Shares in outsourcing specialist Xansa tumbled after banking group HBOS cancelled a key contract.

HBOS is terminating First Banking Systems (FBS), a 51:49 joint venture between Bank of Scotland and Xansa.

It was set up in 1998 to provide information technology support services to the Bank of Scotland and has netted Xansa income of about £150 million.

But HBOS, created last year when Halifax and the Bank of Scotland merged, said it was cancelling the contract.

Director of group programmes Ian Kerr said the project had been a success but did not fit HBOS' decentralised structure.

The contract was scheduled to run until June 2007 but will now conclude in December 2003, at which point FBS employees will transfer to HBOS.

It is expected to generate revenues of about £96 million between now and the end of the contract, 49 per cent of which will go to Xansa.

HBOS will also pay about £9 million in compensation.

Xansa executive chairman Hilary Cropper said the move was still disappointing.

She said the contract terms were designed to protect Xansa's comm-ercial position, which meant it was in line with earning expectations this year.

Ms Cropper said: "The results for 2004 will be enhanced by the cash termination payment."

But investors reacted badly to the announcement and shares in the group slid 25.5p to 113.5p, an 18 per cent fall.

FBS employs more than 550 people.