STOCK QUOTES     More market data...

Bank brings back jobs, reverses its outsourcing

By ELLEN SIMON
The Associated Press

E-mail this article Print this article Search archive Most read articles Most e-mailed articles

The move, announced yesterday, brings to an early end an outsourcing agreement hailed as "the largest of its kind" less than two years ago. J.P. Morgan Chase called the deal "groundbreaking" at the time, saying the $5 billion deal would last seven years.

Instead, the arrangement will last less than two years. J.P. Morgan said it will return the outsourced workers to its payroll in January.

The deal was scuttled because the company's January merger with Bank One "created a new firm with significantly greater capacity to manage its own technology and infrastructure," J.P. Morgan Chase said in a statement. "The merged firm concluded it now has the significant scale, enhanced capabilities, tools and processes to build its own global infrastructure services organization."

The company has been considering ending the agreement since the merger, said Joe Evangelisti, a J.P. Morgan Chase spokesman.

However, the reasons the company gave for ending the deal sound strikingly similar to its rationale for entering into the arrangement: accelerating innovation, reducing costs and providing career opportunities for employees.

IBM's stock fell slightly in afternoon trading yesterday, down 44 cents a share to $86.28.

The deal "is not the largest outsourcing deal that we've ever done and it's not the largest financial services deal we've ever done," said James Sciales, an IBM spokesman. He said he couldn't say what deals are bigger. "We don't always announce our deals and the customer doesn't always announce them."

Still, "If it's not the largest it's among the largest" of IBM's outsourcing deals, said David Grossman, an analyst who follows IBM at Thomas Weisel Partners.

Some of its other large outsourcing agreements include a $4 billion deal with American Express and an $2.5 billion deal with Deutsche Bank.

This isn't the first time a company outsourced jobs to IBM, then took them back, Sciales said. Grossman said the cancellation "was anticipated."
 
James Dimon, who became J.P. Morgan Chase's president and chief operating officer in the Bank One merger, had canceled information-technology outsourcing contracts while chairman of Bank One.

"Is this the beginning of some sort of major wave? I doubt it," said David Stumpf, an analyst at A.G. Edwards & Sons who follows J.P. Morgan Chase.

One argument for outsourcing is that companies should focus on what they do best and leave other functions, like information technology, to outside experts, but Dimon doesn't buy that.

"We want to have both sides, the best systems and operations in the business," Dimon said at a financial services conference after the merger was announced. "It's a core part of your company; it's like your spine."

Because the J.P. Morgan Chase contract was in its early stages and IBM was still investing in it, the cancellation will have a positive effect on IBM's earnings per-share in 2005, the company said in a filing with the Securities and Exchange Commission.