Magazine article American Banker

Asia Venture Costs First Data $121M

Magazine article American Banker

Asia Venture Costs First Data $121M

Article excerpt

First Data Corp.'s foray into Asia has resulted in a $121 million second-quarter charge.

First Data attributed the charge to the building of a processing facility in Hong Kong to support what has become a money-losing contract to serve Hongkong & Shanghai Banking Corp.

That was part of a larger, seven-year agreement announced in February 1997 to serve several subsidiaries of HSBC Holdings of London.

Ramping up Asian operations "has turned out to be more significant than originally anticipated," said David P. Bailis, executive vice president and head of First Data's card services group.

The company also cited regional economic problems and delays in converting about six million card accounts.

"It's almost like there was a lack of due diligence," said Heather Bellini, an analyst at Lehman Brothers.

Although First Data said it does not expect to turn its Asia problem into a profit, it remains committed. "It is still an effort that we are working actively with the bank to pull off," Mr. Bailis said.

He added that he expects First Data's Asia-Pacific presence will yield "other opportunities in the region that are real, but not concrete enough to be counted in the financial calculation."

Analysts expect the contract with HSBC will be terminated.

Ms. Bellini said she interpreted the charge to mean the contract would not be profitable "for the next four or five years."

"They are writing everything off," she said. "We would expect them to walk away from it."

Wayne Segal, an analyst at Credit Suisse First Boston, said, "You may see HSBC and First Data walking away from each other, with First Data trying again in one or two years. …

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