Under a renegotiated contract with BankAmerica Illinois, Integrated Systems Solutions Corp. will run the bank's technology and operations for seven more years.
The new contract is a restructuring of a 10-year, $500 million deal signed in late 1991 between ISSC, a unit of International Business Machines Corp., and the BankAmerica unit, which was formerly Continental Bank Corp.
When Bank of America acquired Continental in 1994, it had one year in which to renegotiate the outsourcing deal to reflect the change in ownership, a bank spokesman said.
Terms of the new agreement were not disclosed, though a source close to the bank said the new terms were more favorable to Bank of America.
Integrated Systems says it will continue to operate and manage a significant portion of Bank of America's Illinois operations, including mainframe operations, application development, desktop services, and business recovery services.
The IBM unit may also may take over some other processing tasks for Bank of America, the bank said.
"The agreement with ISSC, a leader in the technology outsourcing industry, provides the bank with a great opportunity to take advantage of the cost efficiencies associated with outsourcing of selected services," said Cheryl Kane, executive vice president of the bank's technology support services.
When Continental agreed to turn its technology over to IBM, it was the largest bank to outsource its operations at a time when there was much discussion in the industry about whether big banks should hand over the keys to their data centers to vendors.
At the time, the financially troubled Continental expected cost savings of at least $100 million, or 20% of its technology costs, over the life of the contract.
In the early 1990s, most outsourcing deals involved banks under pressure to improve profitability. Over the last few years that has changed as highly profitable banks such as Citibank and J.P. Morgan have outsourced parts of their operations.
"Today a bank can carve out any piece of the total technology pie and farm that one piece out to a specialist," said M. Arthur Gillis, president of Computer Based Solutions Inc., New Orleans.
"So outsourcing is becoming attractive to banks even as large as Bank of America, because they don't give up the guts of their operations," he declared.
"Outsourcing has moved from an embarrassment to a highly professional way of doing things," Mr. Gillis added.
Large banks are increasingly likely to outsource, according to Mentis Corp., a Durham, N.C., consulting firm.
Last year, 70% of banks with over $4 billion in deposits used a third- party processing company, up from just 52% in 1993, according to Mentis.
Bank of America vice chairman Martin Stein is a proponent of outsourcing on a selected basis to meet changing technology demands.
The bank runs its own California operations, which includes 1,000 branches and close to 4,000 ATMs, but in 1991 it outsourced operations for its 642 branches outside California to M&I Data Services, a unit of Milwaukee-based Marshall & Ilsley Corp.
Bank of America recently renewed its agreement with M&I for five more years.