Commbank spends $93m to integrate Bankwest IT

The Commonwealth Bank has revealed costs of $246 million to date integrating Bankwest into its business with almost 40 percent of the expense attributed to information technology.

CEO Ralph Norris, who will be replaced by Ian Narev on December 1. Credit: Commonwealth Bank of Australia

The bank said integration costs included $18 million on restructuring, $41 million on property, $93 million on IT, and $94 million on operations and other expenses.

It reported achieving synergies of $240 million a year, of which IT contributed $14 million.

When CBA announced its plan to acquire Bankwest in October 2008, Commonwealth Bank expected to spend $330 million on integration to deliver $220 million a year in synergies.

The bank planned to pursue further systems alignment in the coming year and migrate Bankwest accounts onto Commonwealth Bank’s new core banking platform from 2013.

Core upgrade

Outgoing chief executive officer Ralph Norris told investors at the bank’s full-year results announcement that it was “well past the half-way stage” of its billion-dollar core banking modernisation project.

The core banking system underpinned online and mobile banking system NetBank and customer service platform CommSee.

Online business platform CommBiz would also be integrated into the system this year.

Norris said the upgrade was delivering “real benefits to retail and transactional customers”, having been applied to 53 million customer records and 11 million retail and savings accounts to date.

Business deposit and transaction accounts would be moved to the new core banking system later this year.

“While there is still some pent up demand in some areas for upgrades of systems, I would suspect that we will see that [cost] start to ease off as a percentage [after the core banking project],” he said.

Finances

The bank posted a full-year net profit of $6394 million after tax, representing a 13 percent increase on the prior year (pdf).

Operating expenses increased three percent from the previous year to $8891 million, due in part to IT expenses, which increased seven percent to $1104 million.

Application maintenance and development, data processing, desktop, communications, software amortisation and equipment depreciation collectively represented 12 percent of total operating expenses.

Norris said it was a “good, solid result in what has been a difficult year”, which had been characterised by “subdued system credit growth and intense competition”.

Consumer and corporate confidence was fragile, he said, in addition to political uncertainty, a strong currency, and natural disasters.

He said the bank would continue to operate in a “disciplined and prudent manner” with a focus on sustainable productivity improvements.

“The Group’s priority is to maintain a robust and stable financial and operating platform, which will enable us to support our customers and provide superior returns to shareholders,” he said.

The Financial Sector Union used Commonwealth Bank's profit announcement as an argument against offshoring, noting that the Commonwealth Bank was the “only big Australian bank that doesn’t send jobs offshore”.

Competitors ANZ, Westpac and NAB have moved hundreds of jobs – including technology roles – to India in recent years.

Union national secretary Leon Carter today said there was “no justification for profitable Australian banks to even contemplate sending bank jobs and functions offshore”, calling for Government intervention.