The Sunday Times (UK)

3rd August, 1997

Frank Kane

Millennium bomb may cripple Wall Street

AMERICA's top investment banks are becoming increasingly worried about the millennium time bomb the built-in dating fault that threatens to wreak havoc with computers at the turn of the century.

According to the latest research from three of Wall Street's biggest banks, the problem could damage New York's financial industry by disabling those banks that are not prepared for the change.

Merrill Lynch, which has a $200m (£125m) budget to tackle the problem, says it "poses a genuine challenge to the networked world". Morgan Stanley, which is spending $60m, describes it as "a serious and critical challenge for all modern organisations". Goldman Sachs says the problem has "far-reaching implications, not just for the computing services industries but for all businesses".

The evidence will worry European financial centres still trying to assess the scope of the problem. Goldman says: "It is already clear that the combined expertise of Europe's computing services industries will not be sufficient to address the problem; many new businesses will be left out in the cold as the new millennium approaches."

One banker says: "This is not a prediction, it is a certainty there will be serious disruption in the world's financial services industry. I can't tell whether it's going to be 10% business failure, or a meltdown, but it's going to be ugly."

He predicted a millennium-induced worldwide crash "around the middle of 1999".

The millennium problem arises because most computers read only the last two digits of the year's date, assuming the 19 prefix. When the clock ticks at midnight on December 31, 1999, many computers will not recognise the 2000 date and will malfunction. If this happens on a global scale, the results could be catastrophic, experts believe.

The task of rewriting computer programs to recognise the new date is labour-intensive and costly. Programmers expert in arcane computer languages will have to go through miles of programs and change each date individually. Merrill puts the global cost at $600 billion more than the cost of the Vietnam war or the Kobe earthquake in Japan.

The complexity of changing existing programs is illustrated by the project undertaken by Morgan Stanley, which is among the most advanced. It says it is the biggest information technology (IT) project the firm has undertaken, involving 400 man-years of work.

The project has been under way for 18 months, and only 10% of software has been rectified so far. But the firm is confident it will complete it in time to set up and test by 1999. So far, 250,000 "debilitating bugs" have been uncovered, any one of which would create a glitch in the system. IT experts believe that if all were left unremedied, the firm would almost certainly be put out of business.

Merrill warns that many institutions that have corrected the problem will still feel the millennium bomb's effects. "Even institutions that have fixed their own internal problem will feel the ripple effects from the problems recurring externally," it says.

The bank says the millennium is the "centre of attention among top executives, line managers and technologists. A team of 100 people is working round the clock to inventory, examine, correct and test all systems before 2000. With 170m lines of code running worldwide, this is no small or inexpensive task." Over the next three years, about 1,500 man hours will be spent on the problem.

Merrill says: "As we enter the 21st century, meeting the challenge is not a choice, but a condition of survival in the digital economy."

Goldman believes the problem has big investment implications. "We urge investors to examine the level of compliance across the companies in which they are investing," it says. "Without trying to sound alarmist, investors must consider the risk of significant additional expenditure not just after 2000 but in the years preceding it." Goldman says next year will be the "year of answers" when companies will hit peak spending on millennium projects.

Some brokers have viewed the millennium problem as an investment opportunity for those companies software groups and programmers that could expect to see a surge in demand, but Goldman warns: "We assume that 2000 will provide only a modest benefit to the companies in our coverage list."

Greg Gould, the firm's technology analyst, says: "There could be a market correction sooner than 1999, maybe the second half of next year, when some companies start to miss profit forecasts."

However, in contrast to its two Wall Street rivals, Goldman does not see the problem as a threat to its own systems. It says: "We have assessed the problem well in advance and due to the providers we use and our technology mix, this is not a significant issue for the firm."

© Copyright The Times Newspapers Ltd 1997

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