J.P. Morgan & Co. has signed a $2 billion, seven-year pact to hand off key operations to a consortium of technology specialists.
Participants in the consortium - Andersen Consulting, AT&T Solutions, Bell Atlantic Network Integration, and Computer Sciences Corp. - will supply Morgan services ranging from management of personal computers and data centers to software development and telecommunications.
The outsourcing deal is one of the boldest to date. Aside from its hefty price tag, the agreement is notable in that it bundles many outsourcing services. Typically, banks have formed outsourcing arrangements for specific functions with individual firms.
"We don't believe any single company - ourselves included - can do all of these services," said Peter A. Miller, co-head of corporate technology at J.P. Morgan.
The deal, which should be completed within months, illustrates the direction bank outsourcing is taking as large holding companies work to strike a balance between gaining important technological help and maintaining control over their operations.
According to Mr. Miller, the consortium, named the Pinnacle Alliance, will serve Morgan exclusively.
In total, the consortium will handle activities involving about one- third of Morgan's annual technology budget of $1 billion. The bank expects to shave technology costs by about 15% in activities handled by the Alliance companies.
About 900 Morgan employees are affected. None will lose their jobs, but most will become employees of one of the Alliance companies.
Observers said the contract is part of a trend in which the nation's largest banks increasingly look to third parties for help in managing technology.
Large banks historically have shied from outsourcing because they feared it would erode their control of operations. The legacy of this fear is that agreements such as Morgan's usually involve a lot of supervision by the bank.
"Big banks only want to outsource if they're going to be an ongoing piece of it," said M. Arthur Gillis, an independent consultant based in New Orleans. "The days of 'sign the contract and take what they give you' are gone."
Morgan executives said they plan to take an active role in supervising the activities of Alliance companies.
Computer Sciences Corp., based in El Segundo, Calif., is the consortium's lead company, with responsibility for mainframe, midrange, and distributed computing operations worldwide. This includes managing data centers in New York, London, and Delaware.
John M. Mickel, president of Computer Sciences' consulting group, will be lead executive of the Pinnacle Alliance.
Andersen Consulting is responsible for software applications development support. And AT&T Solutions, a unit of AT&T Corp., will supply a range of network services and some telecommunications services.
Bell Atlantic Network Integration, a unit of Bell Atlantic Corp. will manage the bank's PC-based operations, including local area networks and servers.
Observers said one of the alliance's benefits is that it frees Morgan from having to strike and maintain individual deals with many service providers.
Morgan has "created a single point of negotiation for all the parts of the deal," said Lawrence A. Willis, a managing vice president at First Manhattan Consulting Group in New York.
But more importantly, the service providers should achieve more as a group than they could individually, Morgan executives said.
"On an ongoing basis, we will bring to bear the strength of five companies" on the consortium's business needs, said Mr. Miller.
