07 January 2009 News

 

Merrill Lynch ditches Satyam as client

DSP Merrill Lynch has broken off its provision of service to Satyam, following the resignation of the outsourcers' chairman due to accounting irregularities.

A statement said: "We, DSP Merrill Lynch Limited, have terminated our advisory engagement with Satyam Computer Services Ltd for considering various strategic options on January 6, 2009." It went on to say that this was a direct result of the finances being misstated.

Merrill Lynch is also a major customer for Satyam, whose CFO suggested earlier this year that the contract provided 2% of the outsourcer's revenue annually. There had been concern that takeover of Merrill Lynch by Bank of America threatened this contract. The latest scandal will create further waves.

Emirates Bank has used Satyam since 2007 for provision of an Enterprise Financial Management system based on Oracle Financials and Citi has been a major user since 2006. The Citi deal, worth $150 million annually, was split with Tata Consultancy Services although Satyam took the greater part of the business.

Ramalinga Raju, the chairman, resigned today, 7^th January 2009, admitting that the company has been inflating its results. In a letter written to the board of Directors, Raju stated that: "The gap in the Balance Sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of company operations grew significantly."

He continued: "Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over; thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten."

He goes on to note that a task force has been appointed in order to deal with the situation, suggesting that a restatement of results will be likely and that "Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities." This has now been proven hollow.

Satyam shares had dropped 77.69% at end of trading.