When PNC Financial Services Group Inc. of Pittsburgh acquired Riggs National Corp. of Washington last week, it wasted no time transferring the accounts to its own core deposit system.
The off-again, on-again deal closed Friday; by Monday morning, all of Riggs' customer accounts had been transferred to PNC's databases and processing systems, and PNC posted its first transactions for the Riggs accounts to its own deposit system that night.
"The conversion is going very well for us," Joseph E. Rockey, an executive vice president and the director of branch distribution at PNC, said in an interview Tuesday.
By switching core systems the weekend after the deal closed, PNC may have matched the modern speed record for converting an acquisition's systems; the switch is reminiscent of the 1980s, when troubled savings and loans frequently closed Friday evening and reopened Monday morning with a new name and new ownership.
Though the speed of the Riggs conversion was unusual, most core processing system switches take place because of a merger or acquisition; a study last month from TowerGroup, the Needham, Mass., market research unit of MasterCard International, found that only three banks have changed their core systems in the past five years for any reason other than M&A.
Mr. Rockey said the need for an immediate shift was driven by regulatory requirements and the need to comply with the Bank Secrecy Act. "PNC was focused on ensuring that the risk environment that PNC was inheriting was one we were comfortable with," he said, though he offered no other details.
Riggs had faced investigations over its relationships with the former Chilean dictator Augusto Pinochet and the government of Equatorial Guinea. A year ago the Office of the Comptroller of the Currency and the Treasury Department fined Riggs $25 million for failing to comply with anti-laundering laws put in place after the Sept. 11 attacks. And in January, Riggs paid a $16 million file to the Department of Justice.
Core processing is one of a bank's most important systems, and the most complex, and switching systems is a huge undertaking. After making an acquisition, most banks spend some time absorbing operations before shifting accounts to another processing system.
PNC followed a far more typical timetable when it bought United National Bancorp of Bridgewater, N.J., in late 2003; United National's accounts did not move to PNC's systems until March of last year.
Mr. Rockey said planning for the Riggs conversion began shortly after the deal was announced in July. The first step was matching Riggs' banking products with PNC's, then setting up a computer program to handle the changeover.
By February, PNC was conducting a "mock conversion" in which it tested the software it would use to transfer the Riggs account information, he said.
Next, PNC had to prepare Riggs' employees and customers for the switch.
In the spring PNC began preparing the letters that it would send out to Riggs' customers; 12 weeks ago it began training Riggs' employees on the new systems and technology. Riggs had used teller and core systems from Fidelity Information Services Inc., which is primarily owned by Fidelity National Financial Inc. of Jacksonville, Fla. PNC uses a teller system from Siebel Systems Inc. of San Mateo, Calif., and a core deposit system from Computer Sciences Corp. of El Segundo, Calif.
At 6 a.m. Friday PNC activated the new debit cards that it had mailed to Riggs customers. By 10 a.m. the old Riggs debit cards had been shut off. PNC closed down the Riggs online banking system at 5:30 p.m., when the Riggs branches closed for the last time under that name.
Friday's transactions at the Riggs branches were processed on Riggs' system. Debit transactions over the weekend were processed on PNC's and transmitted over First Data Corp.'s Star debit network.
Riggs' branches remained closed over the weekend, as PNC transferred customer account data to its own databases.
When the branches reopened Monday, PNC sent "PNC buddies" from other branches "to work side by side" with the Riggs staff, Mr. Rockey said.
By Tuesday morning PNC was encountering only minor glitches, he said. "Two customers got charged 75 cents for ATM transactions" that should have been free. "We're trying to see how that happened and reversing it out. It's a very minor item, but it's very important to our message, to our integrity."
As banks continue to purchase each other, they are also moving away from proprietary core systems. Robert Hunt, a senior analyst at TowerGroup, reported in the study that only 14 of the 100 largest banking companies used homegrown systems at yearend, versus 29 in 1995. The decline was largely the result of M&A; the buyer usually, but not always, brought the seller's accounts on to its own core system.
Ten of the nation's 25 largest banking companies, including PNC, use Computer Sciences' CSC Hogan system. LaDonna Hansen, a vice president in Computer Sciences' banking division, said that the platform dates to the 1970s, and was one of the first integrated core banking systems offered by a vendor.
Continuum Co. Inc. bought the platform's developer, Hogan Systems Inc., in 1996. Computer Sciences bought Continuum later that year and has continued to update the platform to support modern functions such as debit cards.
And just as banks have consolidated over the past decade, so have their core vendors. M. Arthur Gillis, the president of the Dallas research and consulting firm Computer Based Solutions Inc., said the 2005 edition of his annual survey of banking technology vendors will list 28 providers of core processing software and services; 15 years ago his survey listed 78.
