M&I to sign outsourcing contract with Wisc. utility.

M&I Data Services Inc., a unit of Marshall and Ilsley Corp., is close to striking a ground-breaking data processing contract with Wisconsin Electric Power Co.

The agreement would b first in recent history in which a bank-owned data processor extends its services to a companies outside the banking industry.

Industry sources say a contract is imminent, but the companies are not giving details pending its completion.

Many see it as a fait accompli and a boon for Milwaukee-based M&I Data, one of the largest Suppliers Of Computer services to banks and the largest owned by a bank holding company.

"M&I Data Services is a market leader in data processing and this is a totally new market for them," said martin McDevitt, Jr., a securities analyst at Cleary, Gull, Reiland McDevitt in Milwaukee. "It is an area which could make significant contributions to the firm's earnings in the future."

M&I's deal with the Wisconsin utility would be a direct result of regulatory changes experts say could renew bank's interest in providing general data processing services.

In past years, Citicorp, Mellon Bank corp., First Tennessee National Corp., and others tried to profit by selling their excess computer capacity, but most were driven away by market cycles and regulatory complications.

Observers said recent moves by the Federal Reserve Board and the office of the Comptroller of the Currency could turn that trend around.

A recently adopted Federal Reserve rule on tying, or cross-marketing of services allows bank-owned data processors to offer tie-in owned data processors to offer tie-in deals to customers that use the processor's affiliated bank.

The Fed "believes that the amendment will relieve bank holding companies of a competitive disadvantage." It takes effect Jan. disadvantage." 23. The Comptroller's regulations currently limit subsidiaries of national banks to dealing almost exclusively with other financial institutions.

Under a proposed reworking of those rules, a national bank' operating subsidiary would be able to engage in certain activities not permitted the parent bank as long as the activities are "incidental" to the business of banking.

M&I Data's services are expected to be seen as incidental to banking because they can include direct debit bill payment services to Wisconsin Electric subscribers.

H. Rodgin Cohen, an attorney at Sullivan and Cromwell in New york, said the regulatory move are logical.

"If you can provide data processing for financial institutions why can't you provide the why, can't you provide the same services to other companies? There is no reason for the scope of the business to be so limited," he said.

Officials at M&I and at Wisconsin Electric said their negotiations could result in service beginning sometime in 1995.

"We are in the process of iron-in, everything out and until it is complete, we cannot comment on the arrangement," said James Eyster, an executive vice president at M&I Data Services. A spokes-at person for Wisconsin Electric echoed Mr. Eyster's commitments.

According to observers familiar with the talks, Wisconsin Electric plans to outsource certain data processing functions and the administration more 1.4 million on customer receivables and payables to M&I.

"M&I will be able to provide Wisconsin Electric's custom with a combined bill for gas and electric services, which will save the utility close to 1.5 million customer year in postage alone," said Mr. McDevitt.

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