EDS, Systematics, Fiserv Thriving
Earnings Rise; IBM Outsourcing Unit Leads in Volume
The earnings problems of the nation's banks have meant just the opposite for a handful of vendors of outsourcing services.
EDS Corp., Systematics Information Services Inc., and Fiserv Inc., all reported rises in third-quarter earnings compared with a year ago, and bank contracts contributed in each case.
Moreover, in a surprising development, Integrated Systems Solutions Corp., the outsourcing unit formed this year by International Business Machines Corp., leads the bank outsourcing pack in new contract value in the current quarter.
4 Months, 4 Contracts
ISSC's earnings are not available, but according to Bank Automation Contract Watch, a New York research company that tracks the bank-services business, the IBM subsidiary signed four major contracts in the last four months.
While the total of contracts signed in the past few months has not increased dramatically relative to past years, industry watchers have noted that most recent business is going to the larger providers.
"There is a lot of cherry-picking by the big guys going on right now," said Richard M. Sullivan, executive director of the Bank Outsourcing Alliance, Melrose, Mass. "Unfortunately, a lot of banks are being driven to contracts out of necessity."
With pressure from regulators to increase capital, many troubled financial institutions are entering service bureau arrangements to cut expenses.
Fierce Competition Expected
To these banks, deep-pocketed automation companies like EDS and ISSC appear to have the means to spur earnings recovery and growth.
But as times improve for bankers, industry watchers expect to see fierce competition for outsourcing deals. With that competition may come more business for such smaller service providers as Houston-based Bisys and M&I Data Services Inc., a unit of Marshall & Ilsley Corp., Milwaukee.
"This is definitely developing into a buyer's market," said M. Arthur Gillis, president of Computer Based Solutions Inc., a New Orleans consulting firm that tracks the outsourcing industry. "For banks willing to go through the time and trouble of negotiating a tight contract, the opportunities are terrific."
For now, though, the smaller companies seem to be making fewer inroads.
Tops in new outsourcing contracts signed since midyear, with 15, was Fiserv Inc. of Milwaukee. Its corporate revenue rose 78% in the third quarter, to $200 million. Most of Fiserv's contracts were with community institutions and were relatively small in dollar value.
Dallas-based EDS Corp., a General Motors Corp. subsidiary, reported a 13% increase in revenues in the third quarter, to $1.73 billion. Its financial industry group has signed six multiyear outsourcing deals, including with Lorain County Bank, Elyria, Ohio, and First National Bank of Dubuque, Iowa.
Similarly, Systematics signed six contracts in the third quarter - four with financial institutions having more than $1 billion in assets.
Systematics' parent, Alltel Corp., also based in Little Rock, Ark., reported a third-quarter revenue gain of $41 million that boosted the total for the year to $438 million. Alltel attributed part of that growth to Systematics' facilities management business; Systematics said its earnings rose slightly.