The New England megamerger agreement has rekindled concerns about the banking industry's ability to avoid year-2000 computer problems while pulling off big deals.

"While we are confident that Fleet and BankBoston are as ready as any bank can be when it comes to year-2000, their merger brings the year-2000 issue front and center," said Michael L. Mayo, an analyst at Credit Suisse First Boston.

On the surface, this is just the kind of deal many observers expected would not occur with less than a year left before the millennium bug strikes. The thinking had been that banks would not risk doing deals that would leave so little time to iron out potential computer glitches.

Fleet and BankBoston are generally considered among the best prepared in the industry, but even they could face some glitches closing a deal so close to the end of the year.

Mr. Mayo said he would not be surprised if Federal Reserve approval is delayed for a month or so as regulators consider year-2000 issues. And executives at the banks said they would delay systems integration till after 2000.

Both banks have appointed communication specialists to deal specifically with Y2K-Steven McManus at BankBoston and Kathleen Searle at Fleet Bank.

"Kathleen and Steve are two of the premier Y2K specialists in the banking industry," said Frederick E. Talbott, a professor at Vanderbilt University's Owen Graduate School of Management in Nashville. "They are excellent in their guidance and understanding of Y2K issues. That makes this particular merger more ideal than two banks that are not prepared."

James Schepqer, a spokesman for Fleet, said the bank is "on track" to meet its own guidelines and those of the Federal Financial Institutions Examination Council. "We have 100% tested our systems and have either placed them in production or are in final testing with them," he said.

BankBoston said remediation of application systems was 100% complete across all its operations.

Certification was more than 90% complete for domestic and Brazilian operations, and Argentine operations were about 40% certified and due to be fully completed by September. "Argentina is somewhat behind the other operations" in terms of year-2000 "due to recent acquisitions and other initiatives," the bank said in a filing with the Securities and Exchange Commission.

BankBoston began actively addressing year-2000 issues more than three years ago and has assigned 150 full-time employees as well as third-party consultants to the project. BankBoston's plan involves assessing 90 million lines of code in more than 700 software applications.

Fleet began its year-2000 initiative in early 1996 and has had over 300 employees working on the project since last year. Fleet set up a special testing site called Fleet's Time Machine with a separate platform from day- to-day operations. Fleet is currently doing environment testing at the Time Machine.

The initiative has the support of a Year-2000 Executive Management Steering Committee, which consists of Fleet's president and vice chairmen. Fleet's senior management has conducted on-site visits with its most critical vendors and service providers to discuss and assess their year- 2000 readiness. By the end of the second quarter, it plans to complete testing with these third parties. The bank has also been using external consultants for code correction, testing, planning, and project management.

As with most financial institutions of its size, Fleet is now at the contingency planning stage and expects the testing of failure scenarios to be completed by the second quarter.

In addition, this quarter a corporatewide "Year-2000 Event Plan" has being developed to govern the corporation's activities before, during, and after the calendar roll-over. This plan will be validated and tested during the second and third quarters.

Clint Swift, managing director of operations and technology at the Bank Administration Institute, said that any two banks define their business risks somewhat differently, "so don't be surprised to find that their Y2K plans respond to somewhat different exposures." He added, however, that "both these banks are so thoroughly committed to being ready that I don't believe that a merger would result in either bank's Y2K risk being increased by a Y2K situation at the other."

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