But Spanish parent, Banco Sabadell, proclaimed triumphantly to its Spanish audience that the botched IT transition was a resounding success.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
As bank IT system revamps go, few have been as disastrous as UK bank TSB’s latest system upgrade, which began on Friday, was supposed to be up and running by Monday morning, but is still down on Tuesday evening. It’s now Day Five of the crisis and an estimated 1.9 million TSB customers still cannot use the bank’s online service. According to customer testimonials featured on The Guardian, some cannot even withdraw cash with their ATM card or their credit cards.
One TSB customer was reportedly given access to another customer’s £35,000 savings account, £11,000 Isa, and a business account when he logged onto his online banking account on Monday night — an allegation the bank denies. “There’s been no data breach whatsoever. I can categorically say that customers’ data is safe,” said the bank’s CEO, Paul Pester. Judging by the tone of some of their tweets and comments, the customers are not wholly convinced.
TSB used to belong to Lloyds Bank, one of the UK’s Big Four lenders that was bailed out with public money during the financial crisis. After later acquiring HBOS, itself the product of a failed merger between Halifax and the Bank of Scotland, European banking regulators deemed the combined banks to be too big and concentrated. So Lloyds decided to spin off TSB, which was duly acquired by Spain’s fifth biggest lender, Banco Sabadell, in 2015.
For Sabadell the deal represented its first major foray into foreign markets. But merging banks, especially across national borders, can be a complex business, especially when the IT systems involved are completely different.
In the case of TSB, its IT system was clearly well integrated with Lloyds after almost 20 years of co-existence. But since the moment it was bought by Sabadell, the Spanish lender has had to pay Lloyds rent to use its old IT system. The cost of this “transitional service agreement” skyrocketed in 2017 from £91.8 million to £214 million — the equivalent of almost £10 million a month. Even for quite a big bank like Sabadell, that’s quite a lot of money — hence the rush to get it replaced. But as they say here in Spain, haste can kill (la prisa mata).
The project was initially scheduled to be launched in November but it wasn’t ready by that date. The extra delay cost Sabadell over £80 million. Now the project has been launched, serious doubts are being raised about just how ready Sabadell’s homemade, brand new, largely untested IT system really is. If it isn’t ready, that could be a very big problem, especially if, as some have posited, the changes can’t be rolled back.
This is one of the biggest bank account migrations Europe has ever seen. The upgrade involves moving 1.3 billion customer records over to a “state-of-the-art” (Sabadell’s words) in-house developed banking platform called Proteo4UK. It is also the first time a Spanish bank has attempted to develop a new platform from scratch for migrating customer records on such a scale outside Spain.
Sabadell’s management saw the launch of Proteo4UK as a historic moment. Even on Tuesday evening, when countless TSB customers were no doubt wondering how they were going to get hold of the cash in their account or make bank transfers, Banco Sabadell had a triumphant press release on its website proclaiming the IT upgrade as a resounding success, a message that was in turn echoed by certain Spanish media.
“Migration is an excellent starting point for the organic growth of the business and the improvement of TSB’s efficiency,” crowed Group Chairman Josep Oliu. The move represented “a new milestone” in the banking group’s history, particularly with regard to its international expansion. The message was finally pulled at around 6:30 pm GMT.
The very best Sabadell can hope for now is that the IT issues affecting TSB get resolved very soon — as in the next 24-48 hours. Even in such a rosy scenario, this episode will end up costing the bank dearly, both in terms of money and reputation. There will no doubt be fines and compensation to pay. Some customers will presumably close their accounts and take their business elsewhere. In other words, more lost money, none of which is good news for a bank that already has “a weak balance sheet” with over 11% of its loans being classified as non-performing, according to Merrill Lynch analysts.
And that is the best case scenario. In the worst case scenario, there’s really no telling where this could end. If the bank is unable to keep an accurate ledger or record of customer product holdings, this could mushroom into a serious crisis, not only for Sabadell and TSB but also their respective banking sectors. Whatever does happen, one thing is clear: Banco Sabadell will need to launch a massive charm offensive if it wants to undo the damage of the last five days. By Don Quijones.
UK regulators may be on the verge of doing something right, but doubts remain over how genuine their stated intentions are. Read… After a String of Corporate Scandals & Collapses, “Big Four” Accounting Giants Face Breakup in the UK
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