ABN Amro signs up EDS for £1bn outsourcing deal

Largest-ever deal in financial sector tests trend for cost-cutting by outsourcing.

Largest-ever deal in financial sector tests trend for cost-cutting by outsourcing.

Global banking group ABN Amro is in the final contract discussions with EDS over a five-year £1bn deal to outsource its IT function. EDS claims it be the largest ever outsourcing contract in the financial sector.

The size of the deal alone will make it a test case for IT directors considering large-scale IT outsourcing. Analyst groups, including Ovum Holway, have been predicting a boom in IT outsourcing in the coming years as business strive to reduce costs.

"We're convinced we can reduce costs on our IT function, which is also important for clients of ABN Amro, and we want to have a more flexible cost base," said a spokesman for the bank, adding, "We think we can achieve that through outsourcing a part of our IT department."

The bank is not expected to give details of the deal until the fourth quarter. However, the bank spokesman said the deal could see 1,000 employees - a third of the firm's global IT staff - transfer to EDS.

ABN Amro anticipates making savings of at least £200m a year by outsourcing to EDS, which should cover the cost of the deal over five years.

"It seems to be a bit of a sweeping statement to say they can achieve such savings," said Jamie Snowdon, research director at IDC. "There must be more to this than just outsourcing - they must be investing in new software and business systems to change their business model and the way IT is managed within the organisation in some way."

However, Snowdon believes the deal is indicative of a trend. "That's the way that business is going at the moment," he said. "I expect to see a lot more bigger and more complex deals, especially in business process outsourcing being put together in the next six months."

Martin Sexton, outsourcing expert and IT director at London Market Systems, said, "This outsourcing deal is interesting given that earlier in the year a number of financial institutions announced deals to outsource their global trade processing to ABN Amro. Does this mark a change in the organisation's overall strategy?"

A spokeswoman for EDS said the company had spent more than a year working on the deal, which involves providing the whole spectrum of its services across 40 countries, with the initial focus on the UK, US, Hong Kong, Singapore and the Netherlands.

"This is a major coup for us," she said. "Financial services is a hugely important area for us and this deal underpins that."

ABN Amro has about 110,000 staff in over 3,400 branches in more than 60 countries and operates in three principal customer segments - consumer and commercial clients wholesale clients and private clients and asset management.

The bank serves individuals and small to medium-sized enterprises, as well as high-net-worth individuals and institutional investors, but the bulk of its business comes from its 10,000 wholesale clients, typically major international corporations and institutions.

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