Wednesday, October 1

Wachovia asset sale likely to hit Genpact

INDIA’s largest BPO provider, Genpact, is likely to take a hit from the sale of Wachovia’s assets to Citigroup. Genpact had a strong relationship with Wachovia and was chosen by the US bank to set up a dedicated centre that would function as its back-office. The agreement between the two firms had created headlines as Wachovia decided to cut costs and move jobs to the new outsourcing centre under a ‘virtual captive’ model, popular with many banks and insurance providers that did not want to set up their own captive centres.

What this meant was that Genpact would staff and run the back-office operations much like it was Wachovia’s own captive. In other words, most of the functions Wachovia wanted to outsource was likely to come to its own ‘virtual captive’ run by Genpact.
Under the seven-year agreement that Wachovia signed with Genpact, around
$1 billion of business was expected to come to the BPO provider. The contract also gave Genpact an opportunity to diversify its revenues from its largest customer and onetime parent, General Electric.

The sale of the Wachovia’s assets to Citigroup now puts a question mark on the business that was expected to come to Genpact. “No firm that has had relationships with any of the troubled banks will be able to come out unscathed. If you’re asking me if Genpact will be affected, the answer is clearly, yes,” said an expert with a firm that monitors trends in outsourcing. Genpact’s shares have been sliding and are now a little over $ 10, near its 52-week low of $ 9.24.

Typically, most large multi-year, multi-million dollar contract consist of two parts: committed business and expected business. The committed business is a much smaller proportion but the understanding in these contracts is the newer business will also flow to the same provider.

“Under these circumstances, it is the expected business may be in danger,” the expert added. Industry sources said the engagement on the committed business was expected to scale up to 14,000 people. A mail sent to Genpact on the impact of Wachovia’s sale was unanswered.

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