JP Morgan Chase said yesterday it was scrapping a $5 billion (€4.1 billion) outsourcing deal with IBM amid an overall plan to manage more of its own technology services.

JP Morgan Chase, which recently acquired Bank One and has made bringing services in-house a priority, said it planned to rehire about 4,000 workers who had been transferred to IBM in 2003 at the start of the seven-year deal.

IBM and JP Morgan declined to say how much so far had been paid to IBM, which was to take over the global computing operations for J.P Morgan in such areas as retail banking, trading and securities processing.

"IBM will be able to reuse some of [those systems\] and they are passing some costs back in terms of these 4,000 people," said Mr Michael Haney, senior analyst with consultant Celent.

"They might take a small hit but I think they will be able to recover and re-leverage those assets," he added.

Following JP Morgan Chase's $58 billion acquisition of Bank One in July, the bank has been cutting costs aggressively.

It said there would be no material impact from the cancellation.

Bank One decided to bring its IT in-house several years ago and has spent over $1 billion to upgrade its entire technology suite, including building data centres.

This philosophy has now taken hold at JP Morgan.

IBM, the world's largest computer company, said in a regulatory filing that the cancellation of one of its biggest financial services outsourcing deals could help its 2005 earnings per share.

In part, that is because contract-related spending would cease, said IBM spokesman Mr Michael Corrado.