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Union Bank's Year 2000 Consumer Initiative

Will your computers work when the calendar turns to the year 2000?

And will your vendors be able keep their commitments to you? Bankers are asking, and your answers may affect your ability to expand your business, manage your cash flow cycle to meet financial obligations or, for that matter, stay in business at all.

The seeds of the “Year 2000” issue were planted decades ago when programmers started expressing dates as two digits instead of four. When the apple drops at Times Square and calls an end to the year 1999, those two 9s will be replaced by two zeros, which would tell computers we’ve moved to the year 1900 instead of 2000.

Who and What Will Be Affected

That will disrupt just about every computer process that compares due dates and expiration dates. Just a few types of critical computer activities that could fail are accounts payable and accounts receivable systems, inventory systems, payroll and pension systems, and calendar and “tickler” programs.

For businesses of all sizes, that could mean missed cash-disbursement or cash collection deadlines, failure to make or receive deliveries, inability to compute interest on accounts, blown payroll schedules, inventory-replenishment scheduling — the list goes on. Timed heating and air conditioning systems may not turn on or off at the proper times or may not work at all. Security systems may be impacted. Voicemail and faxes may malfunction.

And it’s not enough to assure that your own systems are Year 2000-compliant. You want to know if your customers and vendors will be ready for the millennium, too. Will they be able to fulfill their obligations to their customers? Could their failure put a strain on your business?

This is no joke. Businesses of all sizes are spending billions of dollars to fix the problem — funds that have absolutely no economic return (except to enable the company to remain in business!). A recent article in the Wall Street Journal estimated that Americans alone will spend $71 billion to fix the problem, and then another $100 billion in liability-related lawsuits. The insurance industry is also grappling with how it will handle year 2000-related liability and losses.

Bankers Are Concerned

Bankers are concerned for two reasons. One is that they have their own computer software to remedy or replace. For example my company, Union Bank of California, one of the nation’s top 25 commercial banks, has to assess 22 million lines of code on its mainframe computers and millions more lines of code on mid-range platforms. We are also dependent upon a large number of vendors, whose failure to perform could affect our operations.

But beyond that, bankers like me are concerned about the Year 2000 impact on our customers. The problem requires tremendous planning to deal with the business issues, well beyond the systems issues. Will your cash-management operations be impacted? What liabilities will you have? This is bound to place a strain on many of our clients. Those who experience Year 2000-related disruptions may not be able repay loans and maintain their critical business accounts.

There is good reason for concern: in a recent survey, 65 percent of computer system managers said the Year 2000 problem poses a large risk to their businesses. Here are some of the questions your banker may be asking you soon, as part of the account review and loan-underwriting process:

— “Have you analyzed the impact? Do you know how many lines of programming code need to be reviewed?” Companies can spend three to six months researching a response to this question alone.

— The cost to fix old code can be as much as $2 per line. So the question arises, “How much will you have to spend to rewrite or purchase new Year 2000-compliant software?” “How will this expense affect your earnings?” “How will public companies determine if the expense is a material item; will the expense be disclosed?” “Can you afford to fix the problem?” “Do you have enough time to fix your systems and certify your vendors?” “And do you have the expertise?” Slightly more than two years remain until the calendar turns to “2000,” and, already, demand on COBOL programmers is heavy. “And what projects will you put on the back-burner in the meantime, in order to attack your Year 2000 problems?”

— “Can your suppliers and customers handle the millennium?”

— “Have you addressed the Year 2000 issues with your lawyers and insurance companies, to take precautionary measures?”

You could be in big trouble if you must answer “I don’t know” to any or all of the above.

Get Going Now

This is a serious concern right now, with experts warning that Year 2000 programs should be in place by December 31, 1998. Many large companies will need an entire year of testing to be assured that they are Year 2000-compliant. But according to one recent survey, only half of all American businesses have even started the process.

To get started, you’ll find most consulting firms and software companies are already addressing the Year 2000 issues. The Internet abounds with Year 2000 information and special interest groups. Check out (http://www.year2000.com) for starters. At Union Bank of California, we’ve produced special materials for our clients on preventing Year 2000 problems. (Copies of this free brochure are available from Union Bank of California, Commercial Marketing Services, G13-017, 445 S. Figueroa Street, Los Angeles, CA 90071 — Limit 2 copies per company.)

There are many facets to the Year 2000 problems, and there will be many approaches to resolving them. As with most other computer-related decisions, your success will be largely determined by how informed you are.

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