Expects Offspring of 4 Big Regionals to Gross $ 250 Million Next Year
Electronic Payment Services Inc., a joint venture being formed by four superregional banking companies, is expected to earn $53 million next year on revenue of $250 million, a Salomon Brothers Inc. report estimated.
By 1996, revenue will rise to $475 million and earnings to $133 million, Salomon said.
The Salomon report provides a glimpse into the finances of EPS, and hence into the retail electronic funds transfer business, which some bankers believe would be profitable to sell, in whole or in part.
Many of the networks that tie automated teller machines and point-of-sale terminals together are structured as associations, with many members sharing control. The founders of EPS -- Banc Corp., CoreStates Financial Corp., PNC Financial Corp., and Society Corp. -- had long preferred to operate their own systems.
With 13,000 ATMs, the new network -- probably using CoreStates' Mac logo -- would be the largest in the country.
The investment firm seems more bullish than EPS itself.
The initial EPS press release, issued July 22, estimated first-year revenue at $200 million.
Salomon's long-term projections exclude business that might be acquired after operations begin. But EPS projections reach similar heights only if possible acquisitions and new customers are added in, said Michael Douglas, a PNC executive who has been designated the venture's chief operating officer.
If, as expected, the deal is approved by the Federal Reserve Board, EPS would start up in the fourth quarter by merging the four parents' teller-machine and point-of-sale businesses.
EPS is expected to handle 20% of the approximately 3.5 billion transactions a year that go through the ATM-network hubs, which are known as switches. Point-of-sale transactions would total 626 million.
Salomon said EPS may make a public stock offering in a few years. Shares of comparable technology concerns, analysts said, are worth 18 to 23 times earnings; the average multiple is 11.5 for the bank stocks that Salomon tracks.
Mr. Douglas said the partners have no specific plans for an offering. But "we can never eliminate the possibility," he said. "To do it, we'd first establish a track record of revenues and earnings."
Under their definitive agreement, Banc One, CoreStates, and PNC will each own 31% of EPS and Society 7%. CoreStates will also control $245 million of nonvoting preferred, collecting dividends tied to performance.
Mr. Douglas said the 600 EPS employees would probably outnumber current staff in the banks' teller machine and point-of-sale units. Many bank employees would have to move to keep their jobs, since processing would be consolidated in new Midwest and Delaware centers and an existing Atlanta site.