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Last updated: September 1, 2005 8:32 pm

ABN Amro in $2.2bn Indian IT deal

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ABN Amro, the Dutch financial services group, has agreed one of the biggest outsourcing deals in Europe and given the Indian IT sector its most lucrative contracts in a five-year programme worth at least $2.2bn.

As well as IBM and Accenture of the US, the contractors include Tata Consultancy Services, Infosys Technologies and Patni Computer Systems of India.

For ABN it represents a bid to cut technology costs and release funds for investment in emerging markets as it implements cost and job cuts. Analysts say Indian companies’ inclusion in the deal after nine months of negotiation sends a powerful message to larger global rivals, which have traditionally dominated big, multi-country technology deals.

“This deal is a tipping point for Indian IT,” said Nandan Nilekani, chief executive of Infosys. Mumbai-based Ramesh Venkataraman of McKinsey, the consultancy, added: “It shows Indian IT companies are on a level-footing with larger global competitors.”

The five-year partnership is expected to produce technology savings of €258m a year from 2007, a figure that could more than double with similar initiatives elsewhere in ABN’s operations.

It will cut ABN’s IT workforce from 5,300 to 1,800 with about 1,500 losing their jobs. The bank said 2,000 jobs would be transferred to the IT companies, with most going to IBM. ABN employs about 100,000 worldwide.

When combined with job cuts in its human resources division and changes to its property portfolio management, both of which were announced in December, ABN expects to save €600m a year from 2007.

ABN said: “Although it has important consequences for part of our staff, this is good news for the bank because it lowers our cost base and gives us access to new technology to improve our service quality.”

IBM will mainly provide IT infrastructure. TCS and Infosys will provide application support. All five companies will provide application development.

For the Indian companies, the earnings from ABN will be their biggest gain from one client in a single transaction. TCS and Infosys are guaranteed revenues of $250m and $140m each, with the potential for more with “discretionary” contracts.

IBM will benefit most from the deal, receiving €1.5bn over the five-year period. Tata will receive €200m and Infosys €100m. The deal is a fillip for IBM following JPMorgan’s cancellation of a $5bn deal last year in the wake of its Bank One purchase. Bank One had made heavy IT investments, which JPMorgan decided to take back in house.“The interesting thing about this deal is that it’s so global in nature,” said Bruce Ross, a vice-president at IBM Global Services. “The pressure from India has made us all more competitive,” said Bruce Ross, a vice-president at IBM Global Services.

IBM said the deal would lead to the biggest roll-out so far of its so-called Universal Management Infrastructure, a technology designed to streamline the vast distributed computing networks run by global companies. By pooling computer resources from different centres around the world, then using “virtualisation” technology to make the systems act as though part of one big computer, it would be possible to greatly increase the overall efficiency of the system, said Mr Ross.

Additional reporting by Paul J Davies in London

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