IBM Impact Session 1978v1cj

Fifth Third Bank | All Rights Reserved

Fifth Third Integrates Real Time Derivative Market Data Within Enterprise

IBM IMPACT 2009 Conference

2 Fifth Third Bank | All Rights Reserved

IBM IMPACT 2009 Conference

Impact Session ID 1978

Presented By

Cara Jonas

Fifth Third Bank, Capital Markets IT

Assistant Vice President/Project Manager

Karen Holmes

IBM Software Group, WebSphere Front Office Financial Markets

Sales Representative


Agenda

� Who Are We? Fifth Third Bancorp

� An Idea is Born

� Derivatives 101

� Calling All Vendors

� IBM WebSphere Front Office Solutions

� Market Data Integration Details

� Benefits

� Lessons Learned

� System Demonstration

� Looking Forward


Who Are We?…Fifth Third Bancorp

FL

OH

GA

ILIN

MO

PA

WV

NC

MI

TN

KY

Financial Services company headquartered in Cincinnati, Ohio since

1858

16 affiliates1308 Banking Centers

2350 ATMs

Known for superior customer service

and quality


More Than Just a Bank!

Consumer LendingMortgages and Home

Equity lending, educational loans

Investment AdvisorsInvestment alternatives

for individuals, companies, and not-

for-profit organizations.

Fifth Third Processing Solutions

Electronic funds transfer services and merchant transaction

processing

Commercial BankingBanking, cash

management and financial services to

business, government and professional

customers.

Branch BankingDeposits and customer

loans and leases.


Commercial

Foreign Exchange

Interest Rate DerivativesCommodities

Enterprise Risk

Credit RiskMarket Risk

Treasury

Balance Sheet HedgingSecuritizations

Capital Markets IT

Investment Operations and Technology

Investment

Operations and Technology

Securities Services and Trust

Operations

Brokerage Operations

Treasury Operations

Trust Application Management

Brokerage/Capital Markets

Application Management


And Then There Was….An Idea!

2005

Market Risk Software Contract Signed

2006

Market Risk Foreign Exchange

Implementation Begins

2007

Market Risk Foreign

Exchange Integration Complete

Market Risk Interest Rate

Derivative Integration Begins

2008

We should use this to improve our Derivative Pricing at deal

execution!

2009

Market Risk Interest Rate

Derivative Integration Complete


The SOA Journey Begins

� Fifth Third needed a real time market data solution to facilitate the pricing of Interest Rate Derivative products.

� This functionality was critical to enable the Bank to negotiate better pricing on Interest Rate Derivative products executed with various dealers.

� The solution is also a critical building block to future revenue streams and cost savings.

� The data needed to be integrated into the existing Market Risk application.

� SOA was the answer!


Derivatives 101

� What is an Interest Rate Derivative?

— An interest rate derivative(IRD) is a derivative where the underlying asset is the right to pay or receive an amount of money at a given interest rate. They are also commonly known as ‘Swaps’.

— They are used to hedge risk or to exchange a floating rate of return for a fixed rate of return. Specifically, in this case, to help Commercial clients lock in fixed payments (and hedge risk) on floating rate real estate loans.


In Other Words…Floating rates are

the lowest, but what if rates go

up? And how do I plan my

cashflow for variable monthly

payments?

We need more office

space!We can give you a loan to

build that new office building.

We can ‘swap’ your floating rate loan.

You’ll be protected if interest rates rise and your monthly

payments will be a preset amount.

It’s like the best of both worlds!

1 2 3

4

5


� Portfolio consists of ~6000 Commercial IRD deals. These deals are done ‘back to back’ to reduce risk exposure in the portfolio.

� Total notional amount of IRD deals is $30B with Weighted Average Life of ~50 months

� Currencies include USD, CAD, EUR, GBP, JPY, MXN

� Specific IRD deal types include:

— Vanilla swaps (amortizing, basis, bullet)

— Caps

— Floors

— Collars

� Required market data included:

— Currency yield curves

— Cap volatilities

— Swaption volatilities

— Total < 5000 securities

Business Background


Calling All Vendors…

Identify Market Data Provider

— Bloomberg (BBG) data was selected based on bid/ask spread pricing criteria and available contributors

— Bloomberg Bpipe On Demand (Bpod) was available tool for real time integration

Design Integration

— Existing Market Risk application did not have available BBG integration. Team decided to leverage the existing Reuters RMDS integration for the Market Risk touchpoint

— GAP: SOA integration needed to translate from Bpod into Reuters RMDS

Selection Criteria

— Technical Proof of Concept Participation

— Maturity of Product(s) and Robustness of Solution Suite

— Overall Cost of Ownership

— BBG Relationship and Integration

— Geographic Location


And the Winner Is…

� IBM (InfoDyne) WebSphere Front Office for Financial Markets

— Willing to participate in technical proof of concept

— Full suite of solution capabilities (including application hosting, monitoring/event management, and upgrade management)

— Proposed Costs within acceptable range for Project metrics

— Certified platinum BBG partner

— Chicago based


Market Data Integration Project Timeline

2007 2008 2009

First IBM Contact

Technical Proof of Concept

Contract Negotiation

Hardware Installed

Market Data Integration Project

USD Integration

Live

Market Risk Interest Rate Derivative Integration Project


Market Data Integration Project Approach

� Technical Proof of Concept

— Demonstrate technical components and proposed integration prior to final contract

� Integration and Contract Considerations

— Hosted vs In House

— Operating System (Linux vs Windows)

— Solution Partnership Program Level?

� Phased Implementation

— USD first (80-90% of total portfolio); followed by remaining currencies

— Delivery of full USD functionality pending two software enhancements:

– Automation of Convexity adjustment

– 1M basis Prime and Muni curves


Project Organization Chart

Cara JonasFifth Third

Project Manager

Melissa ScarboroughFifth Third

Business Analysis

Allen CampbellFifth Third

Technical Services

George HilliardFifth Third

Technical Services

Fifth Third SteeringSteve Randle-Commercial IRD

Hal Coffey-Market Risk

IBM ImplementationTeam

BloombergImplementation Team

Derivative TradersFifth Third

Commercial Front Office


Benefits

� Saving a percentage (1-2 basis points) on each new deal by enabling real time mark to market pricing comparisons and reducing the dealer spread

� Estimated $500K-$1M each year

— Project IRR > 600%

— Payback in just over 1 yr

� SOA architecture in place to build future expansion of market data across other product types and lines of business

� Ability to handle increasing volumes of IRD deals


Lessons Learned

� Technical Proof of Concept was key

� Get a ‘partner’…..or 2!

� AND make sure there is consistent cross team communication.

� Market data is very complex….get your requirements early!

� Heavy Reliance on multiple internal teams ‘drove’ the timeline

� Multiple hop integration created additional roll out complexity

� Know your Internal Security requirements early


System Demonstration


Looking Forward…the Future of SOA

� Expand footprint of SOA and real time market data flowing into the Enterprise:

— Maximizes Enterprise consistency and quality

— Minimizes Enterprise contract costs

— Reduces overall IT support costs

� Address Change Management and Adoption issues

— ‘I need a different kind of market data’

— ‘My business is different, special, etc’

� Build/Buy in house IRD system


SOA Challenges

� Resistance to losing existing market data connections and sources (trading badge of honor)

� Latency requirements

� Consistent market data requirements across different lines of business

� Who owns the integration? Who supports? Who is responsible for the license and maintenance fees?

� Defined technical standards


Questions

Documents

IBM Impact Session 1978v1cj