An Interview with Andrew Watts, CIO of Bendigo Bank


JACKSON: Congratulations on your recent appointment as Chief Information Officer of the merged Bendigo Bank and Adelaide Bank entity (likely to be called Bendigo and Adelaide Bank Limited from March this year). Bringing together two IT functions with a combined annual budget in the vicinity of $45 million is in itself a challenge, but you will also be relied upon to deliver a significant chunk of the $60 million to $65 million in pre-tax savings that the merger is expected to realise. What are your immediate priorities post-merger, and how do you see integration cost savings being achieved in IT over the longer term?


WATTS: Thank you. It is a terrific opportunity, and I am certainly enjoying the challenge. Our priorities are three fold. Firstly, to ensure that we continue to provide quality service to our customers and partners as we integrate the two businesses, secondly, to work with business divisions to identify, scope and prioritise integration projects that will drive the greatest benefit for the merged entity, and thirdly to bring together the functions, people, process and technology across IT itself. Much of the $60-65M in targeted synergies will be derived from consolidation of business processes and technology. From an IT perspective, one of the obvious goals is to reduce the number of data centres, thus reducing the cost of operations.


JACKSON: Prior to your recent appointment, you’d held a number of management roles in Bendigo Bank’s marketing, retail and IT businesses, including Product Development and Research, Direct Banking, Remote Banking, and Network Development and Planning. What have you found to be the key attributes required for adapting to different business mandates, and how is your diverse experience proving to be an advantage in your current role?


WATTS: When I joined Bendigo Bank in 1994 I didn’t plan on staying with the one organisation for the next 13 years. My philosophy has always been that when I wake up one morning and the challenge is not there, I will move one. Bendigo Bank is an extremely progressive and innovative company to work for. It has a strong customer and community ethos, has committed staff and is an infectious place to work. Personally, I have been provided with great opportunities along the way. Adelaide Bank is equally a progressive organisation, and the two organisations are complementary.


I guess the attributes that have allowed me to adapt have been a willingness to learn, a strong commitment to our strategy, a people orientation and a constant eye on the external environment. I am a business person running IT as a business. I am fortunate to be surrounded by a capable team with a depth of IT experience. Having a strong team allows me to focus on aligning IT to our business.

JACKSON: The heritage of Bendigo Bank is as an environmentally responsible organisation. Will this commitment continue post-merger? If so, what role will the IT function play in delivering sustainability benefits?


WATTS: Every organisation needs a genuine focus on sustainability. Clearly, there has been a major shift in recent years within business and the community at large. Bendigo and Adelaide Bank Ltd will continue to implement programs that demonstrate our genuine commitment to a sustainable environment. From an IT perspective, we took many elements into the design of our new head office and data centre. We are actively employing technologies such as virtualisation to make more efficient use of our assets. We will continue to explore new options.


JACKSON: Bendigo Bank has been forced to defend its $4 billion merger with Adelaide Bank against a number of criticisms by analysts, notably Adelaide Bank’s much-vaunted exposure to the volatile low-documentation market, and the timing of the deal only seven weeks after Bendigo Bank rejected a $2.5 billion takeover by the Bank of Queensland. Can you shed some light on the reasons why the Adelaide Bank deal was seen to be a better arrangement for Bendigo Bank?


WATTS: Our Board carefully considered the Bank of Queensland proposal but considered that it was not in shareholders’ best interests. Significant differences existed in long-term business investment philosophies and customer engagement strategies. We had been speaking with Adelaide Bank for some time prior to the Queensland offer. The Adelaide merger is compelling because our businesses are complementary. There is little overlap in our branch networks and therefore little scope for customer dislocation and that is rare in bank mergers. The merger was agreed and unanimously supported by the Boards of both banks and there is a high level of confidence in a successful integration, which is critical for any banking merger. The new business will be more diverse and able to perform well in a variety of market conditions. That might seem an odd statement when Adelaide’s wholesale funding model is currently under pressure from the credit crisis, but the merger gives us a lot more diversity in both funding and revenue sources, which means we will better be able to handle any market conditions. And of course we have identified cost synergies estimated at $60-65m and significant potential for revenue synergies, so the merger makes sense on all fronts.


JACKSON: Approximately 200 of the branches in the network are operated as community banks, and these branches are typically less willing to invest in expensive new technology. How do you balance the cost-sensitivity of the community branches against the broader organisational need to retain a competitive advantage?


WATTS: Our Community Bank branches are running the same technology platforms as our company owned branches. When our organisation invests into new technology it is to drive business value – not to employ the latest and greatest. Therefore, our partners also gain advantages from this investment. As our Community Bank branches pay for the incremental cost increase relating to their branch, it is generally a cost effective investment.


JACKSON: A recent KPMG survey found that operating profit after tax for regional banks increased 14 per in 2007, outpacing the major banks which recorded average growth in profit after tax of 10.6 per cent. However, KPMG attributed these results to the fact that regional banks are yet to show the impact of the subprime fallout, and it predicts cost control and non-interest income will become more significant priorities for them in fiscal year 2008 as pressure on margins increases. Do KPMG’s assertions align with what you’re seeing in the market, and what would be the likely implications of such a shift in focus for IT investment in the sector?


WATTS: The sub-prime crisis has affected all banks, Bendigo and Adelaide included, as wholesale money has become more difficult and more expensive to source. However, neither Bendigo Bank nor Adelaide Bank have any direct exposure to the US sub-prime mortgage market, and neither of us lends against or invests in US securities. Our margin held up pretty well over the first six months of F08 and in large part that was due to Bendigo’s undoubted ability to raise retail deposits. Both Bendigo and Adelaide have actually repriced many of their loans to reflect the higher cost of funds, so we are hopeful that we can arrest any further margin decline. As far as future IT investment goes, we are in the same boat we are always in: the Bank will allocate available capital to the highest priority in