How City National Is Battling Bug.

THE nondescript mustard-colored building near downtown has no sign indicating a connection with City National Bank. But it is, in fact, the bank's operations center, and come Dec. 31 its occupants will respond to most any eventuality surrounding the millennial turnover.

In the culmination of a three-year, almost $5 million effort, dozens of City National staff members will hunker down that weekend for round-the-clock monitoring of internal and international conditions.

Senior bank executives say they are as prepared as they can be while acknowledging that a surprise is always possible. "Of course, anything could go wrong," said Jan Cloyde, executive vice president and director of banking services. "But I think we've done all that we could."

That's the general assessment throughout the banking industry as the big day draws near. Banks, in particular, had been among the first to invest heavily in Y2K-related precautions, and while no one knows for sure what will happen, it's believed that disruptions will be minimal.

"All banks in California have been rated satisfactory (by the Federal Deposit Insurance Corp.), which is the highest possible rating," said John Stafford, a spokesman for the California Bankers Association.

Nationwide, the industry has spent between $8 billion and $9 billion on Y2K, the bulk of which has come from the biggest banks. The price tag at Bank of America Corp. alone will be roughly.$550 million.

"About 90 percent of that is labor costs," said John Conover, a BofA executive vice president. "There is very little purchasing of new equipment involved, but it is an enormous amount of work determining which systems are date-sensitive, and to remedy and test those systems."

Beverly Hills-based City National, which last week outlined its preparations for the Business Journal, has taken a two-pronged approach to the upcoming event: a technical overhaul of its systems and a personal outreach to its customers.

Stock up on cash

For the latter, the bank's staff has been trained to address questions from customers about the bug. Monthly bank statements have periodically included updates on preparations.

Plans have been made to stock up on cash, while at the same time customers have been urged to take out no more than they normally would for a holiday weekend. Cloyde said that rather than filling automated teller machines to capacity before the event, the bank will monitor the machines and replenish them as necessary.

On the technical side, preparations began in 1996. Like many banks, City National was faced with the decision either to fix or replace systems that were not Y2K compliant.

After evaluating its core accounting system, it was determined that the cost of upgrading would be too high. The existing data processing provider was replaced with M&I Data Services of Milwaukee, whose Y2K software has been used by various financial institutions nationwide. The system is responsible for such functions as the bank's loan servicing, deposit transactions, account analysis and automatic teller machines.

In addition, the bank replaced every one of its 1,200 personal computers, adding Web browsers and e-mail functions in the process. While bank officials didn't want to use the Year 2000 problem as an excuse to spend money, there were benefits to be realized from the situation.

"It would have been easy to throw all sorts of stuff into the Y2K bucket, and we didn't want that to happen," said Executive Vice President John Beale, who has overseen the overhaul. "All this saved us money because it would have been more expensive to fix."

By the beginning of 1998, most of the bank's systems were Y2K compliant, and those systems have been tested several times. One major test was on Sept. 9 of this year, given the concern that glitches might occur due to the unusual 9/9/99 date. But everything checked out, as it did at other banks around the country.

New Year's plans

For the big event, more than 300 City National staff members will be mobilized over the New Year's weekend, with around 60 of them keeping watch in the Y2K situation room. Cots will be brought in and hotel reservations have been made at a local Holiday Inn and Marriott. A caterer will provide food.

Starting around 6p.m. on the 31st, staff in the situation room will begin monitoring news reports on any worldwide problems connected with the New Year. Around 9 p.m., bank officials will begin talking with representatives from East Coast financial institutions as they monitor the turnover.

City National staff has been asked not to be in transit between 11 p.m. on the 31st and 2 am. on the 1st to avoid whatever revelry is taking place throughout Los Angeles and the surrounding areas. The command post itself is near Staples Center, which will be hosting a rock concert that is expected to last beyond midnight

"I'd like to see the Eagles too," said Senior Vice President Shereen Smith with a mock sigh. "Seriously, we have to be careful about all the official and unofficial parties that will be taking place."

At 12:01 a.m. on Jan. 1, the bank will begin an exhaustive review of its operations. First, it will run checks of its 24-hour services, such as ATM machines and online banking services. Point-of-sale transactions will be run. Computer servers and other telecommunication services will be checked.

Then, security teams will be sent out to make sure there is power and electricity at every bank site, with a laundry list to check off. Teams of between two and six people will then go in and turn everything on, and check all the local systems.

'An exciting time'

To guard against possible telephone or cell phone congestion, the teams will carry Nextel phones, which combine a digital cellular phone with a two-way radio.

Back at the situation room, staff members will check off each test at each site on a large board. Senior executives will conduct hourly internal conference calls to update each other, and special phone lines have been set up for customers and other financial institutions.

"Let's face it, it will be an exciting time," Beale said.

System checks will continue until just before the doors open on the bank's 47 branches on Monday, Jan. 3.

There might be some grumbling as the weekend drags on for those holed up in the command center, but the bank has taken pains to ensure that the festive spirit is not totally lost.

"We will have a nice meal on New Year's Eve," said Smith, who has been overseeing the preparations for the command post.

Champagne? No, but "maybe some Martinelli's (sparking apple cider)," she said.

Bankers Say They're Ready for New Year

EDVARD PETTERSSON

With only a few weeks left before the new year, banking officials are confident that after years of preparations and billions of dollars spent, they are ready to face the year 2000.

"All the major institutions are clearly ready to address any issue that may arise,' said Mark Maurer, a partner in the Los Angeles banking and finance practice of Ernst & Young LLP. "The larger banks, which are most at risk because they are involved in more areas and have more complex systems, have installed numerous contingency plans to deal with any glitches that could occur."

Although nobody knows for sure what kinds of disruptions will occur locally or globally, financial institutions have taken virtually every precaution to make sure that any Y2K impacts will be minimal.

Over the last five years, banks have been racing against the clock to meet federal guidelines for Y2K compliance. For the larger banks, this meant identifying which aspects of their internal information technology systems were date-sensitive and needed to be upgraded or replaced. Once upgraded, the remediated systems were subjected to extensive testing.

For smaller banks, which tend to outsource their data-processing services, it meant verifying that their vendors were Y2K compliant.

In addition, all banks were required by federal regulators to draw up contingency plans in prepration for possible mishaps, such as power outages, disruptions in telecommunications or transportation, cash shortages in branch locations, and civil disorder.

John Conover, Bank of America Corp.'s executive vice president and Y2K project manager for the West, said all the BofA information systems have been Y2K-tested arid compliant as of June 30, and the bank will restrict any further upgrades or modifications until March 2000. That is because next Feb. 29 also is considered a date that might potentially disrupt information systems.

Although an enormous amount of money has been spent on a seemingly trivial matter - the correct date - there are some unintended benefits.

Many banks would have needed to upgrade obsolete information systems sooner or later anyway, said Frank Hartingan, Y2K program manager with the Federal Deposit Insurance Corp.

"It is hard to say how much money was spent that would not have been spent otherwise," he said. "It is not unlikely that a bank counts a computer hardware or software upgrade as a Y2K-related expenditure, even though such an upgrade would have occurred without Y2K too."

Another unexpected benefit was an expansive outreach effort to make sure business customers' systems were Y2K-compliant.

"In many cases we served as advisors to our clients for their own Y2K preparedness," said Dan Mathis president and chief operating officer of Imperial Bancorp., the Inglewood-based parent of Imperial Bank. "Since we went through a two-year process of testing with vendors, and upgraded and changed what we had to, our clients have been able to benefit from our experience."