Joint Venture between IBM and French Bank BNP Paribas
October 16, 2009 by Bierce & Kenerson, P.C.
On December 19, 2003, IBM and the French bank BNP Paribas announced the creation of a joint venture to manage BNP Paribas’s IT operations. The deal represents the evolution of a “partnership” model between service provider and its customer within the framework of the European Union’s protective labor laws.
Scope.
The joint venture was structured so that it would provide, initially, information technology services to manage and operate BNP Paribas’s operations. BNP Paribas is reportedly the number one bank in the Euro zone and a major international bank with operations in more than 85 countries. Its operations include commercial banking, investment banking, international private banking and asset management. The deal covers computing power for 26 billion operations per second (26,000 MIPS), online storage capacity of 400,000 billion characters (400 Teraflops) and 7,000 Unix or NT servers.
Motivation.
In its announcement, the bank indicated that, while benchmarking studies (“etudes de benchmarking”) conducted by the bank had revealed its technological excellence, the bank shared certain motivations of other major financial groups that decided to outsource their information technology services.
- Technology Changes.
The bank stated that its alliance with IBM, “world leader in information technologies and services,” could anticipate the future evolution of technologies through “a continuous retention of its staff at the best level,” improving the flexibility of the services rendered and assuring the ongoing continuity of excellence in information technologies. - Cost Management.
At the same time, the bank noted that this joint venture would promote the “mastering of information technology costs, which responds to the exigencies of the banking profession that is evolving in a highly competitive environment. “[translation.]” - Labor Relations.
BNP Paribas’s IT Director, Herve Gouezel, announcing the deal, stated that the partnership “guarantees that the BNP Paribas employees would retain their legal status as well as their mastery of their technical framework.” [Our translation.] - IT Services on Demand.
BNP Paribas’s IT Director expressed confidence in the “Information Technology on Demand” model that the joint venture offered, allowing the bank to obtain an assured provider of services that could be expected to evolve and develop to absorb organic growth and adapt to evolutionary changes in the banking sector. - Prior Business Relationship.
IBM’s success appears to have been generated by its prior relationship with the bank. In the 1999-March 2000 timeframe, United European Bank, Banque Nationale de Paris (BNP) and Banque des Paris et des Pays-Bas (Paribas) merged. IBM provided the integration services to facilitate rapid implementation of the merger on a technical basis. As part of the integration of the banks, IBM migrated their technology platforms from OS/390 systems to OS/390 Sysplex systems. The banks were already operating a management system of DB2 databases, IBM’s IMS transactions management system and IBM’s MQSeries solution allowing exchanges of data between heterogeneous platforms that BNP had installed in 1995 instead of undertaking its own internal updates of historical systems and a project for an inter-application exchange project. BNP Paribas and IBM had previously claimed that IBM’s merger-integration services had begun saving the bank €250 million per year in IT costs beginning in 2002.
Ownership.
The joint venture will be owned 50-50 equally by IBM and BNP Paribas. While not announced, each party would probably establish a separate subsidiary to own its share.
Employees.
By reason of the joint venture structure, BNP Paribas retains control and responsibility of its workforce. The 50-50 ownership allocation, however, suggests that the operational control will be exercised at least equally by IBM. Approximately 450 persons will be working for the joint venture to maintain the BNP Paribas infrastructure and IT operations.
The announcement was silent on the degree of integration of BNP Paribas’ shared IT services group, BNP Paribas Services, based in Geneva, Switzerland with approximately 400 employees, which reportedly provides IT solutions to the private banking arms of its parent group, BNP Paribas, after the merger of the three constituent banks of BNP Paribas in 1999-2000. Given the size of the staff and the fact that Switzerland is outside the European Union, it is possible that the bank might have retained such operations external to the IBM-bank joint venture.
Sales.
The joint venture is anticipated to have “sales” of approximately € 1.0 billion within five years after inception. The target customers, other than BNP Paribas, are not immediately clear. There appears no mention of any restraint in IBM’s ability to compete with the joint venture. We are waiting for such a disclosure on IBM’s next joint venture.
Lessons.
Selection of a joint venture structure in the European Union appears to offer some unique advantages that are local in nature. This legal structure overcomes a number of barriers to outsourcing under French and European Union labor laws. The management of a 50-50 joint venture requires an allocation of roles and responsibilities that can be virtually the same as a classic “independent contractor” agreement. The operating structure, scope definition, budgeting process, termination provisions and consequences, intellectual property rights and other essential elements undoubtedly resemble those in a well-drafted “independent contractor” agreement. If this is truly a joint venture, special considerations of fiduciary duty under the law governing each party and the joint venture merit attention.