Report Outline

Overview

Catalyst

Summary

Key Messages

The impact of income slowdown is strongest in the US and Western Europe, but will move into Central and Eastern Europe and Asia by 2010

Banks will need to readjust cost base, but this will require investment and transformation

IT spend will be seen as an efficiency enabler, with banks likely to see growth in IT intensity

The need for productivity will maintain IT investment in branches and back office operations

IT spend reduction will be led by the US and Western Europe, with slowdown elsewhere

IT cost control will impact professional services and internal spend, with outsourcing growth

Financing and pricing models will be stronger differentiators in 2009

Market Impact

Contraction of wholesale funding market will severely restrict income growth in 2009

The drivers of the financial crisis still largely remain in place for 2009
Unless there is further government intervention, net lending will be highly subdued in 2009 and 2010
Government schemes to stem the financial crisis have actually reduced future lending for 2009
Governments will need to decide whether to support lending growth or for banks to repay support
The impact of the wholesale funding gap varies by country, but the spread of recession will effect most markets
Increased margin spreads are driven by greater risk and will not compensate for increased provisioning

The impact of income slowdown is strongest in the US and Western Europe, but will move into Central and Eastern Europe and Asia by 2010

Many CEE countries will be impacted in 2009 driven by loan provisions from cross-currency based lending
Global recessionary effects will spread into emerging Asian markets by 2010

Efficiency, cost control and integration synergies will dominate management strategy

Banks will need to readjust cost base to revised operating income conditions
M&A integration will dominate executive priorities as stakeholders require rapid synergies

Cost reduction and change requires investment to obtain synergies and savings

M&A integration and restructuring will drive short-term cost growth
Restructuring will have a crowding-out impact on non-mandatory projects
Governance, risk and compliance projects will be required, but obtaining leverage here will be critical

Technology Impact

IT spend is seen as an efficiency enabler, with banks likely to see growth in IT intensity

Need for control of overall operating cost base will put pressure on IT spending
In contrast to the collapse of FSI IT spending seen in 2002, IT will not be singled out for cost reduction
Synergies and risk factor will drive short-term IT spend growth in M&A situations
While IT spending will fall in some banks, IT intensity will typically increase

The need for productivity will drive resilience of branch IT spend, despite sales conditions

Branch and operations will be top IT investment areas, to support cost management efforts
GRC will continue to see IT spend growth, but leveraging existing investments will limit vendor opportunity
SOA and virtualization strategies will become more mainstream to enable cost transformation
IT spend reduction will be lead by the US, followed by Western Europe, with growth slowdown elsewhere

The impact of the financial crisis on depressing spend will be felt through to 2012
The technology slowdown is already underway in the US, but the IT market will be more responsive to pick-up
The Western European banking market will see a later decline in IT spend, but more prolonged effects from the crisis
Emerging Asia Pacific and CEE markets will see a slowdown in growth, contrasting the absolute decline in Japan
The Japanese market will remain depressed over 2007 to 2010, with the Australian market declining in 2009 and 2010
Emerging Asian markets will see a slowdown in IT spend in 2010 as the global recession impacts local growth
CEE market growth will swing from Central Europe to Eastern Europe

The need for IT cost control will have greatest impact on the use of professional services

IT services and IT contractors will see high pricing pressure and require stronger purchasing justification
Software development spend will slow, although the shift to recurring pricing models will limit IT spend impact

Outsourcing will be counter-cyclical but will be a medium- term opportunity

Go to Market

Financing and pricing models will be stronger differentiators in 2009

Vendors will need to take on more of the upfront costs to secure deals
Top-tier institutions will be more open to vendors for managed service deals if they can take on project risk

Procurement will regain greater control on IT purchase decision-making over business

Vendors will need to have strong corporate center relationships, as decisions shift away from local divisions
Functionality and technological sophistication will lose decision weighting to architecture fit and pricing

Recommendations

Vendors should look outside the traditional financial centers of New York and London
Smaller vendors will need to align themselves with the larger infrastructure providers or outsourcers
Risk and compliance should be seen as a significant decision criteria hook, rather than a marketing lead

Appendix

Methodology
Further reading
Ask the analyst
Consulting
Disclaimer

List of Figures

Figure 1: Illustrative model of adjustment path for customer lending to reduce funding gap to 2003 levels
Figure 2: Variation in of the wholesale funding of lending across major Eurozone markets
Figure 3: The economic downturn will be concentrated in the US and Western Europe in 2009
Figure 4: Major pain points post-financial crisis and management strategy implications
Figure 5: Financial crisis will drive cancellation of non-essential projects
Figure 6: Operational risk management will be key regulatory spend driver across regions
Figure 7: Cost reduction has emerged as top IT objective across all regions for 2009
Figure 8: The impact of financial crisis M&A on US retail banking technology spend through 2013
Figure 9: Branches remain the top IT investment area for North American and Western European banks
Figure 10: SOA and virtualization are becoming mainstream strategies, particularly in North American banks
Figure 11: Global banking technology market spending and year-on-year growth through 2013, $bn
Figure 12: Impact of financial crisis on corporate banking technology spend, pre- and post-crisis view to 2013
Figure 13: North American retail and corporate banking technology spending through 2013, $bn
Figure 14: Retail and corporate banking technology spending growth in Western European, 2007-2010, $m
Figure 15: Growth of Asia Pacific and CEE retail and corporate banking markets, 2005-2013
Figure 16: Composition of North American banking IT spend by source, 2007, 2010 and 2013
Figure 17: North American retail and corporate banking IT spending through 2013 by source