NationsBank Corp. has won a five-year contract from the Department of Defense to provide banking services to U.S. military forces through an international network of 125 branches.

The award, announced Thursday, designates NationsBank the sole supplier of overseas military banking services.

It is the first time in more than 40 years that a single institution has handled the entire military banking system, and NationsBank officials said they intend to use the opportunity to showcase their technology and customer services on a global scale.

Charlotte, N.C.-based NationsBank declined to disclose how much it bid for the $502.2 million contract. That is the amount the Defense Department will pay under a "cost-plus-fee" arrangement.

A department spokeswoman said the "overwhelming majority" of the amount covers the cost of delivering services. The remainder represents the bank's fee and profit.

Gene Phipps, president of specialty products at NationsBank, would say only that the arrangement will enhance the fee income of the bank's Military Banking Group.

Based in San Antonio at company's Bank of Fort Sam Houston affiliate, the military unit had a portion of the previous Defense Department contract, awarded in 1990: a 17-branch network serving armed forces personnel and Defense Department civilian employees in Japan and Okinawa.

Another 108 branches in Europe and Asia were the responsibility of National City Corp., Cleveland, as a result of its acquisition in 1992 of Merchants National Bank and Trust Co. of Indianapolis. Merchants outbid American Express Bank to win the bulk of the 1990 contract.

Vincent A. DiGirolamo, president and chief executive of National City Bank of Indiana, said his company was "terribly disappointed" at losing the 1995 contest. He said he didn't have "the slightest idea" why the Defense Department chose NationsBank.

The Defense Department said it chose between only two formal bids out of 24 it had solicited.

NationsBank expects in October to begin a year-long conversion process to integrate the National City military network and its systems.

"As one contractor, we're able to bring some things together so there'll be more of a seamless transaction processing for the customers," Mr. Phipps of NationsBank said, noting that service personnel in Europe, for instance, would now be able to transfer their accounts to an Asian base with less difficulty than under the current arrangement.

They will also be able to use 225 automated teller machines, which NationsBank will connect to all major interchange networks "with the same 24-hour-a-day, on-line monitoring provided in the United States."

NationsBank will service more than 275,000 accounts holding $875 million of deposits at the overseas branches, which are actually owned by the Defense Department.

"Essentially, the Department of Defense is operating a banking institution, so it is their organization and their financial balance sheet that we're managing for them," Mr. Phipps said. "We're operating as a contractor, providing services as an agent."

A current NationsBank customer who wants to transfer bank accounts to a military branch would have to open an entirely new account, Mr. Phipps said. Current employees overseas also will remain in place.

NationsBank plans to offer checking and savings accounts in U.S. dollars, British pounds, and possibly German marks. Customers will be able to purchase 14 commonly traded European currencies at the overseas branches.

Hoping to attract new business stateside, NationsBank expects to offer specialized automobile loans, mortgage assistance, relocation, and other services to customers returning home.

G. Patrick Phillips, president of financial products, said the goal is "hometown services" that can boost military morale. "The last thing we want them to do is worry about their finances," he said.

Bank of Fort Sam Houston, which NationsBank acquired in 1988, has been in military banking for 75 years.

Until Fort Sam Houston and Merchants National began sharing the business in the late 1980s, American Express Co. had dominated military banking since 1918, when it set up offices in France to serve arriving U.S. troops in World War I. American Express signed its first long-term contract with the Treasury Department in 1946 to serve U.S. forces in Germany after World War II.

The Department of Defense took over management of the contract in 1977.

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