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Bank IT faces $62bn hit

Michael Crawford (MIS Australia) | March 13, 2009
Dwindling access to capital, cost cutting and massive layoffs will strip $US40 billion in information technology spending out of the global banking technology market over the next five years, says report.

SYDNEY, 13 MARCH 2009 - Dwindling access to capital, cost cutting and massive layoffs will strip $US40 billion (A$62 billion) in information technology spending out of the global banking technology market over the next five years, according to a report from market researcher Datamonitor.

In its Impact of Financial Crisis on Technology Spending in Banking report, Datamonitor found cost control measures in the banking and finance sectors, brought on by the credit crisis, would bring a decline in spending on technology of almost 2 per cent across the sector globally in 2009.

Banking technology spending is expected to fall most in the Britain, where it will decline 7 per cent.

Declines would be concentrated in the wider European market and in North America.

Overall growth in IT spend is expected to be constrained up to 2012, according to the report.

Datamonitor financial services technology director Daniel Mayo said some elements of IT budgets would remain intact. These included programs aimed at getting the most from recent mergers in the banking sector.

But Mr Mayo stressed internal IT departments were likely to bear a significant brunt of reductions in IT spending.

"The downward impact of financial crisis on banking technology spend will be significant. This is a major structural shift in banking and banks will need to adjust their operating cast bases accordingly," Mr Mayo said in the report.

"Banks are more open than ever to alternative sourcing approaches."

Analyst group IDC this week reported the value of the ICT business market in 2012 would be $891 million less than it had predicted in August.

According to IDC's revised Australian vertical markets forecast spending will reach $46.9 billion by 2012, down from the previous forecast of $47.8 billion.

Gartner global head of research Peter Sondergaard predicted Europe would experience negative IT spending growth in 2009, with spending in the United States and Japan flat compared to last year.

Information technology consolidation brought on by mergers and acquisitions in the banking sector has affected IT departments directly through headcount reduction and overall systems consolidation, especially in the data centre

Locally, IT costs are expected to count for at least half of the expected $700 million integration costs between the $17 billion merger between Westpac and St George.

KPMG head of banking Andrew Dickinson predicted the merger would result in redundancies for around 10 per cent of St George employees. Savings delivered by data centre consolidation were key in Adelaide Bank's recent merger with Bendigo Bank.

In September 2008 US giant JP Morgan Chase and Co acquired Washington Mutual and shed a total of 12,000 jobs from its retail banking unit.

By the end of this year a total of $US1.3 billion will be saved through further staff reductions. Almost 400 branches will be closed by the end of the fourth quarter.

 

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