Metavante's decision to lay off 10% of its staff - 400 people - has renewed concern that the No. 3 provider of financial technology outsourcing is having trouble generating revenue growth.
As power in the outsourcing industry keeps being consolidated in an ever-shrinking circle of increasingly stronger companies, Metavante, the data processing subsidiary of Marshall & Ilsley Corp., appears to be on the losing side of the power struggle. In addition to cutting jobs, it is closing six of its 15 regional offices and, during an earnings conference call Thursday, said that net income had declined in recent quarters.
The move came on the heels of M&I's decision last November to withdraw a planned initial public offering for Metavante, which is based in Brown Deer, Wis.
By some reckonings, Metavante has accomplished a lot simply by becoming the third-largest provider of outsourcing services to banks. In 1999, 12 vendors in Metavante's field held 95% of the market, down from 24 vendors in 1987 holding 73% of the market.
But Metavante, which was previously known as M&I Data Services, is a distant third to Fiserv Inc. and Alltel Information Services, according to Computer Based Solutions Inc., a research firm that has tracked the industry for more than a dozen years. Metavante had revenue of $583 million in 1999, compared with Fiserv's $1.4 billion and Alltel's $1.2 billion.
But Metavante officials say they intend to increase the company's size and that the restructuring is part of that effort. The company began an initiative in 2000 "to focus on emerging growth opportunities," said Joseph L. Delgadillo, Metavante's chief executive officer and president, during a call to investors. "We are positioned to better serve our clients by responding quickly to changing market opportunities."
Though some analysts say Metavante's cutbacks are reasonable in light of generally sour economic conditions, the company's position as the largest small player in an aggressively consolidating marketplace subjects it to special pressures.
An ever-looming presence is Fiserv, the largest company in the sector, with 47% of the customers. It has achieved its position largely by acquiring more than 90 companies during its history. Alltel, a division of the telecommunications company of the same name, has done fewer than 10 deals.
Representatives of Fiserv and Alltel declined to comment on how their companies have fared in the sluggish environment or on the effect of Metavante's restructuring on their companies. Fiserv is in a quiet period until its earnings report, scheduled for April 24, and Alltel did not make executives available. Metavante is the only one of the group to report earnings so far.
Analysts said Metavante's restructuring has just as much to do with a slowdown in revenues as with its bid for growth.
Revenue of $133 million in the first quarter was only $3 million more than the year earlier, and a decline from more recent quarters. In last year's third quarter, Metavante booked $145 million and in the fourth quarter, $143 million. Its net income of $9 million in the first quarter was down from $11 million the year before.
In general, the technology unit has emerged as something of a trouble spot for Milwaukee-based Marshall & Ilsley. Last year's plan to spin off Metavante fell victim to slumping technology stock prices and a slowdown in financial processing markets.
Despite Metavante's weakness, M&I managed to beat Wall Street's earnings-per-share consensus by a penny on record operating income for the first quarter of $91.1 million, up slightly from $90.7 million the year earlier.
"M&I's quarter came in better than expected because of their core banking operations, but Metavante continues to be below expectations since the IPO was pulled," said Brian M. Harvey, an analyst at Fox-Pitt, Kelton in New York.
He said Metavante's expenses have been higher than those of its peers. "I think they are trying to address that by closing some of the operations and reducing staff," Mr. Harvey said.
A slowdown in professional services revenue hurt Metavante, Mr. Harvey said, and a Metavante spokesman confirmed this. In addition, Mr. Harvey said, efforts to offer electronic commerce services, such as electronic bill payment and presentment, have taken longer to complete than expected.
Jason M. Goldberg, an analyst at Lehman Brothers in New York, said Metavante's revenue troubles are consistent with the rest of the industry and are rooted in a slowdown in technology spending by financial services firms.
Metavante is right to explore alternative revenue sources in electronic commerce, since bank consolidation is limiting the potential of its traditional core banking services, Mr. Goldberg said.
National Bank of Alaska, a Metavante customer, recently was bought by San Francisco-based Wells Fargo & Co., he noted; Imperial Bank of Inglewood, Calif., another customer, was bought by Comerica Inc.; and Republic Security Bank of West Palm Beach, Fla., another, was bought by Wachovia Corp.
Metavante, meanwhile, is positioning itself to capitalize on electronic banking when it takes off, Mr. Goldberg said. The unit has invested heavily in electronic bill payment and presentment services and should soon be reaping the benefits of a relationship with Spectrum, the bank-run EBPP consortium.
Metavante's results "don't surprise or alarm me, considering what's going on out there," Mr. Goldberg said.
From Our Archive
