The collapse of mortgage lenders in the U.S. is slowing the pace at some of India's fast-growing IT companies
by Nandini Lakshman
When the subprime crisis hit in early August, the global contagion was largely limited to the banking sector in Europe and some parts of Asia. But while India's banks, which had little exposure to the crisis, were largely unharmed, some of its outsourcing companies are emerging as unexpected victims of the financial turmoil.
On Aug. 17, nearly a fortnight after the crisis struck, New York-listed WNS Global Services (WNS), one of India's fastest-growing business-process outsourcing companies, held a conference call for analysts. Chief Executive Neeraj Bhargava, told analysts he was lowering the company's forecast for the current financial year as business from First Magnus Financial and other distressed mortgage lenders was drying up.
In some cases that business won't be back soon. For example, Arizona-based First Magnus, which laid off 6,000 employees and filed for bankruptcy Aug. 21, is one of nine WNS mortgage-lending clients that have succumbed to the subprime crisis. Bhargava said he estimates the loss of business from those lenders will lop $16 million from projected sales, which had been expected to come in at $307 million. The company also said net income before tax is expected to be about $26 million, lower than previously estimated. "It is just a temporary blip," said Bhargava, but investors were unimpressed. WNS shares fell 16% after the announcement and, at $18.25, stand at almost half their recent February high of $35.30.
Signs of Trouble Earlier in the Year
Mumbai-based WNS wasn't the first outsourcer to be affected. The first hint of trouble can be traced back to January at Bangalore-based iGate Global Solutions, which provides data analytics and loan application processing for mortgage, manufacturing, insurance, and retail clients.
At the time, the subprime meltdown had yet to take hold, but the company warned investors that clients like GreenPoint Mortgage were already cutting back on loans to customers and sending iGate fewer loan applications to process. The outsourcer responded by reducing revenue forecasts for the first two quarters, accompanied by a prediction from Chief Executive Phaneesh Murthy that growth in its mortgage business would be stagnant. (GreenPoint filed for bankruptcy Aug. 20.)
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