Banking Impact on IT

The Indian IT and BPO companies could have more trouble coming their way following the collapse of the sixth largest bank in the United States. With Wachovia becoming the latest victim of the sub-prime crisis and Citigroup acquiring the company, there are doubts about how this deal could impact the Indian vendors.

A report published in the Hindu Businessline said vendors like Infosys, Genpact and Cognizant have had Wachovia on their client list since 2005 while they also have Citigroup on their rolls. How the latter views the outsourcing deals post buyout would be a matter of crucial concern.

The newspaper said that while Infosys and Cognizant refused comment, Genpact CEO Pramod Bhasin claimed that it was too early to analyse implications of the acquisition. "We will wait and watch and continue with our business normally," Bhasin was quoted as saying by Businessline.

The paper also quoted analysts as saying that there will be no major impact till the integration is done. “Unlike the direct impact of Lehman Brothers, the effect of this deal will be a couple of quarters away for the Indian vendors,” said Mr S. Sabyasachi, research director at neoIT.

Analysts believe that the future of Wachovia’s engagement with Indian vendors will be driven by Citi’s outsourcing strategy though at a general level they believe that the turmoil could see a 15-20 per cent reduction in IT budgets of all financial institutions over the next two to three years.

Source:
BPO Watch

After Washington Mutual - WaMu, its the turn of Wachovia

Citigroup to buy Wachovia banking operations

In the latest byproduct of the widening global financial crisis, Citigroup Inc. will acquire the banking operations of Wachovia Corp. in a deal facilitated by the Federal Deposit Insurance Corp.

Citigroup will absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio, with the FDIC covering any remaining losses, the government agency said Monday. Citigroup also will issue $12 billion in preferred stock and warrants to the FDIC.

The deal greatly expands Citigroup's retail outlets and secures its place among the U.S. banking industry's Big Three, along with Bank of America Corp. and J.P. Morgan Chase & Co. But it comes at a cost -- Citigroup said Monday it will seek to sell $10 billion in common stock and slashed its quarterly dividend in half to 16 cents to shore up its capital position.

The agreement comes after a fevered weekend courtship in which Citigroup and Wells Fargo & Co. both were reportedly studying the books of Wachovia, which suffers from mounting losses linked to its ill-timed 2006 acquisition of mortgage lender Golden West Financial Corp.

Source:
Yahoo