Ancient and modern

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					 Special report > M&A




Ancient and modern
In the wake of a period of consolidation, Italy’s banks
are looking for ways to reorganise their IT systems.
Massimo Castagnini of Monte dei Paschi di Siena
tells Ian Duncan how his company took an unorthodox
approach when it expanded following a major acquisition.




  Massimo Castagnini
  In January 2006 Massimo Castagnini was appointed CEO of the
  Operations Consortium Group of Monte Dei Paschi di Siena.
  Previously he worked for Banca Toscana SpA-Firenze as deputy                                 Like the bank, Monte dei Paschi’s
  general director.                                                                            headquarters are a mix of new and old.




I
     n recent years the Italian banking          would be a disaster. Massimo Castagnini,      Santander. In a business plan drawn up
     market has undergone a major                CEO of the Operations Consortium              at the time of the acquisition, MPS
     shake-up. The financial crisis              Group at MPS – making him the group’s         announced it expected to realise €360
eventually put the brakes on M&A                 de facto CIO, was tasked with making          million in savings within two years.
activity but the final impact of some of         the programme work and now, almost               The hoped-for synergies seemed a long
the big deals remains to be seen. As             two years after the main phase of the         way off as MPS struggled through the
the country’s retail banks face the new          project was completed, and he seems           credit crisis and received €1.9 billion in
reality, they are relying ever more              pleased with his handy work. “It was one      aid from the Italian government. Its
                                                                                               profits have yet to recover to pre-crisis
   It was one of the fastest integration                                                       levels and in 2009 were down 76%.

processes in the IT business.                                                                  Looking up
                                                                                               Despite a difficult two years, there are
heavily on IT systems to drive growth            of the fastest integration processes in the   now genuine signs of improvement and
and fuel expansion.                              IT business,” he says.                        the hoped-for savings are expected to
   Intesa Sanpaolo and UniCredit                    While he might feel satisfaction looking   flow onto the bottom line by the end of
emerged from the process as the                  back, at the time there were many who         2010. The merging of the two banks’ IT
country’s new giants but regional player         questioned the value of the acquisition.      systems was completed well ahead of
Monte dei Paschi di Siena (MPS), the             In November 2007 MPS bought                   schedule and, Castagnini claims,
world’s oldest retail bank, catapulted itself    Antonveneta from Santander for €9             efficiencies in this area mean the
into third place by acquiring Antonveneta.       billion. The size of the deal would have      company is on course to realise savings
By augmenting its core in central Italy          attracted notice in itself, but even more     of €127 million by the end of the year, up
with Antonveneta’s 1,000 branches – 600          interesting was the fact that Santander       from an initial estimate of €85 million.
of which will be rebranded as MPS, the           had not even completed separating out of         The operations consortium group that
other 400 retaining the Antonveneta              Antonveneta from ABN Amro when MPS            Castagnini heads is responsible for the
name – in the north-east of the country,         signalled its interest. Analysts were         banking group’s IT management and
the bank gained access to new regional           stunned by the final sale price as the        back office processing. It provided the
markets, of critical importance in the           Spanish bank had only paid €6.6 billion.      organisation with a strong core team to
highly fragmented Italian setup.                    Critics claimed that MPS had               lead the integration of the systems.
   A major dimension to the merger was           overpaid but some observers reasoned,            At the root of its success with
the integration of the two banks’ IT             as did the bank’s management, that it         Antonveneta was the unusual step
systems. In any industry this can be a           was in a better position to realise           of substituting the smaller bank’s IT
headache: in banking getting it wrong            synergies with Antonveneta than               systems for the existing MPS platform.


 68    Future Banking | www.banking-gateway.com
                                                                                               Special report > M&A


Whereas previous projects of this nature     models were dissimilar to those they         time to market and meet the needs off
had proceeded at the pace of 300             had worked under.”                           the bank’s new offerings to its clients.
branches over the course of a weekend,         Under the MPS approach, individual         We need to find the most innovative
all of Antonveneta’s locations were          branches had significantly more              instruments to sustain growth.”
integrated in a single move.                 autonomy, especially in terms of giving         MPS had been pursuing a programme
   “One of our strengths was the             credit permission. IT staff had to           of acquisition over the course of the last
collaboration between the two teams,”        accustom themselves to operating in          decade, and alongside the integration
Castagnini says, “but it was the decision    the framework necessary to enable this       with Antonveneta, it took the
to completely replace Antonveneta’s          greater latitude.                            opportunity to reorganise a number of
systems that was most significant.                                                        its own internal structures. Smaller
   “Usually you have to choose between       Next step                                    brands Banca Toscana, Biverbanca and
the two and decide which is the best for     As this process of acclimatisation           Banca Agricola Mantomana were also
any given application. We decided that       continues, MPS is also preparing to          brought onto the main platform. “All of
in all cases the MPS platform was the        move ahead with a new phase of its           these banks had their own system,”
optimum solution. By opting for              development. The integration of              Castagnini explains, “so it was very
substitution we have been able to            Antonveneta increased the size of the        difficult to integrate the services and
completely involve Antonveneta’s staff       bank’s branch network by half, so            products from one to another.”
in our existing way of working.”             existing systems need to be retooled            Refocusing will be necessary if the
   Castagnini grew up in Siena and           and optimised for its new size.              bank is to sustain growth in the future.
joined the bank in 1970, working his           Similarly, the bank is looking to          The shakedown appears to have ended,
way up through an incredibly broad           expand its multi-channel offerings and       meaning major mergers are unlikely for
range of positions before being              needs a platform in place to support         the time being. Expansion will come
appointed to his current role in             this growth. In December 2009 the            either through offering customers new
January 2006. His background is in           company saw an upswing of 18% in             products or gradual moves into new
operations management, personnel             customers using online and mobile            regions. In the latter respect, MPS has
and training, rather than IT, something      banking options compared with the            been regarded as conservative but as
that has prepared him well for the
current challenge.
   Careful planning was required and            One of our strengths in R&D is that our activities
tests were carried out ahead of the final    have to match with the goals of the group.
switchover but the speed with which
MPS acted still surprised the industry.
While the IT integration was completed       previous year, and it expects this           the Italian market slowly opens to
incredibly quickly, Castagnini explains      trend to continue.                           foreign competition, domestic banks
that the merging of 600 additional staff        This shift has required close             cannot afford to become complacent.
has been a more gradual process and is       collaboration between the IT division           All the large Italian banks have
an area where he is personally focusing      at the Consortium and business units         significant in-house IT operations but
a great deal of energy: “My main             elsewhere in the bank. “One of our           investment in recent years has focused
activity as head of the Consortium is to     strengths in R&D is that all our             on updating existing systems rather
manage the enlargement of activities         activities have to match with the goals      than driving innovation. As UniCredit
and the integration between people.”         of the group,” Castagnini explains. “We      and Intesa search for ways to leverage
   IT projects have been known to dog        are working intensively with the other       their technology assets, this could be on
acquisitions for years as legacy             departments in order to achieve a rapid      the verge of changing and MPS shows
systems prove incompatible and teams
fail to collaborate. Simply replacing one
system with another seems seductive            Playing pass the parcel with Antonveneta
but can leave employees at the smaller         2005: Dutch ABN Amro declares an intention to purchase Antonveneta.
organisation feeling like junior partners.
   MPS has been careful to intensify           2006: Following bitter opposition from Italian banking regulators, ABN AMRO
                                               finally takes an 80% stake in the bank.
training programmes for its entire
staff to avoid this but unsurprisingly         October 2007: A consortium consisting of RBS, Santander and Fortis announces
the learning curve has been steeper            it will acquire ABN Amro in the biggest ever banking merger. Santander acquires
for former Antonveneta employees.              Antonveneta.
“They faced a reality quite different
                                               November 2007: Monte dei Paschi di Siena buys Antonveneta from Santander.
from what they were used to,”
Castagnini explains. “Our services


                                                                           Future Banking | www.banking-gateway.com             69
 Special report > M&A


all the signs of being keen to carve out
a place for itself.
                                                Monte dei Paschi through the years
                                                In the 15th century Italy’s financial might spread across Europe. Major banking
   Moves to develop a partnership for
                                                families like the de’ Medicis rose to political power by bankrolling the French
on demand procurement demonstrate a             monarchy. Monte dei Paschi di Siena’s origins were considerably more humble.
desire to use IT to realise efficiencies        The bank was founded in 1472 life as a “Mount of Piety” charged with
internally but it is new offerings to           providing loans to the city’s poor at affordable rates. Over time it grew, surviving
                                                the political turmoil that engulfed Italy with clockwork regularity and it now lays
clients that will be the most important
                                                a strong claim to being the world’s oldest surviving retail bank. The institution’s
drivers of change.                              heritage is displayed in its collection of rare late Medieval and early
   The bank’s main markets are retail           Renaissance art, which is housed in its venerable Siena headquarters.
and SME clients – holding a little under
10% of the Italian market share in the
latter. While this business has served        managed both internally and externally.        factors, such as some inefficiencies in the
MPS well by limiting its exposure to          “If we did a poll on how are our IT            applications and a lack of knowledge
foreign turbulence, they are also sectors     infrastructure is used, we would probably      among staff.
where customers are increasingly              find that it is only operating at 65-70% of       “In order to find a solution and
expecting high levels of service across       its full capability,” he says. “There’s        leverage our IT system to the maximum
numerous channels.                            probably not a single answer as to why         extent, we are moving to a modular
   The challenge, as Castagnini sees it, is   we can’t reach its full potential – it’s       approach. People will only need to use
ensuring that these interactions are well     more likely a combination of different         elements that are relevant to them and
                                                                                             all the complexity will move to the
                                                                                             Consortium, streamlining the experience
    In order to find a solution and leverage our                                             for the branch and the client.”
IT system to the maximum extent, we are                                                         The immediate goal is clear: “We have
                                                                                             to develop all our services in a way that
moving to a modular approach.                                                                is sustainable and enables access on a
                                                                                             24/7 basis.”
                                                                                                On the client side in particular, big
  Monte dei Paschi is the                                                                    changes are in the pipeline. For its small
  oldest retail bank in the world.
                                                                                             business clients the bank is investigating
                                                                                             the possibility of offering services to
                                                                                             enhance their processes and enabling
                                                                                             them to pursue greater efficiency in
                                                                                             terms of electronic invoicing.
                                                                                                For retail customers, Castagnini sees
                                                                                             online as becoming increasingly
                                                                                             important but it will also have to be
                                                                                             coordinated with other channels. He
                                                                                             describes the shift as “an incredible
                                                                                             challenge but a major opportunity”
                                                                                             for the bank.
                                                                                                While Castagnini’s team has clarity of
                                                                                             purpose, he acknowledges that there will
                                                                                             be real changes to the way the
                                                                                             organisation functions. “It will be
                                                                                             necessary to reconsider how we work
                                                                                             with our clients,” he says. “We have to be
                                                                                             able to keep up with the pace of external
                                                                                             change while still being an innovator.”
                                                                                                It is clear that for MPS the acquisition
                                                                                             of Antonveneta has served to open up
                                                                                             new possibilities for the future. The rapid
                                                                                             integration of the two banks’ IT platforms
                                                                                             has demonstrated the talent that exists
                                                                                             within the bank but a great deal of work
                                                                                             remains to be done if the company is to
                                                                                             reap the benefits of its new status.


 70   Future Banking | www.banking-gateway.com

				
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