a year ago; and it expects to have just 21 by the end of 2009.
Technology savings would contribute 34% to 35% of the total expected cost savings, Mr. Druskin said, and operational changes such as consolidating legal and human resources functions in shared service centers would add 5% to 10% to savings.
"We have not built any unknown but hoped-for savings into this model," he told analysts. "These are just sitting there ready for us to pull the trigger."
Two analysts took divergent views of the efforts' probable effect.
Robert Hunt, a senior analyst at TowerGroup, an independent research group owned by MasterCard Inc., said Citi is also likely to consider upgrading its retail core-processing systems worldwide.
Citi announced a similar overhaul in 2002, to convert its international corporate banking operation to the Flexcube core processing system from i-flex solutions ltd. in Mumbai.
"Now it seems they've turned their attention to the retail side around the world," Mr. Hunt said. "Every indication I get is that Citibank is on that kind of drive."
He said he has heard that Citi is talking to Fidelity National Information Services Inc., about using its Systematics retail core system in several international markets with large consumer operations.
Mr. Kessinger said in an interview Friday that "we have been working in the international space for a couple of years, moving toward a standardized banking platform," that eventually would serve most of Citi's global operations.
Michelle Kersch, a spokeswoman at Fidelity, said she could not comment on speculation. "We are aware that Citi is looking at collapsing its technology," she said, adding, "Bob Hunt is always a very good resource and knows what he is talking about."
Mr. Hunt said banks can typically save 20% to 30% in core processing costs by modernizing out-of-date systems.
However, Bart Narter, a senior analyst at the research and consulting firm Celent LLC, said that core system conversions are expensive and, in the short term, generally drive up personnel and hardware costs the opposite of what Citi says it wants to accomplish.
He said that Citi operates in so many places that it would be hard to find one core that could work everywhere.
In contrast, consolidating to a single core system makes more sense on the corporate side of the business, he said. "It's the same global customers, and they have the same global requirements."
Banks' headquarters often want to standardize, while local executives want customized applications, and Mr. Narter said the local offices usualy win. "If you're going to force some guy at Citibank Greece to give up his Greek system and move to i-flex, he's going to lose some functionality."
However, it's easier to consolidate card or mortgage platforms "when they're all running on one system."
