Merger-related IT costs eat into LCH.Clearnet gains

Merger-related IT costs eat into LCH.Clearnet gains

A 21% increase in merger-related and IT expenditure offset solid gains in half-yearly clearing fee income at European depository LCH.Clearnet.

For the year to end-June 2004, earnings before income and tax showed a small fall of three per cent to EUR49 million as 16% growth in clearing fees was offset by the increased level of administrative expenditure.

IT costs increased by 37% (EUR13.2m) to EUR47.9m in the first half as the depository continued to plough funds into a new and upgraded IT technology and infrastructure programme.

LCH.Clearnet says the rise in IT costs arose from the need to support duplicate production environments: building the new live production environment at the same time as running legacy systems. The three main cost components include a EUR6 million price tag to date for establishing the new HP data management centre in the UK, EUR5.5 million spent in terminating legacy systems in Continental Europe, and higher depreciation costs of EUR2.2 million relating to new systems in Continental Europe.

David Hardy, LCH.Clearnet chief executive says the programme will ultimately deliver cost savings that, "in time", will be reflected in profits for the group and in operational savings for customers.

He states: "There will inevitably be a period of investment before this programme shows tangible results although markets will benefit, generally and relatively quickly, from the higher standards of operational integrity and resilience the new systems bring along with improved straight through processing."

The first major deliverable from the integration programme can be expected in the fourth quarter, adds Hardy, when the depository is scheduled to deliver an upgraded fixed income clearing service.

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