The celebrations to welcome the 21st Century will be intense. But the headaches predicted for the immediate post-millennium period could be more than bubbly" related.

The problem is that, in the days when computer storage space was at a premium, programmers economised by abbreviating the year to two digits. So when the "99" ticks around to read "00" computers around the world may well blow a fuse. They will interpret the new year as 1900 or may not recognise it at all. In either event, the ramifications could be disastrous. For businesses the repercussions could be devastating.

The expense of rewriting computer programs is huge. A US expert puts the global cost at some $600bn. And, for custodians, big spenders in the IT area at the best of times, the year 2000 computer changes come on top of the European single currency spend.

"It's a real headache that the euro and the year 2000 issues have both come at the same time," says Richard Humes, of Pictet. "It's tieing up a great deal of our computer resources." Humes states that Pictet's systems are in order but says, ominously, that, "we cannot vouch for the systems around us".

Koos Besteman, coordinator for the year 2000 project at ABN Amro, is another who is confident about his own bank's preparations but concerned that not everyone will be as compliant. "I am worried about some smaller companies: some of them are our customers, so we are trying to help them with awareness, but we can't solve their problems."

Jon Ricketson, head of European technology at State Street, explains that "fixing our own software is only a piece of the puzzle. As custodians, we receive data from vendors, clients and business associates and while we have leverage with our vendors we can't be as demanding with our customers. We are making it clear to clients that we intend to be compliant by end-1998 but in order for us to be so, they have to be compliant as well."

"A chain is only as strong as its weakest link," agrees Juergen Marziniak, global head of custody at Deutsche Bank. Deutsche Bank would like to see the foundation of a working group for the exchange of relevant data across institutions and market participants. "There is a risk that some of the market participants have not yet acknowledged the importance of the Y2K issue, and this could have fatal consequences, not only for the relevant party but for the all parties involved," warns Marziniak.

Most custodians, like Standard Chartered, aim to be fully compliant by the end of next year. In a recent newsletter to custody clients, Standard Chartered explained that "to date the efforts have focused on identifying the bank technologies which are affected and their potential business impact. The next stage involves forming project teams to fix the problems identified. This will be followed by extensive testing both within the bank and in conjunction with customers and suppliers."

This "putting our own house in order first" process is common. Lloyds Bank's global custody division is just one part of the millennium process taking place within the overall Lloyds TSB Group. Clair Hamon, in charge of the bank's year 2000 project says that at the moment it is spreading the message, doing a lot of presentations, and "arming each of their business units with the tools they need".

Lloyds' custody side has, however, issued a checklist (see box) to aid business managers, with offers of help for clients who answer "No" to any of the statements. David Hunt"

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