So far during this consolidation, our enterprise software business has been coping pretty well.
Bank of America buying Countrywide and RBS buying ABN AMRO were negative events in the fact that, since all four were users, four contracts became two. But, we were still left with fair multiyear maintenance contracts. Bank of America buying Merrill Lynch and Lehman failing were, in a way, good for Backshop because a two big securitized players that were not on Backshop are now gone.
In all those deals, we survived the consolidation and ended up as the system of record. In this deal, PNC is the acquiring bank. Within the different divisions of NatCity, the use of Backshop is limited to the Structured Product Groups in Stamford and not the balance sheet commercial real estate group run out of Cleveland.
While I have been in the Board Room in the NatCity tower in downtown Cleveland presenting to the chief credit officer and various division heads, and we have good support among many groups to convert the entire NatCity portfolio onto Backshop, as of now Backshop is only used by SPG.
So, the question is, after PNC closes the deal and completes the acquisition, will the system of record be Backshop or will it be the PNC system?
I do not know much about the PNC loan origination system. I never tried hard to sell them because they own Midland Loan Services who in around 2002 bought an origination software company run by Mike Matheson. We competed against them in RFPs from 2002 to 2005, but they eventually pulled out of the origination business and focused on Enterprise, their loan servicing system. Nonetheless, PNC was on Midland’s system, and they were not going to change to Backshop so why waste time trying to sell?
But now, PNC just bought an ASP License to use Backshop (my standard ASP license is assumable in the event of acquisition). Midland is not in the third party origination software business, so, as far as I can tell, PNC is on a custom origination system. I’m sure that system works perfectly well for their internal use, but that proprietary approach does not advance the cause of standardizing commercial real estate underwriting.
I’ve read the combined bank will be the fifth largest in the country. An important player for sure and one that, I hope, will get on board with Backshop. But, I’d be going into the weekend with a little less stress if PNC, the acquiring bank, was on Backshop and NatCity, the one being acquired, was on Midland’s system.
I’ll keep the blog posted as this plays out over the next several months. …
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Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.