Banks are generally prepared for 2000, a PaineWebber Inc. analysis of 33 large institutions found. About half as many low performers as high performers surfaced in the study.

PaineWebber ranked First Tennessee National Corp. as best prepared. Close behind were Bank of New York Co., First Union Corp., and State Street Corp. Laggards included Banc One Corp. and First Security Corp.

PaineWebber ranked financial companies on several year-2000 parameters, including percentage of the project completed, testing methods, vendor dependence, start and completion dates, risk of budget increases, loan portfolio risk, and disclosure levels.

PaineWebber said the year-2000 issue would not negatively affect bank earnings or valuations.

Banks are "far along" in addressing the year-2000 problem, said PaineWebber senior bank analyst Ruchi Madan, especially compared with other industries. "Regulators have really been aggressive," she said. Even laggards will have enough time to correct the problem, she continued.

The year-2000 problem stems from two-digit date fields in computer programming. Unless corrected, the systems may interpret "00" as 1900 instead of 2000, causing miscalculations.

On average, banks will spend 1.4% of their total expenses fixing the problem, PaineWebber said. Since the first quarter of 1997, many have increased their year-2000 budgets significantly, the study noted.

The best-prepared banks are employing a wide range of tactics, including communication, technology, and even employee retention schemes.

First Tennessee Bank tackled the problem by replacing most of its systems, said James W. Mays, vice president and year-2000 administrator at the Memphis bank.

More than half the bank's applications are now ready for the millennium change, and it has done integrated testing. In addition, the replacement strategy let the $13.3 billion-asset bank move from a mainframe to a client/server environment, Mr. Mays said.

The bank started work on the project in 1995. It has allocated $35 million over three years, with about $5 million of the budget going to rewriting code.

Already well into testing, First Tennessee plans to be fully compliant by yearend. It will spend 1999 trying to "break the bank" through extreme testing, Mr. Mays said.

First Tennessee involved employees from senior management to tellers in its year-2000 fix. For example, the technology department conferred with front-office staff to determine how they use their systems.

"We are asking all the people responsible for working with the customer base ... to develop test plans and scripts to make sure the systems work on a day-to-day basis," Mr. Mays said.

First Union's early start and technology sophistication earned it a high score in PaineWebber's survey. About half the $220 billion-asset institution's systems have been tested, and it will begin integrated testing in October.

PaineWebber was also impressed that First Union has budgeted two months to test one night's worth of processing; other banks are leaving one month.

Though it has made more than 70 acquisitions since 1985, First Union maintains a single technology system, said executive vice president Austin Adams. This helped speed the conversion process, he said.

Also, the bank's deposit processing system, which accounts for 15% of its code, is already year-2000 compliant, Mr. Adams said.

The company, which is spending $65 million over three years on its millennium change problem, plans to have 95% of its systems adjusted, tested, and put back into production by yearend. Integrated testing should be completed by April 1999, Mr. Adams said.

BankAmerica Corp., a $260 billion-asset company based in San Francisco, was not among the leading scorers but won praise for an on-line project update system. BankAmerica also has initiated integrated testing and an employee incentive program.

Executives and senior-level employees keep track of the banking company's year-2000 efforts-including current and upcoming projects-through its intranet. The log is updated daily, said Bob Wynne, BankAmerica's year- 2000 spokesman.

"We want to make sure our employees are aware of what we are doing," Mr. Wynne said.

The banking company's $380 million budget for three years includes an $80 million incentive package to keep trained employees.

With 65% of the effort completed, BankAmerica expects to be fully compliant by 1999. It established its millennium change project office in 1995.

PaineWebber's report, as well as regulators' suggestions, prompted Union Planters Corp. of Memphis to move up its date to start integrated testing from February to the end of November, said Lloyd DeVaux, the banking company's executive vice president of technology and operations.

PaineWebber, which originally gave Union Planters the lowest ranking, upgraded it after discovering two errors in its initial assessment. Union Planters' core system is written with a four-digit date field, making it year-2000 compliant. Also, the banking company had actually tested 66% of its systems.

Union Planters, with $18 billion of assets and $13 billion in pending acquisitions, is spending $4.5 million on its century date change repairs. Nearly all the banking company's systems are supplied by vendors, two of which have yet to deliver year-2000-compliant software. Those systems will arrive in July and September, Mr. DeVaux said.

PaineWebber expressed concern that some banking companies-such as Wells Fargo & Co., U.S. Bancorp, and Citicorp-did not disclose year-2000 information.

A banking company that revealed its plans but still did not score well was $18.3 billion-asset First Security Corp., Salt Lake City. Though PaineWebber said the banking company has a solid organizational and business plan in place, it got off to a slow start and is very dependent on vendors.

First Security officials disputed the report, saying they began working on the millennium date change in 1995 and have devoted sufficient resources to it. Also, the banking company does not customize vendor software, making it easier to upgrade, and does test all year-2000-compliant vendor releases.

"We have a very good handle on this," said Scott Ulbrich, First Security's chief financial officer and executive vice president.

Banc One, a $145 billion-asset banking company based in Columbus, Ohio, was also criticized for starting late and for testing only 17% of its mission-critical systems.

Bank officials declined to reply to the report, saying only that each institution measures its readiness differently.

"We feel very comfortable with the progress we've made," said John Russell, Banc One's chief communications officer.

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