Perot to Run Data Centers For NCNB
NCNB Corp. has become the largest U.S. banking company to say it will turn its data processing operations over to a computer services company.
NCNB, the first among the 10 largest U.S. banks to opt for so-called outsourcing, said this week that Perot Systems Corp. would run its data centers in Charlotte, N.C., and Richardson, Tex. The outsourcing arrangement is expected to encompass the merger of NCNB and C&S/Sovran Corp. into NationsBank, which would rank among the top four banks in the country.
And in an unusual extension of such a service contract, Perot Systems said it would eventually use NationsBank data centers to offer data processing services to other financial institutions.
NCNB plans to merge with C&S/Sovran by the end of the year, forming a bank with $119 billion in assets.
NCNB has been working with Perot for the last few years on a number of strategic technology projects, including the consolidation of the bank's data centers and the development of a common set of systems for its farflung branch network.
Perot to Own Centers
Perot will own and manage NCNB's data centers in Richardson, Tex., and Charlotte, and offer employment to the centers' 200 employees, most of whom are in Richardson. The company will also acquire most of the computer equipment at the centers.
NCBN will retain software development, item processing, and departmental computer systems operations in house, at least for now. Timothy P. Hartman, chairman of NCNB Texas, who will be chairman of Nationsbank's western region, said outsourcing was being considered for other back-office operations.
The terms of the multi-year agreement, announced this week, were not disclosed. But with NCNB's annual technology expenses estimated at $200 million million, the agreement is probably the largest outsourcing deal in the banking industry.
It should easily exceed the 10-year agreement between Chicago's $27 billion-asset Continental Bank Corp. and a subsidiary of International Business Machines Corp., estimated at $500 million to $700 million.
No Decision on Expansion
And the value of the deal will likely increase dramatically if Perot takes over all the data processing responsibilities for the new NationsBank. Mr. Hartman and Perot executives say that no decision has been reached regarding expanding the agreement to include C&S/Sovran, which analysts estimate has an annual technology budget of $100 million.
But NCNB has taken the upper hand in the merger, and sources inside C&S/Sovran say that the bank's decision to outsource its technology operations will impact NationsBank.
"I think that the formation of a data utility is a strategic direction, and you can expect that it will have a strong influence over NationsBank's direction," said the source.
C&S/Sovran has data centers in Atlanta and Richmond. One of those centers is likely to be closed as a result of back office consolidation after the merger, sources said.
NCNB decided to turn over technology operations to Perot to get out from under day-to-day management and reduce expenses.
"There are tradeoffs in terms of flexibility and control for a greater level of expertise," said Mr. Hartman. "We feel we are getting a higher level of flexibility and expertise. And cost efficiency was a factor."
Mr. Hartman declined to say how much the bank will save by outsourcing. Consultants say outsourcing can reduce technology expenses by 10% to 50%.
A Coup for Perot
For Perot, the deal is the realization of a goal to provide outsourcing services to major banks and to begin establishing a network of regional computer centers to process data and/or checks for banks. The company, established by Texas entrepreneur Ross Perot, founder of outsourcing giant EDS Corp., began talking to banks last year about setting up data centers across the United States but had not takers until now.
Perot, with data centers in Detroit, Richardson, Tex., and Reston, Va., had been an alsoran in the competition for big bank outsourcing clients. The company's only other bank customer is First American Bankshares, Washington, D.C.