Citi sells India unit, to cut U.S. mortgage jobs

MUMBAI (Reuters) - India's Tata Consultancy Services (TCS) (TCS.BO) said on Wednesday it would acquire Citigroup Inc's (C.N) back-office unit in India for about $505 million in cash, as the U.S. financial giant sheds assets outside its main businesses.

The transaction will give a slight boost to Citigroup's capital levels after it has recorded more than $60 billion in write-downs and credit losses amid the worldwide financial crisis.

The purchase will give TCS, India's top software services exporter, an outsourcing contract worth $2.5 billion over 9-1/2 years from Citi.

Citi shares fell 4.6 percent to $14.45 on the New York Stock Exchange.

"This transaction will complement our domain expertise and bring new capabilities to TCS that will help drive growth," Chief Executive S. Ramadorai said.

Indian outsourcers have been expanding their markets and looking for acquisitions to grab bigger spending clients and add new service lines amid the U.S. slowdown.

TCS said the deal, expected to close this quarter, will start contributing to revenues in the March 2009 quarter.

Citigroup Global Services, the Indian back-office unit, began as a business processing arm for Citi India in 1992 and expanded to serve Citi's global operations in 1998.

The unit, which employs 12,000 people, operates out of seven facilities and offers back-office services to Citi's consumer, corporate and global wealth management entities in 50 countries, according to its website.

"This deal ensures revenue visibility for TCS since Citi itself is a very big organization, which is a big positive in these challenging times," said Tejas Doshi, head of research at brokerage Sushil Finance in Mumbai. "It's an opportunity for TCS to get new business at a decent price."

Citi, hit hard by the credit crisis, is selling some $400 billion in assets within three years. The bank is also shrinking some businesses, including its mortgage operations.

A Citi spokesman said Wednesday the bank was laying off 500 employees and slashing to 1,000 from 9,500 the outside mortgage brokers it works with.

But as Citi shrinks in some areas, it is keen to expand in others. It has been battling Wells Fargo & Co (WFC.N) over the assets of struggling bank Wachovia Corp WB.N

Wachovia's bank branches -- and their deposits -- could give Citi a stable source of funding.

Citing people familiar with the matter, the Wall Street Journal earlier reported Citi was looking for potential partners in its bid for Wachovia, as it looks to win a bigger share of the bank's deposits, but not take over the entire company, one person told the paper.

A Citi spokesman declined to comment.

TCS

TCS is part of India's Tata Group, which has interests in cars, commodities and services and caters to companies including General Electric Co (GE.N), Lloyds TSB Group Plc (LLOY.L), French insurer AXA SA (AXAF.PA) and Qantas Airways Ltd (QAN.AX).

The Mumbai-based firm said it has provided information technology and back-office services to Citi since 1992.

The Citi arm expects to generate $278 million in revenues in 2008, TCS said, without elaborating.

In July 2007, Infosys Technologies Ltd (INFY.BO)(INFY.O), India's No. 2 software services exporter, signed a $250 million outsourcing contract with Royal Philips Electronics and bought three of the Dutch firm's back-office centers.

Infosys is also vying with smaller Indian rival, HCL Technologies Ltd (HCLT.BO), to acquire British consultancy Axon Group Plc AXO.L.

Merrill Lynch advised TCS on the Citi deal, while AZB & Partners and Kelley Drye & Warren were legal advisers.

Citi was its own banker on the deal, while Skadden Arps and Talwar Thakore & Associates were its legal advisers.

($1=48.7 rupees)

(Reporting by Narayanan Somasundaram and Prashant Mehra; Writing by Sumeet Chatterjee; additional reporting by Tony Munroe in Hong Kong and Dan Wilchins and Paritosh Bansal in New York; editing by Ranjit Gangadharan, Ian Geoghegan and Jeffrey Benkoe)