Forbes - CheckFree Could Lose Biggest Customer ::
April 11, 2007
Market Scan
CheckFree Could Lose Biggest Customer
Andrew Farrell, 04.11.07, 4:50 PM ET
CheckFree was in a freefall Wednesday after a report that the electronic payment processor could be losing its biggest customer.
Shares of the company were down $2.75, or 7.2%, to $35.39, after the release of a client note by JMP Securities analyst David M. Scharf. In it, Scharf said that Bank of America appears to be shifting its online bill payments to an in-house system.
Such a switch would be a huge blow for CheckFree. Bank of America is easily the company’s largest customer. According to Revere Data, Bank of America accounts for slightly more than 20% of CheckFree’s annual revenue.
With Bank of America paying CheckFree $170 million for its services in 2006, it seems logical that the banking giant would try to handle those operations itself. Growing would certainly be characteristic of the constantly expanding banking giant. In November, the company announced that it would buy U.S. Trust for $3.3 billion (See: “Bank of America To Buy U.S. Trust”) and was even linked to a possible acquisition of Barclays in December (See: “Bank Of America Looks Abroad”.)
Scharf said Wednesday that conversations with competitors, consultants and users seemed to confirm that adding an online bill payment facility could be next, except that the company wouldn’t do it through an acquisition but by building its own service. Scharf the bank has hired a team of payment warehouse product development professions within the last three months. He added that Bank of America has approached CheckFree competitors for their business. That would position the bank to process payments in-house and then use multiple outside vendors to handle certain functions like remittances.
CheckFree’s awareness of the situation would explain its recent acquisition of Corillian. In mid-February CheckFree announced the acquisition of the provider of banking software and services for $245 million.
“Given that CheckFree’s competitors are telling us that BofA is sending signals about what the future may look like, we certainly presume that they are sharing these same insights with CheckFree” said Scharf, Thus the Corillian acquisition could have been “defensive in nature.”
The acquisition diversifies CheckFree’s offerings and better positions itself to handle life without Bank of America. That’s why Scharf only downgraded the stock from “strong buy” to “market outperform” even though the loss of Bank of America business could reduce its earnings per share by 25 to 30 cents annually. In the year through June 30, CheckFree earned $1.38 per share on a fully diluted basis.
CheckFree Could Lose Biggest Customer
Andrew Farrell, 04.11.07, 4:50 PM ET
CheckFree was in a freefall Wednesday after a report that the electronic payment processor could be losing its biggest customer.
Shares of the company were down $2.75, or 7.2%, to $35.39, after the release of a client note by JMP Securities analyst David M. Scharf. In it, Scharf said that Bank of America appears to be shifting its online bill payments to an in-house system.
Such a switch would be a huge blow for CheckFree. Bank of America is easily the company’s largest customer. According to Revere Data, Bank of America accounts for slightly more than 20% of CheckFree’s annual revenue.
With Bank of America paying CheckFree $170 million for its services in 2006, it seems logical that the banking giant would try to handle those operations itself. Growing would certainly be characteristic of the constantly expanding banking giant. In November, the company announced that it would buy U.S. Trust for $3.3 billion (See: “Bank of America To Buy U.S. Trust”) and was even linked to a possible acquisition of Barclays in December (See: “Bank Of America Looks Abroad”.)
Scharf said Wednesday that conversations with competitors, consultants and users seemed to confirm that adding an online bill payment facility could be next, except that the company wouldn’t do it through an acquisition but by building its own service. Scharf the bank has hired a team of payment warehouse product development professions within the last three months. He added that Bank of America has approached CheckFree competitors for their business. That would position the bank to process payments in-house and then use multiple outside vendors to handle certain functions like remittances.
CheckFree’s awareness of the situation would explain its recent acquisition of Corillian. In mid-February CheckFree announced the acquisition of the provider of banking software and services for $245 million.
“Given that CheckFree’s competitors are telling us that BofA is sending signals about what the future may look like, we certainly presume that they are sharing these same insights with CheckFree” said Scharf, Thus the Corillian acquisition could have been “defensive in nature.”
The acquisition diversifies CheckFree’s offerings and better positions itself to handle life without Bank of America. That’s why Scharf only downgraded the stock from “strong buy” to “market outperform” even though the loss of Bank of America business could reduce its earnings per share by 25 to 30 cents annually. In the year through June 30, CheckFree earned $1.38 per share on a fully diluted basis.