Top officials of Infoserv, Chase Manhattan Corp.'s wholesale technology services unit, say they expect to double profits by 1996, to $200 million.
The projection stirs doubts among analysts, who have been critical of Infoserv and some other money-center bank's fee-generating technology arms for not disclosing more information about operations, including revenues and expenses.
Chase reported that Infoserv accounted for 20% of the corporation's $520 million in net income last year. The Chase unit is in business such as securities processing, cash management, and funds transfer.
Rate Would Be Lower
Doubling its profits means annual growth of 15% over the five years, significantly lower than the nearly 40% annual growth that officials said the unit had from 1987 to 1991.
Still, analysts say Infoserv's growth projections probably exceed the plans of competitors such as Chemical Banking Corp. and J.P. Morgan & Co.
"Profits will be up, but I don't think they're going to double in five years for everybody,"said Raphael Soifer, an analysts at Brown Brothers Harriman & Co.
Senior Infoserv officials said new business and cost cutting, along with acquisitions, alliances, or joint ventures, would build profits consistently. They were not specific about the acquisitions or other ventures.
High Level of Investment
Michael Urkowitz, a Chase executive vice president and head of Infoserv, said the unit invested $70 million last year in new technology and product development.
Infoserv developed such things as Chase Trader, a multi-currency cash management service, and expanded its services in Australia and Taiwan.
John D. MacPhail, a senior vice president reporting to Mr. Urkowitz, said the unit planned to increase new-product expenditures by $3 million to $5 million a year.
The Challenge Ahead
Mr. Urkowitz said in an interview, "The challenge facing us is: How do you afford this high level of reinvestment and still bring to the shareholders a decent profit in a market with substantial pressure on prices?"
He said that expense cuts, including results of an effort called Project Champion, would offset much of the cost of the product and technology development.
Project Champion involves setting performance standards based on an industrywide study that identifies the most productive and profitable ways of doing business. Infoserv brought in the consulting firm of Booz, Allen & Hamilton Inc. to set benchmarks.
Chase reportedly paid Booz Allen a fee in seven figures for the research, which included gathering data from about a dozen banks.
Mr. Urkowitz said Infoserv received best-practice data on 30 to 50 separate operations. In some, Infoserv was deemed to have the best practice. In others, the unit needed to improve. The executive declined to be more specific.
Mr. Urkowitz said Infoserv employees reviewed the data early this year and figured out ways to achieve "best practice" in each category. The changes will be phased in through 1994, resulting in "tens of millions of dollars" of savings, he said. Infoserv expects to perform the same work it does now with 20% fewer staffers.
Opportunity Seen Overseas
But since the unit expects to grow, only "several hundred" of the 6,000 Infoserv employees will lose their jobs.
Observers said that for Chase to meet its growth objectives, it will have to expand overseas, where its market penetration is lower.
"The company told us they have better [profit] margins overseas," said Diane Glossman, an analyst and vice president of Salomon Brothers, New York. "That's where we're looking for incremental growth."
Robert Binney, senior executive in charge of Chase's European and Middle Eastern global custody business, said the bank has significant expansion opportunities in his turf.
He said the core of the unit's European business is the United Kingdom, where Chase has trustee and custodian relationships with 15 of the country's 20 largest insurance companies. But he said Chase's penetration of Continental Europe is low and poise to expand as economies there become more integrated.
"There is significant upside potential," he added.
Mr. Binney said Chase could pick up business because of military action against Iraq. The war made Middle Eastern governments more keen on working with American and British companies, he said.