IBM In Outsourcing Talks With J.P. Morgan ChaseIBM In Outsourcing Talks With J.P. Morgan Chase

IBM said Wednesday it's in exclusive talks with J.P. Morgan Chase & Co. for a deal that would see the white-shoe investment and retail-banking firm outsource to IBM the vast majority of its back-office and computer operations. The deal could be worth as much as $5 billion, according to sources familiar with the negotiations. Word of the possible deal comes amid published reports that J.P. Morgan is set to cut staff in its investment-banking unit by up to 20%.

IBM also says it expects to meet analysts' expectations for 2003, which foresee the company posting per-share earnings of $4.31 on revenue of $87.0 billion.

An IBM spokesman confirms that talks with J.P. Morgan are in progress and that the company has won the right to bid exclusively on the contract, but he could provide no indication of when a final deal might be struck or how long implementing the outsourcing arrangement would take. J.P. Morgan officials couldn't immediately be reached for comment.

It's likely that IBM's recent acquisition of PricewaterhouseCoopers Consulting helped sway J.P. Morgan's decision to negotiate with the vendor exclusively. PWC Consulting, among other things, specializes in business-process outsourcing services for the financial-services industry.

To the extent that it's a boon for IBM, word of the talks represents a setback of equal measure for EDS, which had been in the running for the J.P. Morgan business. It's the second piece of bad news in a week for EDS. Last week, consumer-goods company Procter & Gamble Co. said it had backed out of an $8 billion outsourcing deal on the grounds that EDS's recent financial difficulties--it issued an earnings warning in September--made the deal too risky. Major outsourcing deals usually require the winning vendor to acquire the customer's existing IT staff and assets, meaning that healthy cash flow is essential.