Financial firms bet on outsourcing

IBM's $5 billion, seven-year outsourcing agreement with JPMorgan Chase is the latest and most valuable in a string of multibillion-dollar deals recently forged between IT services firms and financial institutions.

Financial services firms are turning to outsourcing to lessen IT costs and management burdens, free up cash, and find better ways to respond to fluctuating market conditions, analysts say.

IT agility is key to financial services companies, which face economic pressure from shrinking transaction volumes yet shoulder intense computing requirements, says Tom Kucharvy, an analyst at Summit Strategies. "The need for outsourcing among those companies is clearly on the rise," he says.

The JPMorgan Chase pact announced last week calls for IBM to handle a significant portion of the firm's technology infrastructure, including its data centers and voice and data networks, as well as absorb 4,000 JPMorgan Chase employees and contractors. JPMorgan Chase will retain control of some IT functions, including application development and delivery, and desktop support.

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IBM's $5 billion, seven-year outsourcing agreement with JPMorgan Chase is the latest and most valuable in a string of multibillion-dollar deals recently forged between IT services firms and financial institutions.

Financial services firms are turning to outsourcing to lessen IT costs and management burdens, free up cash, and find better ways to respond to fluctuating market conditions, analysts say.

IT agility is key to financial services companies, which face economic pressure from shrinking transaction volumes yet shoulder intense computing requirements, says Tom Kucharvy, an analyst at Summit Strategies. "The need for outsourcing among those companies is clearly on the rise," he says.

The JPMorgan Chase pact announced last week calls for IBM to handle a significant portion of the firm's technology infrastructure, including its data centers and voice and data networks, as well as absorb 4,000 JPMorgan Chase employees and contractors. JPMorgan Chase will retain control of some IT functions, including application development and delivery, and desktop support.

Considerable infrastructure consolidation is on tap, says Paul Sweeny, general manager of the financial services sector for IBM Global Services. IBM plans to reduce JPMorgan Chase's 16,000 distributed servers by about half and move from 37 networks to a single voice and data network, Sweeny says.

In addition to the JPMorgan Chase deal, IBM last month inked a $2.6 billion, 10-year agreement with Deutsche Bank to manage some of its computer centers.

IBM isn't the only company landing big outsourcing deals.

Electronic Data Systems (EDS) landed multibillion dollar deals with financial services companies Bank of America and ABN Amro in December.

The Bank of America contract is a 10-year, $4.5 billion outsourcing agreement whereby EDS will reengineer and manage the firm's voice and data networks.