It is estimated that the agreement could save Bank of Scotland £150 million in IT costs over the next 10 years, and contribute £20 million per year in revenues.

A major element of the deal will be the creation of a new IBM Scottish Delivery Centre at Sighthill, Edinburgh - the current site of Bank of Scotland's main data processing centre. The bank will rent accommodation to IBM. In addition to servicing Bank of Scotland's IT requirements, the Centre will offer its IT expertise and services to other organisations.

Gavin Masterton, Bank of Scotland's treasurer and managing director, says: "The IBM contract will complete the transformation in Bank of Scotland's approach to IT. It will create an exciting new opportunity for dynamic growth. In addition, it will generate new revenue by providing services based on a more cost effective and flexible IT infrastructure. Our objective is to leverage our IT capabilities to generate future revenue growth for our businesses.

"Core technology expertise will remain in Bank of Scotland to ensure we retain strict supervisory control of the Bbank’s technical architecture and strategy as required by the Financial Services Authority.”

Richard Atkins, vice president of strategic outsourcing delivery for IBM Global Services, UK and Europe North, says: "The new centre will provide new commercial opportunities which in turn will lead to greater career opportunities for both the 500 staff joining us and our existing 700 people. In fact this agreement almost doubles our presence in Scotland outside our Greenock manufacturing base which now employs around 5000.”

BoS MD Masterton describes the deal as "providing Bank of Scotland with the opportunity to create a more technically advanced IT infrastructure than the Bank could have achieved within its own resources."

He says the latest venture with IBM makes sound business sense on a number of fronts: "It will allow Bank of Scotland greater flexibility to design new products and target new markets on a more cost-effective basis. As far as customers are concerned, they will be offered improved quality of service and have access to new products and services more quickly.

"We were the first bank in the UK to computerise banking and, in 1985, to go into online banking. We launched Europe's first end-to-end Internet mortgages in October 1999 and we were the first UK bank to pilot WAP phone banking in November 1999. Our credentials in terms of the integration of IT and business innovation are second to none."

The alliance with IBM marks the third stage of a long-term IT outsourcing strategy at the Scottish bank. In 1998, the software-building aspect of the bank's IT support services was outsourced to First Banking Systems (FBS), a joint venture between the Bank and FI Group. Over the next five years FBS is expected to deliver an anticipated £60 million savings through productivity and efficiency improvements.

Last year Bank of Scotland also joined forces with BT Syncordia Solutions, which took over responsibility for the Bank's communications network.

In the financial services sector, IBM Global Services has secured significant outsourcing and e-business related wins in Europe as a number of leading banks have outsourced the whole of their IT to external suppliers. In 1999 four of the 10 largest outsourcing deals in Europe were in the banking sector.

IBM Global Services has contracts with Barclays Bank, Bradford & Bingley, Cazenove and the Co-operative Bank in the UK. In EMEA recent agreements include Handelsbanken (Germany), Winterthur (Switzerland) and the Nordic Saving and Insurance Companes; Skandia, Storebrand, If Property and Casualty Insurance and retailing group ICA AB.