Deutsche Bank's Integration Woes

BT Alex. Brown's information systems staff expected some difficulties when Deutsche Bank bought the company for $10 billion in June 1999. They all knew there's no such thing as a seamless merger, especially if you're working for the company being acquired.

What they weren't prepared for was the almost complete lack of interest Deutsche Bank took toward the technology that BT Alex. Brown had spent decades developing. On Wall Street, after all, technology is considered competitive advantage, and part of BT Alex. Brown—the Alex. Brown part—was pure Wall Street: An investment bank that had underwritten tens of billions of dollars in stock sales in the long bull market that began in the 1980s.

But Alex. Brown's cachet didn't do much for the technology managers who were fretting about their future in early 1999. And since that time, Alex. Brown's information technology staff has basically been "obliterated," in the words of one former manager—replaced by Deutsche Bank employees. Only a handful of the original applications developed in-house at Alex. Brown are still being used at its equities trading group, staffers say.

What was billed as a cooperative integration—no easy task, even in the best of circumstances—turned into a humbling reminder of the inevitability of big-company politics for those on the BT Alex. Brown side.

While some of the principals at both BT Alex. Brown and Deutsche Bank say the outright ego-trampling and disorganization in the year following the merger is over, it's clear the disharmony that arose still exists.

This became apparent in April when a group of 400 Alex. Brown brokers demanded Deutsche Bank retain the Alex. Brown name in its brokerage operations and investment banking in the U.S. Until it finally relented, Deutsche Bank was determined to rename the firm Deutsche Bank Securities, eliminating a brand that had existed for more than 200 years.

Audrey Allopenna, who served as global head of investment banking for information technology at BT Alex. Brown—and was the company's chief information officer at the time of the merger—says it became clear early in the process that Deutsche Bank managers were making all the decisions. This was especially frustrating, she says, since they had led the BT Alex. Brown team to believe that technology applications would be assessed based strictly on merit.

Deutsche Bank "paid a lot of lip service to the notion of choosing applications based on what was best for the combined company," says Allopenna, who left the bank last year to spend more time with her family. "There was a lot of bureaucracy and politics."

Indeed, the initial discussions over technology prod uced a kind of stalemate. A year after the merger went through, BT Alex. Brown employees were still using Microsoft Exchange or Outlook for internal and external communications while the Deutsche Bank staff was still using Lotus Notes.

"There was a lot of talk about making the switch to one or the other but it never happened," says Allopenna. "The idea was to make sure the systems were in compliance with SEC regulations on Day One, and then later to work on our integration strategy. But it was extremely difficult to get people to work together and get everyone on the same page."

Clash of Systems

Another technology manager at BT Alex. Brown remembers the integration as being even more one-sided—and sees the inaction over Notes vs. Outlook as evidence that Deutsche Bank had something else up its sleeve. "Deutsche Bank wasn't too concerned about migrating the equities group to Notes because they figured most of that group would be gone soon anyway," says Ron Stein, a former technology manager in BT Alex. Brown's U.S. sales and trading technology department. He adds, "Deutsche Bank came into the merger with the idea that its systems were innocent until proven guilty."

Deutsche Bank declined to comment about the merger or the integration with BT Alex. Brown.

In fact, Deutsche Bank did close down its over-the-counter trading group in Baltimore this spring, leading to a mass defection of top executives—including former Alex. Brown CEO and Chairman Mayo Shattuck III, who left for Constellation Energy Group in Baltimore.

While Deutsche Bank made many of the right moves in the year after the deal closed—including identifying the managers who would spearhead the integration, and establishing a process for evaluating competing technologies—the groups within the combined companies continued to operate largely as independent entities.

For example, Deutsche Bank's equity research analysts used a homegrown application called R1 to generate research reports, derive earnings estimates and develop profiles of public companies in Europe. R1 also was used to ensure the company's trading practices were in compliance with regulatory standards. The Alex. Brown group, meanwhile, was using RDS, its own internally developed application, to do essentially the same thing.

"Even some of the Deutsche Bank analysts were in favor of using RDS, but it never happened because in Deutsche Bank's eyes the fact that it was a BT Alex. Brown product made it unacceptable," Allopenna says. "It was pretty clear that the U.S.-based product could more easily be deployed globally to start, and then we could go back and work on R1."

When word came down from Deutsche Bank that R1 would be the prescribed equity research tool, several BT Alex. Brown analysts simply refused to make the switch, arguing that they couldn't do their jobs effectively with the new software. "In the end, we settled on using both," Allopenna says. "That was a pretty good example of how things went."

While Alex. Brown traders were using Bridge, an information service that provides instantaneous news, analytics and pricing information on world financial markets, Deutsche Bank traders were using a competing product called Triarch. The technology staff originally planned to evaluate both services to determine which should be kept and which discarded. No choice was ever made, however. Reuters bought Bridge Information Systems last year, and now owns both Bridge and Triarch.

Hurdles to Integration

Few industries have as many specialized and internally developed applications as financial services. After using one program for several years, analysts and traders become proficient at, and in some cases dependent on, their application of choice. And the support staff for these applications and systems spends years servicing, modifying and designing these applications for specific needs within their organization. Fate is not always kind toward programmers whose carefully nurtured applications get discarded.

"In financial services mergers, the brawl between technology groups often becomes very intense, especially if the competing technologies are homegrown," says Gartner analyst Don Free. "It takes a lot of architectural work to make it work, and sometimes the acquiring company isn't willing to make that investment."

About the only significant application integrated between the two companies on the equities side was SunGard's BRASS utility software, which is now used to process trade orders. And that integration only happened, says former BT Alex. Brown manager Stein, because the two companies were using the same software to begin with—albeit different versions.

"One of the most frustrating aspects of this whole process was that you never knew who to go to for a straight answer," says former CIO Allopenna. "Deutsche Bank had a global head of this and a global head of that, and that type of communications environment just doesn't work regardless of what direction you're going to take from an IT perspective."

"You're talking about an enormous commercial bank buying a comparatively smaller investment and commercial bank," says David Furlonger, a vice president and research director at Gartner. "Those are two completely different types of organizations, types of businesses. Throw in the fact that it's a German bank buying an American investment bank and you can understand why there was so much political infighting. It's not a scenario that's conducive to a short-term integration much less any kind of long-term business or IT planning."

With more than 2,000 offices and roughly 90,000 employees scattered across 70 countries around the globe, Deutsche Bank is a sort of poster child for heterogeneous systems. At last count, it was using more than 8,000 servers running OS/2, Windows NT and Unix plus more than 80,000 PCs. It has a substantial base of IBM mainframe computers and, according to one former manager, has as many as 110 different data centers—including 17 which are considered "major"—all over the world.

"You have to understand that there was very little integration done when Banker's Trust and Alex. Brown merged back in 1997," says one former Deutsche Bank manager who requested anonymity. "Instead of finding a sensible, repeatable process to integrate their acquisitions, they simply fund the technology through initial connectivity mainly for communication for e-mail and phone service, and the rest of their efforts are spent on cutting costs. They're definitely not a sterling example of post-merger synergies."

At Deutsche Bank, the pressure to control costs and improve profitability is such that its executive management team, in 2001, ordered a 10% cut in technology spending for the next year.

"Usually when a bank decides to merge with another bank, the goal is to improve operating efficiencies, get the best of breed in terms of systems and people and get new accounts," says the former Deutsche Bank manager, who now works as a consultant. "Deutsche Bank was only interested in getting the new customers, and everything else was inconsequential."

Deutsche Bank Base Case

Headquarters: Taunusanlage 12, 60325, Frankfurt, Germany

U.S. Phone: (212) 469-7125

Business: Banking and financial services

Chief Information Officer: Mitchel Lenson

Financials in 2001: $66.8 billion in revenue, $150 million in net income

Challenge: Integration of BT Alex. Brown's information systems with its own

Baseline Goals:

Cut overall information technology costs by 10% per year Reduce headcount by 13,000 employees by 2003 Improve market share of U.S. investment banking business from recent levels of 5%-6%

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.