16 September 2004 JP Morgan Chase, the investment banking and financial services giant, has cancelled a £2.8 billion ($5 billion) IT outsourcing contract deal with computer and services giant IBM.

The announcement brings a premature end to an outsourcing agreement before it has barely begun. It was hailed in 2002 as “the largest of its kind”.

A spokesman for JP Morgan Chase said that the contract was scuttled because JP Morgan’s acquisition of Bank One in January 2004 means that “it now has the significant scale, enhanced capabilities, tools and processes to build its own global infrastructure services organisation.”

Because the contract was only two years into an anticipated seven-year deal and IBM was still investing in it, the cancellation of the contract will have a positive impact on IBM’s 2005 profits according to analysts. However, the decision will clearly hurt IBM in the longer term.

Austin Adams, chief information officer at JP Morgan, said: “We believe managing our own technology infrastructure is best for the long-term growth and success of our company, as well as its shareholders.” Although details were not released, JP Morgan would almost certainly have had to compensate IBM heavily for the cancellation.

Adams said that the company will continue to work with IBM, citing it as one of JP Morgan’s “largest, key technology partners”.

About 4,000 JP Morgan employees were transferred to IBM as part of the original agreement. JP Morgan plans to return all the outsourced workers to its payroll in January 2005.