Fears of Rate Hike Drive Down Tech Stocks

Bank technology stocks fell last week amid investor concerns that the Federal Reserve may raise interest rates to temper a strengthening U.S. economy.

Trade volume for bank technology stocks also was light for the week on both Nasdaq and the New York Stock Exchange. But the falloff in the group's performance isn't souring the enthusiasm of many analysts that watch these stocks.

"There is a lot of interest in the bank technology group," said Gary Craft, an analyst at Friedman Billings Ramsey & Co.

"I think people are starting to recognize that there is a clear secular trend that's emerging here" as banks increasingly look toward alternative methods of doing business, he said.

Computer Services Inc. among the few bank technology companies whose sharess were up for the week, said it has signed a definitive agreement to buy the Genix Group, a unit of MCN Corp., for $135 million in cash.

Dallas-based Affiliated Computer Services provides data processing and electronic funds transfer services to banks and retailers. Genix is an outsourcing firm for the manufacturing, insurance, and utilities industries.

"This acquisition is an unique opportunity to significantly expand our commercial outsourcing business," said Darwin Deason, Affiliated Computer's chairman and chief executive. "We're now ideally positioned to successfully compete for larger outsourcing contracts."

If the deal is approved by regulators, the merger would create a company with about $500 million in annual sales. The deal is to be funded from a revolving line of credit Affiliated obtained from Bank One Corp. and the former First Interstate Bancorp, now a part of Wells Fargo & Co.

Affiliated will pay that debt with proceeds from a planned public offering of four million shares, which may occur later this month.

Shares of Affiliated Computer were trading at $50.50 Friday afternoon, up from the week earlier close of $47.75.

In other news, General Motor Corp.'s stockholders approved the spinoff of Electronic Data Systems Corp.

A major outsourcing firm for the banking industry, EDS will begin trading today on the New York Stock Exchange. EDS was formerly traded as General Motors Class E common stock, of which there are 485 million shares outstanding.

The stock was trading at $56.875 late Friday, up $1.875 from the week earlier period. Volume was moderate at tk.

EDS also announced several changes to its management structure related to the spinoff. It has created an executive council and a global operations council; the former will oversee EDS's strategic missions, while the latter will manage business and operations.

Tony Good, a spokesman at EDS, said the moves and the spinoff were good news for its bank customers because the changes would allow for quicker development of new systems.

Independence for EDS will mean a new "mindset, focus, and flexibility," Mr. Good said, rather than being a "subsidiary of a enterprise whose main focus is to manufacture, market, and sell transportation vehicles." Elsewhere, Friedman Billings' Mr. Craft said he has begun coverage of Checkfree Corp. with a rating of "underperform."

The opinion is primarily due Checkfree's competition with Visa Interactive and, to a lesser extent, with Sterling Commerce. Checkfree's trading remained unchanged.

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