The costs of fixing the year-2000 computer problem keep climbing.

Banking companies' latest quarterly 10-Q filings with the Securities and Exchange Commission, reflecting activity through Sept. 30, included the most detailed disclosures to date on the toll of the year-2000 bug.

Chase Manhattan Corp., for example, raised its estimate to $363 million, 21% above the previous quarter's and 45% higher than its first public disclosure in April 1997.

National City Corp.'s estimate rose 62% from the second quarter, to $65 million; Wachovia Corp.'s 33%, to $80 million; and Bank of New York's 28%, to $82 million.

Bank One Corp.'s estimate has reached $190 million. And this does not include First Chicago NBD Corp., which merged with the former Banc One of Columbus, Ohio, on Oct. 2.

Only two quarters ago that company had put its total cost to fix the year-2000 problem at $100 million. Its latest 10-Q said that only 60% of "mission-critical applications" were compliant.

"I do not think banks have a handle on it," said Carl Faulkner, managing director at M One Corp., a Phoenix consulting firm. "It is far more difficult than they ever thought or imagined."

Many banking systems date from the 1960s, he said, and have not been modified since then. "I can assure you that some vendors are going through sheer agony by having to go back and find the original programs."

Not surprisingly, he said, costs are climbing as tests reveal that efforts thought to be complete require more work. He said he expects cost estimates to climb even further as more testing is done.

Stamford, Conn.-based Gartner Group last year said the total upgrading and remediation cost to U.S. industry would exceed $600 billion.

The higher estimates should not adversely affect bank earnings, Mr. Faulkner said, because many of the expenditures are reallocated from other budget lines, such as research and development. Banks started early to correct the expected computer problems, he said, aided largely by increased attention from the media and regulators.

"The banking sector as a whole, especially the larger institutions, is doing fairly well, much better than other industry sectors," said Kazim Isfahani, an analyst at Giga Information Systems.

He said he expects the banking industry to be largely done with converting mission-critical applications by the end of this year, leaving 1999 free for testing.

James W. Mays, vice president and year-2000 administrator at First Tennessee National Corp., said estimated costs of computer projects are typically based on historical models. Year-2000 stands apart as a unique event with no track record, he said.

Estimates are rising, he said, because time is running out and the skilled resources needed to finish the work are getting scarce.

First Tennessee, a Memphis banking company with $16.5 billion of assets, has been rated the best-prepared bank for the year 2000 by PaineWebber Inc.

As of Oct. 31 the company had "renovated" 90% of its mission-critical systems and 84% of all its systems. Of the 768 computer applications the bank runs, only eight are left to deal with.

First Tennessee's previous total cost estimate had been $35 million, but even its assumptions may change, rising to as much as $40 million when all is said and done.

The biggest challenge facing bankers may not be in completing system conversions but rather in dealing with customer concerns and even the threat of deposit outflows.

For example, the American Association of Retired Persons is advising its 50 million-plus constituents to remove $1,000 in cash for every member of the household, Mr. Faulkner said.

Mr. Mays is among a growing group of officials who want to publicize the safety and soundness of the banking system, especially the backing of the Federal Deposit Insurance Corp.

The Federal Reserve said it will make an additional $50 billion in currency available to banks in anticipation of short-term demands for cash.

But there is no way to gauge the full impact of the date change, Mr. Faulkner said, and bankers and regulators must step up their efforts to allay any fears.

"This is going to be a public relations issue," he said, "and it has to be cranked up pretty soon to calm everybody down."

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