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Australia's NAB inks IBM outsource deal

Julian Bajkowski | Dec. 20, 2010
Software changes, miscoding and lack of a maintenance patch blamed for transactions disaster.

SYDNEY, 20 DECEMBER 2010 - A spate of retrenchments over alleged staff leaks to customers following two computer systems failures has cast a pall over National Australia Bank's annual general meeting after the bank confirmed that it would outsource its troubled mainframe systems and data centre infrastructure to IBM.

A NAB spokesman said that one employee and two contractors were last week "terminated for serious breaches of NAB confidentiality policies in relation to commercially sensitive material", a move that has angered NAB staff already unhappy over poor communications and support provided to employees who were forced to deal with millions of irate customers.

The disclosure of the infrastructure outsourcing deal with IBM, came as NAB chief executive Cameron Clyne attempted to explain to investors why the transaction system disaster had occurred.

The problems left many of NAB's 4 million customers unable to electronically access wages and welfare benefits for around a week late last month. Inaccurate balances for affected customers have continued to dog the bank.

Mr Clyne blamed software changes made in 2001 to accommodate the abolition of financial institutions duty, another "miscoding error" and a maintenance patch from an external provider that "had not yet been applied" for causing the incident.

The vendor of the patch "has subsequently appreciated that this patch is critical maintenance and has advised other customers accordingly", he said.

Mr Clyne said his bank's overall performance had "improved its reputation". He talked up the progress of its $1 billion technology overhaul and core banking replacement dubbed NextGen.

He also said that the recent incident had validated NAB's commitment to a new core system and that "NextGen will have developed the capability to support the majority of NAB products and customers".

However, the bank is yet to specify when it will attempt to convert its retail transaction account customers onto a new Oracle core banking platform that is being trialled on its online UBank product.

Analysts had widely expected NAB to opt for an infrastructure outsourcing contract as a result of the decision to undertake NextGen in order to stabilise and replace ageing infrastructure ahead of building the new core platform.

Westpac last month renewed its infrastructure outsourcing deal with IBM for $1.3 billion ahead of the rebuild of a core banking platform that has been delayed by two years.

Mr Clyne previously headed the financial services practice for IBM Business Consulting Services.

A trigger for the IBM deal to be signed was the expiry of NAB's enterprise bargaining agreement on December 31. The bank has confirmed that 425 positions will be transferred to IBM on existing entitlements and conditions.

The absorption of more unionised former bank employees looms as a potential headache for IBM. The company's previous attempts to dislodge staff from industrial agreements inherited from outsourcing arrangements has proved largely unsuccessful and provoked industrial action.


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