International Business Machines Corp (IBM), the world's largest provider of computer services, may lose some or all of a US$5 billion contract with J.P. Morgan Chase & Co after the bank completes its acquisition of Bank One Corp, people familiar with the matter said.
J.P. Morgan is reviewing the contract in part because of opposition from Jamie Dimon, who is slated to take over as chief executive officer of the New York-based bank in 2006, said the people, who declined to be named. During his four-year tenure as chief executive of Bank One, Dimon canceled US$2 billion of similar arrangements with IBM and AT&T Corp.
The loss of the seven-year contract to manage the bank's computer network would be a blow to IBM CEO Sam Palmisano's efforts to expand the company's US$43 billion services division.
Under the 2002 contract, Armonk, New York-based IBM took on 4,000 J.P. Morgan staff to operate the bank's computer system. Some of those people may be rehired by the bank if the contract is canceled, one person said.
IBM officials have held meetings with Bank One chief information officer Austin Adams and J.P. Morgan's head of technology John Schmidlin to argue that the contract shouldn't be canceled, the people said. A decision will probably be made after the US$55 billion acquisition is completed around mid-year.
The contract "is one of many things we're looking at in the process of the merger," Bank One spokesman Tom Kelly said. He declined to confirm that the contract may be canceled or provide additional specifics.
IBM won the J.P. Morgan contract as part of Palmisano's efforts to bolster revenue from services as sales of hardware dropped. It was preceded by a US$4 billion contract for American Express Co and followed by a US$2.6 billion deal with Deutsche Bank AG.
All three were so called on-demand contracts where customers can order services on a pay-as-you-go basis. Critics have said those contracts don't save as much money as IBM claims. Investors said outsourcing contracts, which often yield most profit in their final years, risk being canceled.
Revenue at IBM's services business, its largest, rose 17 percent last year, the biggest gain of any IBM unit. The strategy for the services business, which is run by Douglas Elix, was announced by Palmisano in October 2002. The unit accounted for almost half of last year's US$89 billion in revenue.
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