Citicorp, seeking to increase its market share in the increasingly cutthroat trust and custody business, has signed an $80 million deal with International Business Machines Corp. to overhaul its securities-processing systems.
The IBM hardware and software, to be installed in 1994, will replace much of Citicorp's aging system. The system is intended to allow customers to look at their domestic and international stock portfolios with up-to-the-minute information.
Initially, the new system will tie into Citicorp's present global custody software, but it may eventually replace the overseas operation, according to John J. Egan, head of trust and global custody services.
No. 1 in the Business
Citicorp has $600 billion in assets under custody. It is the world's largest global custodian, with $203 billion in cross-border assets, according to Equity International national magazine.
In recent years, Citicorp has faced stiff competition from smaller, more-focused rivals such as State Street Boston Corp., which last year installed a multimillion-dollar accounting system that tracks global securities portfolios in multiple currencies.
Profit margins in the trust business have also narrowed over the past two years as the largest players have cut their fees to increase market share.
Citicorp is "trying to increase its global penetration," said Thomas Abraham, a New York-based bank consultant. "They may be targeting U.S. investors with foreign holdings, then ultimately foreign clients with U.S. holdings."
The new system "is an integrated solution that will position Citicorp well for the future," said Mr. Egan. Providing customers with up-to-the-minute status reports on all of their holdings "is not something we do well now," he added.
"Integrated reporting is increasingly important to have - it's one of the key products in global custody," said Raphael Soifer, a bank analyst with Brown Brothers Harriman. "It would be difficult for Citicorp to remain competitive without these capabilities."
Citicorp plans to overhaul domestic clearing, safekeeping, settlement, master trust, investment accounting, and reporting capabilities as part of the project with IBM.
Citicorp's existing network consist of a 20-year-old mainframe-based core accounting software, and about 40 affiliated systems, according to sources close to the bank.
"We need to get the cost structure down to where we're a low-cost provider," Mr. Egan said.
Better Focus on Market
In moving forward, Mr. Egan said one of his key tasks was to improve market focus. Citicorp has been seen as less focused than some of its rivals, analysts said.
Citicorp's strengths in the domestic and global trust markets are among insurance companies, Wall Street broker-dealers, and pension funds such as those of New York City.
The new system will give customers more-flexible reporting and accounting options, including accounting by trade date and by actual settlement date. The software also will support a fuller range of investment vehicles, Mr. Egan said.
The new software system also will enable Citicorp employees to custom-design reports and access information from across the bank.
The purchase, which includes hardware, software, and consulting services, is seen by observers as an excellent deal for Citicorp. Software for multicurrency accounting will be provided by New York-based software concern Financial Technologies International, an IBM business partner.
Sources said that Citicorp struck favorable terms similar to a leasing contract in which IBM will pay all costs up front and Citicorp will pay IBM in installments over a seven-year period. Citicorp officials declined to comment on the contract's terms.