New IBM Processing Unit Inks First Pact with a Bank

The newly formed data processing services unit of International Business Machines Corp. landed its first bank client last week.

First American National Bank, the main bank of First American Corp., a $7 billion-asset bank holding company in Nashville, announced on Friday that it will turn over its technology operation, including systems development and telecommunications, to IBM's Integrated Systems Solutions Corp.

The unit, based in White Plains, N.Y., manages computer systems for corporations, an arrangement known as outsourcing.

Saving of $40 Million Seen

James F. Smith, chairman of First American, said the bank will save $40 million in technology expenditures over the 10-year life of the contract. The IBM unit will hire about 150 bank data processing employees as part of the deal.

"We looked at other [outsourcing] companies, but we felt that the IBM relationship gave us the broadest opportunity," said Mr. Smith. "This will give the bank access to technology that would not be available to us, and in the future IBM can assist us in other areas, such as item processing."

Terms of the contract were not released. The bank will continue to run its own item processing operation. IBM will manage the bank's data center for the foreseeable future, but Mr. Smith said that eventually First American's processing will be handled at an IBM computer center supporting other companies' computing needs.

Hogan Software to Be Used

"Long range, we want to get the greatest possible efficiencies," said Mr. Smith.

IBM will continue to run the bank's existing software systems, but will eventually convert the bank to software from Hogan Systems. IBM has an exclusive marketing arrangement with the Dallas-based company.

IBM will also provide branch automation systems, which will be integrated with a new customer information system.

This is IBM's first outsourcing contract with a bank since it formed a separate subsidiary for such services last May. The unit allows IBM to offer processing services, which it was banned from doing under a 1956 consent decree. In the past few months, the subsidiary has signed a number of contracts with nonbank companies.

Before creating the subsidiary, several banks signed up for outsourcing services with IBM. Critics have charged that those contracts violate the consent decree and are pressing industry groups to investigate. IBM has denied that its contracts violate the decree.

One of the outsourcing contracts is with First Tennessee National Corp., Memphis. The bank's data processing is handled by an IBM center in Colorado. Earlier this year, IBM formed a joint venture with a unit of the bank that will develop software for image-based check systems.

Analysts speculate that IBM and other outsourcing firms will form joint ventures with banks that want to cut costs by merging their back-office and check operations and run them as a separate, for-profit units.

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