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JP Morgan Chase To IBM: You're Fired!

While some observers believe J.P. Morgan Chase & Co.'s decision last week to scrap a 10-year, $5 billion services contract with IBM was driven by president and chief operating officer Jamie Dimon's aversion to outsourcing, spokesmen say the move actually was based on a desire to make full use of IT assets and processes the company acquired through its July merger with Bank One Corp.

The merger with Bank One 'really changed the equation' in terms of effective IT use, says executive VP Charles Costa

The merger with Bank One "really changed the equation" in terms of effective IT use, says executive VP Charles Costa. Photo by Steven Vote.

The financial-services company will have access to a state-of-the-art data center that Bank One opened in Wilmington, Del., last week at a cost of $150 million, says Charles Costa, J.P. Morgan Chase's executive VP for global technology infrastructure. Among other things, the building features dedicated fiber-optic lines and new server and storage systems. "This didn't exist for us" when J.P. Morgan Chase struck its outsourcing deal with IBM in 2002, Costa says, adding that the company is better served assimilating Bank One's advanced IT assets than turning them over to IBM to manage. J.P. Morgan Chase was about 18 months into the 10-year deal.

Bank One's IT capabilities also will help J.P. Morgan Chase meet tech-driven business requirements, such as the Check 21 initiative that lets banks process checks using graphic images instead of paper. "That's a big priority that we need to be well positioned for," Costa says. Last year, Bank One rolled out a system that converts consumer checks into electronic debits for next-day settlements using high-speed imaging.

Bank One recently completed a $500 million initiative to standardize and centralize its IT systems, an effort that's expected to shave $200 million from its annual operating costs by, among other things, eliminating 600 software applications and reducing 11 loan systems to six. "The merger really changed the equation, and Bank One's technology infrastructure is a key part of that," Costa says.

For one analyst, the decision makes sense. "Bank One spent a fair amount of money building a very streamlined IT infrastructure that [J.P. Morgan] Chase would be foolish not to utilize," says Jeffery Harte, with Sandler O'Neill & Partners.

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