Great Western Bank, the nation's second-largest thrift, has signed a $160 million outsourcing deal with a newly formed unit of AT&T.
Under terms of the seven-year contract, AT&T Solutions will manage local and wide area networks for the $14 billion-asset institution, which is based in Chatsworth, Calif.
The move, which ranks among the nation's largest outsourcing deals, illustrates an increased willingness on the part of many large financial institutions to hand over technology-intensive tasks to third parties.
Great Western executives expect the contract to bring their thrift the technological flexibility needed to carry out a nationwide expansion of its retail and mortgage businesses.
The bank has concentrated its expansion efforts during the past five years mainly in California and Florida, according to Jesse King, senior vice president and controller.
"This network is the underpinning to the backbone on which we can roll out other technologies," Mr. King said.
The deal is one of the first original signings for the new AT&T business unit, whose formation was announced this week.
AT&T Solutions took the bulk of its starting customer base and service roster from other AT&T units. Aside from traditional networking services - such as those it will provide Great Western - the group also offers consulting services, systems integration, and outsourcing for advanced systems.
As part of the Great Western deal, AT&T is replacing the thrift's private network with a public frame-relay system on which it will run all its branch and automated teller machine operations.
The new network, which is expected to be fully installed by November, will connect more than 400 branch offices, 160 loan offices, and 550 ATMs.
Under the outsourcing agreement, AT&T will occupy the North Ridge, Calif., operations facility from which Great Western's wide area and local area networks are managed.
Before this deal, AT&T had been handling Great Western's voice telecommunications systems for more than five years.
Mr. King said the bank is still negotiating to combine that $30 million per year contract with the new networking agreement. Such a combination may enable the bank to negotiate a lower-cost deal, observers said.
Aside from Great Western, AT&T Solutions also holds contracts with financial institutions like Chase Manhattan Corp. and First Chicago Corp.'s First National Bank of Chicago.
Chase hired AT&T to improve and upgrade its networking systems generally.
First Chicago has been working with AT&T Solutions to supply cash management services to the U.S. Treasury. AT&T even helped the bank make a bid to become one of the two "fiscal agents" for the Treasury, according to Donald R. Hollis, the bank's executive vice president.
AT&T's formation of a unit specifically tailored for networking services underscores the growing role networking plays in the business arena, observers said.
Several major vendors, including International Business Machines Corp., are also trying to address the networking needs of financial institutions whose operations are coming to rely increasingly upon personal computer- based services.
U.S. businesses spend about $50 billion per year on networking, according to Victor A. Pelson, chairman of AT&T's global operations team. Since that total has been growing steadily at about 16% per year, he believes that this will be a $77 billion business by 1997.
Great Western promises to be one of the institutions trying to improve its networking in coming years. It has made 13 acquisitions since 1989, primarily expanding its presence in Florida and California.
Improved networking capability is needed in order to continue growth, particularly considering the "far-flung geographic dispersion of the company," Great Western's Mr. King said.
AT&T Solutions has about 100 customers, the largest of which are banks, and about $1 billion in backlogged contracts. The business unit culled most of its clients, resources, and its 5,000 employees from AT&T's integrated systems, federal government systems, and network outsourcing departments.