TSYS CEO Upbeat Despite Pending Loss of BofA Consumer Accounts

Philip W. Tomlinson, chief executive of payment processor Total System Services Inc. (TSYS), played up his firm's strong fourth-quarter and 2005 financials and growth prospects today despite the pending loss of the huge Bank of America Corp. consumer credit card file. Columbus, Ga.-based TSYS reported fourth-quarter net income of $49.7 million, up 16% from $43 million in the year-earlier period. Revenues increased 37% to $420.7 million from $307.2 million in 2004's fourth quarter. For all of 2005, net income grew 29% to $194.5 million from $150.6 million in 2004 on revenues of $1.60 billion, up 35% from $1.19 billion. Tomlinson attributed the revenue growth to several factors, including the addition of the JP Morgan Chase & Co. card file and a strong performance by TSYS's merchant unit, Vital Processing Services. TSYS in 2005 bought from Visa USA the 50% share of Vital that it didn't already own. Also, TSYS's international segment grew its revenues 28% last year. The chief executive, however, didn't sidestep the coming losses of two big files?BofA's, which was announced in late December, and the earlier announcement that Citigroup Inc., owner of the Sears bank and store card portfolios, would switch approximately 20 million accounts to TSYS archrival First Data Corp. (Digital Transactions News, Dec. 21 and Aug. 10, 2005). TSYS thought it had BofA's consumer contract until 2014, but things changed after BofA announced plans to buy monoline card giant MBNA Corp., which processes its consumer accounts in-house. The sale closed Jan. 1. The loss of the BofA consumer credit card file, set for next October, will cost TSYS $239 million in revenue, or 15% of 2005's total. BofA/MBNA commercial card accounts will remain with TSYS. In a conference call with analysts this morning, Tomlinson described BofA as a “happy customer.” He added that a year ago, “If you asked me to list the 100 worst problems we had, BofA was not on the list.” Softening the blow will be a $69 million contract-termination fee from BofA and up to 75 million card accounts scheduled for conversion to TSYS this year. They include the portfolio of Capital One Financial Corp., the largest of the remaining monolines. Cap One currently processes in-house. “We have a conversion pipeline that is the largest in the history of TSYS,” Tomlinson said. Even so, the loss of the BofA and Sears files will leave TSYS with about 400 million accounts on file by year's end, down from 437.9 million on Dec. 31. Despite that, TSYS predicts earnings will increase 21% to 23% this year, partly based on a revenue increase of 5% to 7%. TSYS will hold the line on expenses by delaying the planned opening of a major facility in the western U.S. Tomlinson yesterday assumed the additional title of chairman formerly held by the retiring Richard Ussery. Ussery, who retired as chief executive two years ago, remains a TSYS director.