Processing, IT Revenues Rise Strongly, Volatility Keeps Business Brisk

Tom Burroughes

21 October 2008

Freeman & Co, a US advisory firm, said revenues from servicing, processing and technology (SPT) for financial services set a strong annual pace over the past four years, suggesting that currently volatile markets could continue to drive demand in these business areas.

In terms of revenue growth, the compound annual growth rate seen in the risk management and fund administration sector has been 31 per cent since 2004, ratings and advice at 28 per cent, and processing and custody at 20 per cent, the report, entitled Making Wall Street and Main Street Work, said.

Distribution and intermediation firms fared less well in CAGR terms, at just 11 per cent, affected by write-downs connected with mortgage-related write-downs at E-Trade. Data, information and software has shown a CAGR of just 10 per cent, with growth affected by consolidation in these areas, the report said. All the rates include organic growth rates and growth as a consequence of M&A transactions.

Revenue growth in these sectors is likely to remain strong, the report said, because although the economic outlook has darkened due the financial crisis, trading volumes and business turnover has remained high.

Turnover in the US equity market last year, for example, reached the 1 trillion share market, and on an annualised basis, volumes this year are likely to beat that level, the report added. It said that with the exception of hard-hit collateralised debt obligations, other innovative sectors of financial markets, such as exchange traded funds, are likely to continue driving demand for related services.