Acquisition by IBM
The acquisition of Algorithmics was announced at the start of September 2011. The deal was expected to close in late October. It was valued at $387 million, which was more than double the price that Fitch Group paid when it purchased the company in 2005. Algo’s Macdonald was appreciative of Fitch's input but noted that it 'was not really a strategic fit for Algorithmics'. IBM, on the other hand, 'is a perfect fit'. All of Algorithmics clients were already customers of IBM and the two entities had a partnership and a number of joint projects under their belts. The customers would see the benefits 'within months', he claimed. The risk management offerings of Algorithmics and IBM (these stem from IBM's acquisition of OpenPages in 2010) were complementary with the exception of 'some microscopic overlap' in the operational risk space, said Macdonald. Algorithmics' 900 staff would be incorporated into IBM's business analytics and optimisation division. 250 would work within IBM's global services business, said Macdonald. He said there were no plans to dispose of the Algorithmic brand 'any time soon' and that the vendor's existing contractual obligations would not change. Going forward, however, support and services might be revised. IBM was looking for enterprise-wide risk management software to add to its product portfolio to address the growing demand
from the financial services industry, said Laurence Trigwell, global financial services leader for business analytics at IBM. The rate of development and changes of the regulations, the complexity of risk models and the required skills excluded the organic route. On the surface, the risk management software market was saturated with companies but it was very fragmented, said Trigwell. IBM's requirements of a global footprint and 'a strong heritage across all risk classes' whittled the list of potential M&A targets to 'very, very few organisations'. In July 2017, UK based RNA Analytics bought out the Algo Financial Modeler from IBM. The The core team of 15 that supported
AFM in the recent years would transfer to RNA Analytics, The other products in the Algo suite – Algo One, Algo Risk Application and Algo RiskWatch are understood to be remaining under IBM’s control. The system is planned to be rebranded in the next couple of months and the development plan will focus on several elements, including expansion of workflow and process tools.
User experiences
With Algorithmics claiming well over 400 clients, it is clear that the vendor has a broadly-based, extensive client list. The world’s largest banks often take an in-house development approach, with Algorithmics’ customers traditionally in the lower tier one and tier two segments. A deal with Bank of America in 2006 was important because it saw the development of a real-time trading risk application, which then became the Algo Real-Time Credit Engine and has subsequently been taken by Scotiabank and Société Générale, among others. At BoA, the Algo component became part of the bank’s BoA Integrated Credit Engine, covering pre-deal limit checks, intraday reporting on counterparty credit, and real-time feeds to traders’ desks. This is for the US, EMEA and Asia.
Scotiabank, as mentioned, has been a pioneer in the
CVA area. This was within Scotia Capital, the corporate and investment banking division. The platform was initially applied to the global energy solutions business, followed by equity derivatives and equity finance, with others to follow during 2011 and 2012. The bank is a long-standing (15+ years) customer and has been a proactive partner in a number of areas.
China has been a notable market for the supplier over the last few years. In mid-2007, it increased its presence here significantly with its Algo Credit Exposure and Algo Credit Limits solutions being taken by China Construction Bank International (CCBI), part of one of the largest banks in the country. This followed a previous win in the country at a smaller securities-based client in the market risk service area. The CCBI deal was described by MacDonald as ‘the first significant and material deal that we have done in the credit
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risk management area in China’. Although
CCBI had a relatively small number of
international counterparties, the increasing flow and complexity of its business meant the bank had to move towards ‘a strong systematic process around its credit risk and limit monitoring’, said McDonald. He also noted that since banking in China had been opened to external investors, internal and external pressure had been applied to ensure good quality risk practice was in place. The tendering process for the risk management deal included Misys, Sungard and Reuters (all three of which had made inroads into China by this stage), plus one local vendor, which was eliminated at the first stage. McDonald believed that Algorithmics’ almost five-year presence in China and established relationship with the local regulator made ‘quite an impact’ on the outcome of the deal. Two of its clients in the region, United Overseas Bank and HSBC in Hong Kong, featured as relatively local reference sites. The roll-out of the solution was handled by the vendor with its local SI partner, Beijing AUO-GE Heng YE Information Company (Baghy). Another win in China came in early 2008 when IBM and Algorithmics were selected by Guotai Junan Securities in China to provide a portfolio construction and risk management solution for securities trading and fund management. The institution was one of the country’s top five securities firms and the first in mainland China to trade advanced products such as derivatives. Baghy was not involved in this project. Around the same time as this, Banca Esperia, the Italy- based private bank of Mediobanca, Mediolanum & Partners, rolled out a fully managed version of Algo Risk to its eleven Italian branches. ‘Unlike some of our other clients where the need is very much about a risk system for compliance, this is more to enable them to provide greater services to their clients as they essentially construct their portfolio holdings and their
Risk Management Systems & Suppliers Report |
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