"I think you will end up with four or perhaps five major players in that space," he says.
Fidelity's purchase of CSC was partly an effort to make the clearing firm a full-service operation, says Norman R. Malo, president of Fidelity's National Financial unit. Fidelity has traditionally been a strong player in the banking and insurance industries, he says. The CSC deal, however, now gives the company a foothold in the professional and institutional markets. "It's helping us drive toward long-term, greater full-service capabilities," he says.
The merger will add CSC's 150 correspondent clients and $31 billion asset base to Fidelity's 155 clients and asset base of about $234 billion, Malo says, and Fidelity is "very much interested" in pursuing other acquisitions. "I definitely think (reduced) margins have had an impact on firms deciding what is mainstream for them and what's not," he says. "We see it as just another avenue to continue to grow."
Bob Beriault, executive vice president at Fiserv, says merger and consolidation in the clearing industry was inevitable after a three-year market downturn that caused trading volume to plummet. As a result, clearing firms throughout the industry were left with excess capacity in their trading systems-and a burning desire to fill it.
Fiserv isn't a neophyte when it comes to expanding through acquisitions. Since going public in 1986, Fiserv has grown 17% to 19% a year in revenues and earnings, he says. Traditionally a clearing service for banks and thrifts, the company branched into securities, insurance and back-office services through acquisitions in the late 1990s, Beriault says.
"We and others have been looking to acquire other firms that would allow us to migrate customers onto our existing systems," Beriault says.
From a seller's point of view, he says, the return on investment in the clearing industry has been getting less attractive as time goes on. The compression of pricing and profit margins has put further pressure on clearing firms, he says. "It's pretty challenging to keep on meeting clients' needs ... when a lot of companies aren't making money in this business," he says.