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Deutsche Bank Inks Deal With IBM

Deutsche Bank has contracted with IBM to take over its computer center operations in continental Europe. The 10-year deal, worth 2.5 billion euros, should add up to annual IT savings of 100 million euros.

Deutsche Bank has contracted with IBM to take over its computer center operations in continental Europe. The 10-year deal, worth 2.5 billion euros, should add up to annual IT savings of 100 million euros.

The agreement covers the "data center operations, which means all the machinery and the hardware, but not the applications development," said Deutsche Bank spokesman Klaus Thoma. Those operations "will stay with Deutsche because it's an expertise, which should stay in the bank, while we see the operation of the mainframe and data center as not the core competence of the bank." Later, the bank will consider expanding the agreement to cover the United Kingdom and North America.

Some 900 employees of Deutsche Bank will be transferred to IBM. The deal creates "better career opportunities for IT staff than we are able to offer them within a bank," said Hermann-Josef Lamberti, Deutsche Bank's chief operating officer, in a statement.

The deal follows an earlier announcement by Deutsche Bank of an eight-year, $100 million outsourcing agreement with EDS to handle cash management in North America.

Financial institutions around the world have been spinning off technology elements of their operations. Earlier this year, IBM inked a $4 billion deal with American Express, the largest financial services outsourcing deal to date. JP Morgan is also said to be eyeing a deal. In March, EDS landed a $250 million deal with Australia's Bank of Queensland. And Canadian banks have signed more than $1 billion worth of outsourcing agreements in the last year alone.

The North American IT outsourcing market is expected to climb from $101.6

billion in 2001 to $159.6 billion in 2005 (11.2 percent CAGR), according to GartnerGroup.

Yet some banks have backed away from the concept after testing the waters. Bank One CEO Jamie Dimon said earlier this year that a three-year IT services contract with IBM and AT&T hadn't worked out as planned, while Washington Mutual has also pulled back some IT services into its operation.

Still, outsourcing agreements provide banks with opportunities. "We see more flexibility," said Deutsche Bank's Thoma.

Large outsourcers, he said, can change their hardware more rapidly than can a bank. "They are building this kind of stuff and they are the experts in IT infrastructure." The bank chose to retain application development in-house in order to create solutions geared to its needs, he added.

Under the deal, which is expected to be operational in the first quarter of next year, IBM will build a European computer center in the Rhine-Main region of Germany, whose services will be offered to other companies.

Deutsche Bank is also considering outsourcing telecommunications. The IBM deal was originally slated to include telecommunications, but Deutsche Bank decided it wanted to "look into the network area on a global scale," said Thoma. The bank first wants to see if there's an opportunity "to be more cost efficient. Then we will decided whether to outsource it and with whom."

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