What is much, much bigger than a breadbox and many times more difficult to dispose of?
One answer: the machine widely used in the banking industry for reading and sorting checks, which now occupies the unenviable position of being the biggest white elephant in banking.
Since a reader/sorter can measure up to 60 feet long and weigh 2,000 pounds, the banking industry is starting to face what is known in the waste management realm as a disposal problem.
Yes, there is the legend of the civic-minded bank that donated a check sorter for an environmental cause: letting it be sunk off the coast of Florida to create an artificial underwater reef. No one who tells this story can quite recall the name of the bank in question, but many of the raconteurs proceed to tell the true story of the New York subway car that was handed over for the same purpose.
Back in the real world, there are real banking companies with really big check sorters and no plans for how to dispose of them. For example, Wachovia Corp. has six of them in climate-controlled storage.
"There's no market for the equipment, but I think it's a little early in the game to just scrap them," said Peter Frank, a senior vice president for item processing at the Charlotte company. "At some point every financial institution will have to make a decision" about what to do with their excess machinery.
Bank of New York Co. has not decommissioned any of its 14 reader/sorters, but Peter Allutto, a senior vice president in its deposit services division, said it knows it will have to soon. "Except for trying to sell them as anchors on ships, there's not much you can do with them."
In an effort to persuade consumers to write fewer paper checks, banks have long promoted the many advantages of electronic payments, and those efforts are, um, paying off. As bankers figure out how to put their behemoth machinery out to pasture, they may have to remind themselves that rapid declines in check volume are a good thing.
Though new sorters are being sold for $1 million or more, refurbishing an older one can cost $25,000 to $50,000, said Robert Seltzer, the president of Meta Software Corp., a check processing consulting firm in Cambridge, Mass. There is still a small market for used sorters, but at the rate things are going, many of the machines will have little residual value outside of a scrap heap, Mr. Seltzer said.
He predicts that by 2009 the banking industry will need to dispose of as many as half of the sorters currently in operation. "Everyone knows you have to take capacity out."
Just paying somebody to cart off such a large piece of machinery is going to be costly, Mr. Seltzer said; he estimates that banks may have to pay $5,000 to $10,000 to dispose of each surplus sorter.
"For now, I suspect that banks won't do anything, because it will cost them more to move" sorters "than it would to pay for the real estate to store them," he said.
Last year this reporter saw one of these reader/sorters listed for sale on the online auction site eBay Inc.; a government agency was selling the sorter, and it could not be determined whether it was sold or for how much.
The news is not entirely glum for owners of reader/sorters. Even though check volumes are not expected to rebound, some individual companies are trying to increase their share of the item processing market, and they are generating gains as other banks outsource their operations. Mr. Frank of Wachovia said mergers and acquisitions can also drive up a bank's demand for sorting capabilities.
If they are well-maintained, the machines can last for well over a decade, so a large number of the sorters now in use are fully paid for. Even if a bank sells a sorter for scrap, the accountants view the transaction as adding cash to the bottom line rather than selling an expensive piece of machinery far below the sticker price, Mr. Frank said.
"The industry has clearly gotten their value out of the equipment," he said.
That is the optimistic scenario. KeyCorp's experience when it tried to get rid of two sorters from a Dayton, Ohio, processing center it closed in 2002 may be more typical.
Buyers picked off some components of the machines - in particular, the pocket units used to catch the checks after they have been run through the sorting process - but nobody wanted to buy the main units, said Don McLaughlin, the division manager for Key's client services group. In the end "we paid someone to take them away."
Some of the newer sorters are equipped with cameras that can capture check images, and for all the obvious reasons, these cameras have a strong resell value, he said. For example, Key had better luck last year selling a surplus sorter from its Tacoma center, because the machine had a camera.
The Cleveland banking company's internal projections indicate it will need to get rid of one or two more machines within the next year, Mr. McLaughlin said. All of the 19 sorters Key still has include cameras, which will help when they need to move equipment on the aftermarket.
"We think we are in excellent shape to downsize," he said.
International Business Machines Corp. sells the most common high-speed sorter in the industry, the model 3890. Some new units are being sold from inventory, but the last machine rolled off the production line some time ago, IBM said.
First Technology Capital Inc. of Versailles, Ky., which buys, sells, and leases used check-processing equipment, says there is still some demand for reader/sorters in South America and Asia, though many clients there want machines that can handle imaging.
"We see a stable supply and demand for image-ready systems," said Jim Bates, the president of First Technology Capital. "The supply of non-image equipment clearly exceeds demand at this time."
If a bank has an older sorter without a camera, Mr. Bates said, he might be willing to haul it away for a fee - if he has a lead on a potential buyer or if a client is willing to buy the camera elsewhere.
But sometimes he will not. "If you're a customer and have an old machine, you've got a problem," he said.
And don't even try to offer him an old pocket unit. "We have a warehouse that's full of them. I certainly wouldn't pay any amount of money for it."
