An outsourcing agreement between Republic New York Corp. and Computer Sciences Corp., still under negotiation, could become one of the industry's largest.
The deal came to light last week when Republic announced it would take a $97 million pretax charge this quarter and eliminate 10% of its work force.
Republic would hand over management of its data center, help desk, and network and communications operations, according to the already established terms of the 10-year contract. Nearly 130 Republic employees would be offered jobs with Computer Sciences.
Judging by the contract's length, observers believe it would rank among the industry's top deals. Officials at Republic and Computer Sciences refused to elaborate on it. It is expected to be completed in April.
Republic joins a growing roster of large banks that have decided to outsource their telecommunications operations. In recent years, Citigroup, Bank One Corp., and J.P. Morgan all have outsourced this increasingly important function.
Big banks are recognizing that managing telecommunications "is not a core strength of theirs," said Lawrence A. Willis, executive vice president of First Manhattan Consulting Group in New York.
M. Arthur Gillis, president of Computer Based Solutions Inc. of Dallas, said outsourcing telecommunications lets banks "skip the think-tank phase" and "jump right into the implementation phase."
Banks also are responding to a lack of employees with expertise in the complex telecommunications arena, Mr. Gillis and Mr. Willis said. They predicted that even small banks would begin outsourcing telecommunications functions, as competition for the pool of available talent increases.
The Republic deal raises Computer Sciences' profile in the financial services sector. In 1996, the El Segundo, Calif.-based company formed part of J.P. Morgan's Pinnacle Alliance, which brought it together with AT&T Solutions, Andersen Consulting, and Bell Atlantic Network Integration in a seven-year deal.
"Through the project with Morgan, Computer Sciences has established a strong foothold in the banking arena," Mr. Willis said. Computer Sciences earned 40% of its $7.4 billion in 1998 revenues from outsourcing clients.
J.P. Morgan saved $50 million during the first 18 months of the $2.1 billion Pinnacle outsourcing contract, according to a study released by DataQuest, a division of Gartner Group. A spokesman said savings since then have been proportionately similar.
Bank One's $1.8 billion contract with AT&T Solutions and IBM Global Services, signed last October, turned over telecommunications to AT&T for six years, and data processing to IBM for seven years.
When the agreement was announced, Marvin Adams, Bank One's chief technology officer, said the bank would "recognize well in excess of $100 million in savings over what it would have cost us to manage and build the infrastructure."