Banks are still digesting a full plate of mortgage and other economic woes, but that's not stopping them from adding ambitious technology projects to their diet, if the first of vendor earnings reports is an indication.
Fidelity National Information Services Inc. said Tuesday that it continued to sign contracts with banks to upgrade their core systems, which serve as the backbone of their retail operations.
"We continue to see banks who have weathered the financial storm to now start to free up their capital dollars to start making investments so they can compete in this cycle and gain market share," Gary Norcross, the Jacksonville, Fla., vendor's chief operating officer, said on a conference call with analysts on Tuesday. "Given the breadth of our solutions, that plays very well for us. I'm not here to say that there … aren't institutions out there that are hunkered down and not making any buying decisions, because there are. The fortunate thing for us is we are just seeing more and more of those get through their process and now starting to focus on buying."
For core deals specifically, FIS signed United Bancshares Inc., a $7.2 billion asset bank holding company based in Washington, D.C., and Charleston, W.Va., and a West Coast bank with more than $6 billion in assets, said Frank Martire, the chairman and chief executive of FIS. It also signed a new agreement with First Niagara Bank, a subsidiary of First Niagara Financial Group Inc.
Analysts they said they expect to hear the same trends from other large vendors, including Fiserv Inc., which reports earnings on July 26.
"Broadly speaking the banks' purse strings are loosening," John Kraft, a senior vice president with D.A. Davidson & Co., said. "And broadly speaking I think both [vendors] are talking about pipelines that are stronger than maybe ever."
FIS also expects to get a boost from changes to an existing reseller agreement it has with Intuit Inc. Intuit resells FIS' bill payment software to bank clients that use online banking software from Digital Insight Corp., a vendor that Intuit acquired in 2007.
The "enhanced relationship" will result in more than 500 financial institutions migrating to FIS' bill payment platform from a competing vendor in the next 18 to 24 months, bringing the total number of institutions using its bill payment software to more than 4,000, Martire said.
FIS said its revenue grew 13.4% from a year earlier to $1.44 billion.
The company's net income from continuing operations was $129.3 million, up 36.2%. The company earned 42 cents per diluted share, compared with 25 cents per diluted share, a year earlier.
On an adjusted basis, FIS earned 55 cents per diluted share, beating analysts' averaged estimate of 54 cents.
International growth
"We think it could be a good acquisition," said David Koning, a senior research analyst with Robert W. Baird & Co. Inc., adding that it "would also add to their international presence."
It is uncertain how much FIS would pay for Misys and how it would fit the U.K. vendor's capital markets business into its own operations, Koning said. In a research report last month, Koning wrote that $2 billion is a realistic price for FIS to pay for Misys.
