Deutsche Bank, Hewlett-Packard Sign IT Agreement -- Update

FRANKFURT--Deutsche Bank AG said Tuesday it signed a multi-billion dollar agreement with Hewlett-Packard to help modernize its information technology systems in a 10-year deal which is expected to significantly cut costs.

The deal, which affects wholesale banking operations comes more than 10 years after the bank struck a similar IT agreement for its retail and small business clients unit with IBM. Wholesale banking--investment, global transaction banking, and asset and wealth management--accounted for around 70% of Deutsche Bank's 32 billion euros ($36.3 billion) in revenues last year.

"This agreement enables Deutsche Bank to secure standardised... IT infrastructure while lowering costs. Having a more modern and agile technology platform will... lay the foundation for the next phase of its digital strategy," Deutsche Bank Chief Operating Officer Henry Ritchotte said in a statement.

Analysts welcomed the HP deal, since Deutsche Bank, like its rivals, has been grappling with rising costs amid a wave of regulatory initiatives and the shift to digital banking channels.

"IT has become much, much more important for banks... and budgets are definitely going up," said analyst Neil Smith of Bankhaus Lampe, pointing to factors such as regulation and security.

Industry experts say German banks in general have neglected to keep their IT systems up to date. The industry didn't‎ invest quickly enough in streamlining IT platforms and internal processes, said Joerg Oliveri del Castillo Schulz, a German partner at consultancy Roland Berger.

For Deutsche Bank, the deal is a technological leap forward. The HP partnership is expected to improve interaction with clients by making it easier to launch new products, for example, but also by making internal processes more reliable and faster.

"Deutsche Bank is taking a proactive approach to modernising its IT infrastructure... through this partnership, Deutsche Bank will meet its long-term business objectives through a transformation of its IT infrastructure," said Meg Whitman, chairwoman, president and chief executive of Hewlett-Packard. HP will provide dedicated data center services on demand including storage, platform and hosting.

The deal is part of the German lender's Opex restructuring program, started in 2012 by then incoming co-Chief Executive Officers Anshu Jain and Juergen Fitschen. Opex aims to achieve annual infrastructure savings of EUR1.7 billion--or overall savings of EUR4.5 billion--by the end of 2015, while requiring EUR4 billion in investments.

Deutsche Bank last year already realized EUR3.3 billion in cumulative cost cuts, but faced rising costs to comply with new regulations including a bank-levy that goes to a fund designed to save ailing lenders. Costs in 2014 were EUR27.7 billion, compared with EUR26 billion in 2011.

Rising costs, sluggish revenues and a plethora of pending lawsuits have put Deutsche Bank under investor pressure to improve profitability and its share price. In January, bank executives said Deutsche Bank needs to cut costs and trim its balance sheet.

Natascha Divac contributed to this article.

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