Co-op Bank's scrapped Finacle IT platform may have pushed the bank into serious financial troubles, say members of Parliament's Treasury committee.
Did the failure of a back-office IT project play a major role in the operating problems of one of Britain's banks?
In May, Co-operative Bank, a £30 billion ($46 billion) retail banking chain serving 6.5 million British account holders, announced it had run into serious liquidity issues. As it started to negotiate a re-capitalization deal, some observers noted that one of its problems was the failure of a project called Finacle -- a £250 million ($382 million) scheme to fashion a state-of-the-art banking platform. The system, it had previously announced, had crashed and burned so badly that Co-op had to write off £150 million ($229 million) from its last full-year results.
The Finacle project had been underway for several years, following acquisition of technology when Co-op bought the smaller Britannia Building Society in 2009. But progress had been slow, to the point where management decided it should lease back-office functionality from another bank, Lloyds TSB, as part of a proposed buy of 632 Lloyds' U.K. branches. The Co-op-Lloyds deal (called Project Verde) fell through in April due to Co-op's financial problems.
Finacle, if it had worked, might not have saved the bank from having its stock downgraded to junk status, or setting up a £1.5 billion ($2.3 billion) emergency rescue plan it scrabbled together in June.
But British MPs on the influential House of Commons Treasury Select Committee, which is investigating the collapse of the Co-op-Lloyds deal, have raised concerns that Finacle's collapse could have played a much bigger role in Co-op's problems than previously thought.
A report to Lloyds on Co-op's woes by a third party, finance house NBNK, also mentioned IT problems, the Finance Committee was told. The report cited "outdated IT platform, continued delays and problems with the Britannia integration, and the parallel implementation of a group-wide IT centralization [Finacle]."
"Verde would have brought capital, management and IT systems. All three would have been of benefit to the Co-op," said Treasury Committee member MP Jesse Norman. Although Verde would not have brought enough capital, it could have been a start in healing the bank's issues had it gone though as planned, Norman said.
The Group Chief Executive of Lloyds Banking Group, António Horta-Osório, also revealed just how challenging it can be to make major changes to any tier-one bank's main banking platform. He told the MPs that in his own bank's case it had cost £3 billion ($4.6 billion) to "integrate completely the systems of Lloyds and HBOS," another U.K. bank that it had previously merged with.
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