Investors Financial Warns

The asset administrator warns of an unexpected interest rate environment.
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Investors Financial Services

(IFIN)

dropped 15% late Thursday after the financial back-office company slashed earnings guidance, citing interest rate pressure.

The Boston-based asset administrator posted second-quarter earnings of 64 cents a share, up from 50 cents a year earlier. While the bottom line appeared to be a nickel ahead of the Thomson First Call analyst consensus estimate, Investors Financial said the quarter included 16 cents' worth of securities and offshore tax gains.

Investors Financial also cut its earnings forecast. The company now sees 2005 earnings of some $2.30 a share, with core earnings flat with the year-ago $2.09. Investors Financial said 2006 core earnings would rise 8%-10% from the reduced 2005 core projections. Analysts had forecast earnings of $2.50 a share for 2005 and $2.98 for 2006.

The company cited a flatter-than-expected yield curve; narrower-than-expected reinvestment spreads; weaker-than-expected market-sensitive revenues, including fees linked to both the equity and foreign currency markets; and continued investments in headcount and technology to support new and existing clients.

"During 2005 we have experienced sustained interest rate pressure and market sensitive revenue challenges," said CEO Kevin Sheehan. "As a result, with less than six months remaining in 2005, we do not believe that we will meet our historical annual growth target in diluted earnings per share in 2005 and 2006."

The company also declared a 2-cent quarterly dividend and set plans for a $150 million stock buyback.

Late Thursday, Investors Financial plunged $6.37 to $35.15.