Nordic bank hires IBM to revamp and manage IT

Nordic bank Nordea has hired IBM to manage its daily IT operations and to revamp its IT infrastructure, and expects the outsourcing arrangement to save it money and allow it to devote more resources to its core banking business, executives from both companies said Wednesday.

Nordea, based in Stockholm, is the product of the combination of five formerly independent banks, so it has a very heterogeneous IT infrastructure. Consequently, it decided it had to consolidate and standardize its IT infrastructure and make it more homogenous, automated and consistent across the board, said Nordea's Chief Information Officer Jarle Haug.

The bank considered handling this big consolidation and transformation process on its own, but eventually decided to hire an IT services specialist instead, a job that went to IBM due to its experience with this type of project, Haug said. "We think IBM will provide us with the competency and capacity to make this transformation come through with lower risk than if we do it ourselves," he said.

Moreover, Nordea liked that IBM agreed to price its services according to usage, instead of using a fixed up-front price. Thus, the bank will pay for the services it uses, which will let it match the cost of IT to its consumption, preventing it from overpaying for underused IT resources, Haug said.

In the 10-year deal with an estimated value of €2.2 billion (US$2.56 billion), IBM will update and manage the bank's servers, networks, PCs, help desk and storage devices, among other things, said Leif Lindqvist, general manager of IBM Global Services in the Nordic region, based in Stockholm. "We'll do everything that goes with the IT infrastructure and take it to another dimension by redesigning it entirely," he said.

To provide the services, the companies have created a yet unnamed joint venture that will be staffed with about 900 IT employees that will transfer to it from Nordea, said Erik Evren, the bank's chief communications officer.

All of the executives interviewed declined to provide financial details about the joint venture, including the size of each company's stake in it. However, Nordea's Haug said the joint venture will not be capital intensive for the bank, because most of the investment needed for it will come from IBM. The contract and the joint venture become active on Nov. 1.

The joint venture will be a single-purpose entity, meaning it will only provide services to Nordea. Making sure its former employees were the ones providing Nordea these services was a big motivator in forming the joint venture, Haug said. The other option would have been to transfer these employees to IBM Global Services. The joint venture will also house a Transformation and Innovation Center that will conduct research and develop new technologies and best practices for the bank.

Nordea estimates it spends between €330 million and €340 million annually in the IT tasks it is outsourcing. It expects that the outsourcing will save it money, while the volume of its IT operations continues to rise, especially with its e-banking efforts. About 3.5 million of its 11 million customers engage in Internet banking with Nordea, Haug said. Nordea's e-banking activity is expected to grow substantially in the coming years, he said.

Nordea is keeping about 2,000 IT employees in-house in charge of a variety of functions, namely strategic planning and governance, and application design, development and maintenance, Haug said.

The transformation work is expected to take about three years to complete, at which point Nordea's four data centers, now located in four different countries, will have been consolidated into one in Stockholm, which will be owned and managed by the joint venture.

The deal doesn't call for an upfront transfer of hardware assets from Nordea to IBM, Haug said. Instead, as Nordea equipment ages, the joint venture will step in and buy replacements. That way, the joint venture will absorb the purchasing costs and free Nordea from these capital expenditures. Nordea will then pay for the capacity and usage it consumes, Haug said.

Nordea Group, established in 2000, has its roots in a 1997 merger between the Finnish Merita Bank and the Swedish Nordbanken. The merged entity, called MeritaNordbanken then merged with Danish Unidanmark in 2000. The acquisition of Norwegian bank Christiania Bank og Kreditkasse followed. Then in 2001 the bank acquired Swedish Postgirot Bank. Since Dec. 3, 2001, the bank has operated under the Nordea brand. In terms of market capitalization, it is one of Europe's 25 largest financial institutions. It is the largest financial services group in the Nordic region (Finland, Denmark, Sweden and Norway) with about €270 billion in total assets.

About 10 million of its customers are individuals, and 1 million are corporations. The bank had about 37,600 employees at the end of 2002. The bank has about 1,240 branches in Denmark, Finland, Norway, Sweden, Poland and the Baltic countries.

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