The move announced Wednesday brings to an early end an outsourcing agreement hailed as "the largest of its kind" less than two years ago.
JPMorgan called the deal "groundbreaking" at the time, saying the $5 billion deal would last seven years.
Instead, the arrangement will last two years. JPMorgan said it will return the outsourced workers to its payroll in January.
The deal was scuttled because the company's merger with Bank One (search) in January 2004 "created a new firm with significantly greater capacity to manage its own technology and infrastructure," JPMorgan Chase said in a statement. "The merged firm concluded it now has the significant scale, enhanced capabilities, tools and processes to build its own global infrastructure services organization."
The company has been considering ending the agreement since the merger, said Joe Evangelisti, a JPMorgan Chase spokesman.
However, the reasons the company gave for ending the deal sound strikingly similar to its rationale for entering into the arrangement: accelerating innovation, reducing costs and providing career opportunities for employees.
The deal "is not the largest outsourcing deal that we've ever done and it's not the largest financial services deal we've ever done," said James Sciales, an IBM spokesman.
It also isn't the first time a company outsourced jobs to IBM, then took them back, he said. Sciales could not immediately provide details of other IBM outsourcing contracts being reversed.
The practice of outsourcing employees to other companies, or companies in other countries with lower wages, has caused a furor among many workers.
Major events, like a merger, can cause companies to re-think their strategies, said David Stumpf, an analyst at A.G. Edwards & Sons who follows JPMorgan. "Is this the beginning of some sort of major wave? I doubt it."