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Many Bank IT Vendors Won't Survive 2009

One in eight U.S. bank IT vendors will fall victim to a long-term drop in bank technology spending, Financial Insights predicts.

See Related Article: Big Bank Failures Leave Hole in Tech Spending

The financial crisis will take a hard toll on bank IT vendors, according to Financial Insights. As U.S. banks cut overall technology spending, 12 percent of today's top 100 bank IT vendors will not survive the year, the research and advisory firm predicts.

A higher percentage of vendors not in the top 100 "are even more likely to fail," notes Jeanne Capachin, research VP for Financial Insights' banking and insurance practices, who spoke with BS&T in a follow-up interview to the Framingham, Mass.-based firm's webcast on its top 10 technology predictions for 2009 (see related table, below). In addition, she says, tech spending won't bounce back to 2008 levels until 2012.

Financial Insights predicts that U.S. bank technology spending will fall 3.2 percent in 2009.

Suggesting that tech spending in the banking industry may never have experienced a year-over-year decline before, Capachin adds, "There hasn't been anything like this, such a big compression in the industry." Even upheavals such as the dot-com collapse and the Sept. 11 terrorist attacks, which curtailed most industries' spending, did not lead to reduced overall technology spending by banks, she asserts.

Financial Insights predicts a 3.2 percent drop in bank technology spending this year, compared with 3 percent growth in 2008. Only the securities sector of the financial industry will fare worse among all of the market sectors that comprise the six industries -- government, health, retail, energy, manufacturing and finance -- assessed by Financial Insights' parent, IDC. According to the research, the securities sector will experience a 9.9 percent drop in 2009 IT spending, after 5.6 percent growth last year. Technology spending across all industries will edge up 0.9 percent, despite being weighed down by the financial industry, the firms report.

The main reason bank IT spending will fall is because there are fewer large banks today, Capachin says. The top banks -- the 75 or so with more than $10 billion in assets -- collectively account for 72 percent of bank technology spending, Financial Insights estimates. "If you take out Wachovia's [$812.4 billion in assets] spend on technology, Countrywide's [spend], etc., that's a lot of spend that disappears," Capachin emphasizes.

Bright Spots for Vendors

Of course, all banks will look to improve efficiency, and outsourcing -- the No. 1 technology trend for 2009 identified by Financial Insights -- inevitably will enjoy a surge in popularity. Possible curtailment of offshoring under the Obama Administration, however, means that overseas providers may not be the only ones to benefit from new outsourcing engagements; East Coast banks increasingly may transfer work to the less expensive Midwest labor market, according to David Potterton, VP of global research for Financial Insights.

Canada offers another potential bright spot for bank IT vendors in the U.S., since Canadian banks largely avoided the subprime mess and are expected to pursue growth initiatives. But, "If you're new [to the Canadian market]," warns Robert Burbach, senior research analyst, Canadian Financial Services, "bankers will be asking, 'Will you be around in 2010?'"

Nonetheless, Burbach offers some hope to U.S. vendors soliciting potential bank clients north of the boarder: "If the price is right," he says, "bankers operating under budgetary pressures may be willing to consider you."

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