Sector index shows IT and services firms felt the pinch from banking crisis in 2008

19 December 2008

Technology suppliers to the world’s leading banks have lost more than 40% of their value in 2008, as financial services firms freeze spending on IT and earnings decline across the sector.

The Finextra50 Financial Technology Index is a free-float value weighted index of the world's leading companies that provide technology-based products and services to the financial services industry. It was set at an indexed value of 100 at market close on Friday 4th May 2007.

The index stood at 54.24 on 12th December 2008, after starting the year with a value of 91.24 on 4th January.

As of 12th December, only three of the index’s 50 constituent companies had stronger share prices than at the beginning of the year – Pegasystems, S1 and Diebold. Most saw share prices start to decline dramatically in September as markets tumbled after the collapse of Lehman Brothers and Merrill Lynch, and quarterly earnings reports from many IT and services firms began showing declines.

Nasdaq-listed Pegasystems, a provider of business process management (BPM) software with a large financial services client base, was the best performer in generating capital returns. It closed last Friday at $12.33, up 15.88% on its 4th January close.

London-listed insurance software and outsourcing specialist The Innovation Group (TIG) topped the fallers. As of 12th December its shares were down 88.76% for the year so far. But, highlighting that there is still M&A activity in the sector, the company this week reported it had knocked back a £130 million offer from a private equity firm, driving its shares up 132% on Wednesday.

There are some signs for optimism in 2009, with many financial technology firms predicting continued, albeit slowing, growth. And larger, diversified financial technology vendors are finding that there are increased opportunities for strategic acquisitions to add to their product and service portfolios, and reach new geographies.

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