Year-2000 worries are no longer cooling the urge to merge, Firstar Corp.'s deal to buy Mercantile Bancorp. of St. Louis suggests.

The companies expect to complete their $10 billion merger just before the new year. That would let them wrap up year-2000 conversions before addressing overall systems integration.

The timetable indicates that year-2000 may no longer be holding banks back as they contemplate the technology implications of proposed mergers, analysts said.

"Y2K is becoming less of an inhibiting factor," said Michael L. Granger, an equity analyst at Fox-Pitt Kelton. "Within three months after closing they'll begin consolidating."

According to a 10-K report for yearend, $38 billion-asset Firstar expected all of its software applications to be fixed, tested, and returned to production by March 31. It planned to have its contingency plans established by June 30.

Mercantile, with $36 billion of assets, said in its filing that it had fixed and completed testing 100% of its most critical applications. Of other programs, 87% had been fixed and tested by the end of last year. It said its contingency planning was "in progress."

"For most large banks, Y2K is pretty much completed," said Dick Barrett, managing director and co-head of the financial institutions group at Donaldson, Lufkin & Jenrette Inc. "There might be some final testing, but people are already moving on."

That was not the prevailing view when Norwest Corp. and Wells Fargo & Co. announced their merger last June. Officials of the new Wells have said it would suspend its three-year systems integration effort in September, to devote attention to the year-2000 problem. The company would resume integration of systems sometime after March 2000.

Firstar and Mercantile estimate that they will reduce their expenses by $169 million, with that full amount to be achieved in 2000.

With merger deals often taking six to nine months to close, Mr. Barrett of DLJ said, Firstar and Mercantile do not need to test the patience of investors by delaying cost savings.

Mergers of medium-size banks may accelerate in the months leading up to 2000, said Brian Wengenroth, vice president of Booz-Allen & Hamilton. Many larger banks are still challenged with integrations of past acquisitions, and they have the year-2000 efforts on top of that.

"It takes time to absorb a big institution," the consultant said. "Even though large institutions have often had aggressive year-2000 programs, they have a lot of complexity, so it's still taking time."

Others say the year-2000 issue never had a big impact on merger activity.

"It's been kind of a speed bump," said Gene O'Kelly, vice chairman of the financial services practice at KPMG LLP. "It gets a lot of attention during due diligence, but I don't see people backing away from something they otherwise would have pursued."

Firstar and Mercantile expect operational consolidations and greater use of electronic delivery channels such as the telephone and Internet to help in achieving their cost savings.

"Firstar has put a lot of resources into its Internet offering," said Christopher Musto, senior analyst at Gomez Advisors Inc. in Concord, Mass. "And it pulled that off when it was merging with Star Banc, so that's encouraging."

But Firstar is by no means yet classified as an on-line powerhouse. "They have a lot of breadth in their offerings, but not much depth," Mr. Musto said.

The merger last November of Milwaukee-based Firstar with Star Banc of Cincinnati bodes well for Firstar's latest acquisition, executives said. Mercantile chairman and chief executive officer Thomas H. Jacobsen said at the merger announcement Friday that the speed and smoothness of the Star- Firstar merger "leads us to believe that we can minimize near-term disruptions."

Mercantile has a "good handle" on year-2000 computer issues and has consolidated recent acquisitions onto one operating system, said Joseph Roberto, an equity analyst at Keefe, Bruyette & Woods Inc.

ARLINGTON, Va.-The Information Technology Association of America said that Citigroup's systems development operations in Bombay and Bangalore, India, have passed ITAA-2000 certification tests.

Citicorp Information Technology Industries Ltd.'s products division submitted several systems, including key Oracle and Sybase data bases, for the year-2000 evaluation.

Certification signifies they have "the core capabilities needed to address the year-2000 challenge," the ITAA said Wednesday.

The technical evaluation was performed by the Software Productivity Association of Herndon, Va.

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