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M&A and JVs Good Idea in Principle, More Difficult in Data Practice

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The news this week that Morgan Stanley and Citi’s joint venture in the wealth management space, dubbed Morgan Stanley Smith Barney, will be delayed by up to two years as a result of IT integration issues, will not be news to the data management community. After all, this sector of the industry has been suffering from integration issues, a lack of investment and severely siloed back office systems for years. However, given the increased level of M&A over the last couple of years, the question of how long this slow pace of progress can be sustained is becoming ever more urgent.

As indicated by Citi’s global head of customer accounts operations, Julia Suttton, at last year’s FIMA conference in London, the bank itself has enough to contend with regarding data integration within its own institution, let alone combining that with Morgan Stanley’s systems. The delay to the joint venture, which was signed and sealed on 1 June, is just one example of how important standardisation of data formats and processes is to the future of the banking industry.

Morgan Stanley has effectively paid US$2.75 billion for a stake in a business that will potentially be hampered by data and system integration issues for the next two years. Accordingly, Morgan Stanley’s financial advisers will not be able to access products from Citi’s capital markets business, and vice-versa, for some time to come. This isn’t particularly shocking news in itself, but what is a positive step forward is the publicity surrounding this delay and its potential to push data integration issues back up the priority list.

Regulatory requirements aimed at improving financial institutions’ risk management strategies are also likely to impact recently merged institutions more severely than other firms. Gathering together data across disparate systems for new daily reporting requirements with regards to the UK Financial Services Authority’s soon to be introduced liquidity regime will not be an easy task. And, given the regulatory community’s recent sharpening of its teeth in the form of direct board responsibility for actions and higher levels for fines, this too may help the data management cause.

Citi seems to have taken notice and is, at the very least, paying lip service to the issue of integrating its systems and data. Last month, Vikram Pandit, Citi’s CEO, championed the ideals of integration and stated his intention to save the firm US$1 billion in technology costs via a rationalisation of its systems. Given the patchwork of systems that make up the Wall Street giant, he’ll certainly have his work cut out for him. Let’s hope that other firms take note and get on the case too.

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