JP Morgan close to outsourcing deal with IBM

J.P. Morgan Chase & Co. is negotiating exclusively with IBM Corp. on a seven-year outsourcing agreement worth more than US$5 billion, according to sources close to the deal.

If a contract is finalized within the next few months, as several sources said is expected, the deal could convince other financially pressured investment banks to consider similar arrangements.

“A large number of investment banks are considering whether to outsource to do things more cheaply,” said Octavio Marenzi, managing director at Celent Communications LLC, a financial services consultant in Cambridge, Mass. But any decision to outsource by investment banks such as J.P. Morgan Chase would be driven by more than costs, said Marenzi.

That’s because senior executives at investment banks “are often disillusioned” with the inability of their IT departments to react quickly to changing market decisions and implement technology solutions on the fly. Instead, he said, top banking officials are trying to gauge whether running IT operations on a commercial basis “would result in a more responsive and flexible approach to IT.”

A spokesperson for New York-based J.P. Morgan Chase declined to comment on news reports that the bank is negotiating exclusively with IBM.

One source close to the bank said the organization continues to negotiate the scope of the IT and business operations that would be impacted by an outsourcing agreement with IBM, as well as the number of IT employees at the bank that would be affected by such a deal.

If J.P. Morgan Chase and IBM sign such an agreement, “a deal of this magnitude would cause other investment banks to stand up and take notice,” said Marenzi.