Washington Mutual Inc. and International Business Machines Corp. announced the signing Thursday of a 10-year agreement that sets a record for the bank outsourcing business.
The $533 million deal surpasses one worth $500 million deal that the now defunct Continental Bank Corp. entered into in 1991 with IBM.
The Seattle-based thrift will rely on IBM's computer services unit, Integrated Systems Solutions Corp., to manage a network of 2,500 desktop workstations in 270 offices and to support various new system applications.
Integrated Systems Solutions also will provide voice, data, and video communications services, and it will install and maintain new retail banking software.
Aside from putting the parent of the nation's fifth-largest thrift, Washington Mutual Bank, in the big leagues of bank outsourcing, the deal speaks to two trends in financial data processing: the increasing importance of managing networks of personal computers and the reemergence of large-dollar, long-term outsourcing.
"I think we're going to start seeing a trend of megadeals - certainly in the desktop arena," said George Samenuk, a vice president in Integrated Systems Solutions' finance practice.
In size, the deal harks back to the early 1990s. First Fidelity Bancorp. and Continental Bank Corp., among others, committed themselves to spend hundreds of millions of dollars to turn over their core computer operations to the likes of Electronic Data Systems Corp., Fiserv Inc., and Alltel Information Services Inc.
By 1992, such comprehensive deals had all but dried up as other big banks seemed intent on keeping control of core operations. Three of those with the largest contracts - First Fidelity, Continental, and Chase Manhattan - subsequently merged into other banks.
The Washington Mutual contract does not fit the core-processing model; the thrift is retaining its main computer operations. But it fits a pattern in which banks large and small are outsourcing in specific areas such as check processing or retail lockbox. The value of such contracts has risen as the largest banks get even bigger through acquisitions and "micro" contracts become more complex to manage.
"When it comes to the heart of the institution - which is core processing - large banks are holding on for dear life. They're not going to give that away," said M. Arthur Gillis, a bank technology consultant based in New Orleans. "They are going to give away the peripheral things if they can find someone who can do it better."
Washington Mutual's desire for network management stems from the fact that banks have installed more PCs more quickly than most other kinds of business have done.
"With enhanced network capabilities, we expect to strengthen customer service and the efficiency of internal operations," said Liane Wilson, executive vice president of Washington Mutual.
William Bradway, a consultant at Tower Group in Wellesley, Mass., said network management deals should become more common because PC networks comprise "infrastructure banks are not traditionally well staffed to support."
