Metavante Corp., a subsidiary of Marshall & Ilsley Corp., is seeking buyers for its struggling banking software subsidiary M&I EastPoint Technology Inc., according to an industry insider.

A letter from Brown Deer, Wis.-based Metavante said “the decision has been jointly made to divest EastPoint from Metavante” and that Metavante, formerly M&I Data Services, has retained Donaldson, Lufkin & Jenrette Securities Corp. “to assist us in evaluating strategic alternatives” for EastPoint.

“We hope to complete the divestiture by yearend,” said the letter, dated Sept. 11. It noted that the move was connected with Metavante’s now-cancelled initial public offering plan. It filed for the IPO in July but withdrew Nov. 1, citing poor market conditions.

Marshall & Ilsley, which is based in Milwaukee, confirmed last week that a sale is an option it is considering for EastPoint — it had said the same thing in October in a public filing — but did not say it is actively seeking buyers.

M&I EastPoint, of Manchester, N.H., sells client/server-based core banking software to small and midsize banks. But these banks’ hesitance to abandon their in-house legacy systems has hurt EastPoint, which has reported net losses since Marshall & Ilsley bought it in 1996.

M. Arthur Gillis, president of the consulting firm Computer Based Solutions Inc. in Dallas, who forwarded American Banker the letter about the possible sale of EastPoint, said M&I acquired EastPoint so it could have an in-house software product to augment its outsourcing services.

It believed that EastPoint, which offered the client/server software that was all the rage at that time, would lure banks away from systems offered by competitors including Lincoln, Neb.-based Information Technology Inc. and Jack Henry Associates Inc. of Monett, Mo., Mr. Gillis said.

However, the client/server model of core processing never took off with banks, Mr. Gillis said, noting that only about 2% of such installed bank systems are client/server.

“Metavante is a strong company, but they made a mistake when they bought EastPoint, and now they are trying to correct the mistake,” Mr. Gillis said.

Marshall & Ilsley’s October S-1 public filing said: “Among the alternatives being considered are a sale of the subsidiary, discontinuing all or a portion of the subsidiary’s operations, or continuing and repositioning the subsidiary’s operations. We believe that a sale of the subsidiary is the most likely scenario.”

Dan Shannon, M&I’s chief of marketing, called EastPoint a “good asset” and said the decision to explore a sale had nothing to do with its specialty in client/server-based software. Customers, including E-Trade Bank, Los Alamos Bank, and Franklin Bank, “gain competitive advantage through their EastPoint implementations,” Mr. Shannon wrote in an e-mail to American Banker.

In a phone interview Mr. Shannon said M&I/Metavante is looking into a sale of EastPoint because it “wants to focus on its core competencies” — outsourced technologies, — and to move away from offering in-house software.

“The company thought there would be leverage, from a sales and marketing perspective, to having both products,” Mr. Shannon said. “But you could end up creating, in the customer’s eyes, two competing products.” Marshall & Ilsley now takes the view that “to be successful in the marketplace takes focus and commitment” on one product, he said.

“EastPoint may be better off having a parent that is not an outsourcer,” Mr. Shannon added.

Michael Nicastro, vice president of marketing and business development with Open Solutions Inc., a Glastonbury, Conn., company that also offers client/server core banking software, said the model has been a good seller at his company. Open Solutions, which has 161 customers, had third-quarter revenues of more than $6 million, up 70% from the second quarter.

But the road has been tough, Mr. Nicastro said, because providers of traditional software “did a very good job of confusing the issue, by calling themselves client/server. Unfortunately, banking is a highly regulated business, and bankers are notoriously not big risk-takers.”

Another client/server core banking software provider, Phoenix International of Heathrow, Fla., suffered through a two-month trading halt on its stock that was lifted in November.

London Bridge Software Holdings PLC bought Phoenix in early November and is expected to roll it into a division that is no longer public.

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