JPMorgan Chase Retakes Control of I.T.

In September 2004, JPMorgan Chase & Co., freshly merged with Bank One, pulled the plug on its $5 billion contract with IBM Global Services to operate and maintain its technology infrastructure. The death of the then-largest outsourcing deal in the financial services sector came only 21 months after it took effect.

At the time the contract with IBM was announced in December 2002, JPMorgan Chase vice chairman Thomas Ketchum said the technology arrangement would "accelerate our pace of innovation while reducing costs." The deal had called for transferring some 4,000 employees and contractors from JPMorgan Chase to IBM.

After JPMorgan Chase acquired Bank One for $58 billion in July 2004, the bank's management reviewed the deal, evaluating whether the combined bank's information-technology resources and business strategy required a seven-year commitment to IBM.

JPMorgan Chase CIO Austin Adams, who had held the same position at Bank One, determined the merged company would be better served managing its own data-processing networks, data centers, help desks and data and voice networks as well as the thousands of workers who support those systems.

"The decision to cancel the outsourcing deal wasn't driven entirely by cost savings," Adams said in a telephone interview last month. "It was about our belief that we wanted to be more involved in every aspect of our business, and technology is a significant part."

He says that while other financial services companies continue to rely on outsourcing vendors to manage their core information systems, JPMorgan Chase wanted to leverage the resources it acquired from Bank One, including more than $500 million invested in three data centers.

Adams says there was no point paying margins on hardware and software purchased through IBM. The combined bank's size, he says, gives it the ability to negotiate better deals to buy components from vendors, including IBM.

IBM, which continues to provide some services and products to JPMorgan, declined to comment on the evolution of its relationship with JPMorgan.

While Adams says it's too early to quantify how much the company is saving by resuming responsibility for its data centers and applications, the company says it's seeing early dividends from the move to bring its computing resources back in-house.

JPMorgan says it's saving the 15% to 20% margins on hardware and software it had been paying to buy the products through IBM. With an annual I.T. budget of more than $7 billion, Adams says cost savings directly attributable to insourcing will become more apparent in two to three years.

In addition, the bank says it has been able to bring back in-house just about all of the 4,000 employees who were assigned to IBM when the outsourcing contract was signed.

And it says its computing operations are just as efficient now as they were when IBM handled its information resources. The bank in the last year has handled 500 systems conversions, including completion of a project begun by IBM to move 94 million credit card accounts to a single processing system.

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JPMorgan Chase Retakes Control of I.T.

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