Table of Contents

Overview 1
Catalyst 1
Summary 1
Key Messages 2
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 2
Banks will need to readjust cost base, but this will require investment and transformation 2
IT spend will be seen as an efficiency enabler, with banks likely to see growth in IT intensity 2
The need for productivity will maintain IT investment in branches and back office operations 2
IT spend reduction will be led by the US and Western Europe, with slowdown elsewhere 3
IT cost control will impact professional services and internal spend, with outsourcing growth 3
Financing and pricing models will be stronger differentiators in 2009 3
Table of Contents 4
Table of figures 5
Market Impact 6
Contraction of wholesale funding market will severely restrict income growth in 2009 6
The drivers of the financial crisis still largely remain in place for 2009 6
Unless there is further government intervention, net lending will be highly subdued in 2009 and 2010 7
Government schemes to stem the financial crisis have actually reduced future lending for 2009 7
Governments will need to decide whether to support lending growth or for banks to repay support 8
The impact of the wholesale funding gap varies by country, but the spread of recession will effect most markets 8
Increased margin spreads are driven by greater risk and will not compensate for increased provisioning 9
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 10
Many CEE countries will be impacted in 2009 driven by loan provisions from cross-currency based lending 11
Global recessionary effects will spread into emerging Asian markets by 2010 12
Efficiency, cost control and integration synergies will dominate management strategy 13
Banks will need to readjust cost base to revised operating income conditions 15
M&A integration will dominate executive priorities as stakeholders require rapid synergies 16
Cost reduction and change requires investment to obtain synergies and savings 16
M&A integration and restructuring will drive short-term cost growth 16
Restructuring will have a crowding-out impact on non-mandatory projects 17
Governance, risk and compliance projects will be required, but obtaining leverage here will be critical 18
Technology Impact 19
IT spend is seen as an efficiency enabler, with banks likely to see growth in IT intensity 19
Need for control of overall operating cost base will put pressure on IT spending 19
In contrast to the collapse of FSI IT spending seen in 2002, IT will not be singled out for cost reduction 20
Synergies and risk factor will drive short-term IT spend growth in M&A situations 21
While IT spending will fall in some banks, IT intensity will typically increase 22
The need for productivity will drive resilience of branch IT spend, despite sales conditions 23
Branch and operations will be top IT investment areas, to support cost management efforts 23
GRC will continue to see IT spend growth, but leveraging existing investments will limit vendor opportunity 24
SOA and virtualization strategies will become more mainstream to enable cost transformation 24
IT spend reduction will be lead by the US, followed by Western Europe, with growth slowdown elsewhere 26
The impact of the financial crisis on depressing spend will be felt through to 2012 27
The technology slowdown is already underway in the US, but the IT market will be more responsive to pick-up 28
The Western European banking market will see a later decline in IT spend, but more prolonged effects from the crisis 29
Emerging Asia Pacific and CEE markets will see a slowdown in growth, contrasting the absolute decline in Japan 30
The Japanese market will remain depressed over 2007 to 2010, with the Australian market declining in 2009 and 2010 30
Emerging Asian markets will see a slowdown in IT spend in 2010 as the global recession impacts local growth 31
CEE market growth will swing from Central Europe to Eastern Europe 31
The need for IT cost control will have greatest impact on the use of professional services 32
IT services and IT contractors will see high pricing pressure and require stronger purchasing justification 32
Software development spend will slow, although the shift to recurring pricing models will limit IT spend impact 33
Outsourcing will be counter-cyclical but will be a medium- term opportunity 34
Go to Market 36
Financing and pricing models will be stronger differentiators in 2009 36
Vendors will need to take on more of the upfront costs to secure deals 36
Top-tier institutions will be more open to vendors for managed service deals if they can take on project risk 37
Procurement will regain greater control on IT purchase decision-making over business 37
Vendors will need to have strong corporate center relationships, as decisions shift away from local divisions 37
Functionality and technological sophistication will lose decision weighting to architecture fit and pricing 38
Recommendations 38
Vendors should look outside the traditional financial centers of New York and London 38
Smaller vendors will need to align themselves with the larger infrastructure providers or outsourcers 38
Risk and compliance should be seen as a significant decision criteria hook, rather than a marketing lead 38
Appendix 39
Methodology 39
Further reading 39
Ask the analyst 39
Datamonitor Consulting 39
Disclaimer 39
List of Figures
Figure 1: Illustrative model of adjustment path for customer lending to reduce funding gap to 2003 levels 8
Figure 2: Variation in of the wholesale funding of lending across major Eurozone markets 9
Figure 3: The economic downturn will be concentrated in the US and Western Europe in 2009 11
Figure 4: Major pain points post-financial crisis and management strategy implications 14
Figure 5: Financial crisis will drive cancellation of non-essential projects 17
Figure 6: Operational risk management will be key regulatory spend driver across regions 18
Figure 7: Cost reduction has emerged as top IT objective across all regions for 2009 19
Figure 8: The impact of financial crisis M&A on US retail banking technology spend through 2013 22
Figure 9: Branches remain the top IT investment area for North American and Western European banks 23
Figure 10: SOA and virtualization are becoming mainstream strategies, particularly in North American banks 25
Figure 11: Global banking technology market spending and year-on-year growth through 2013, $bn 27
Figure 12: Impact of financial crisis on corporate banking technology spend, pre- and post-crisis view to 2013 28
Figure 13: North American retail and corporate banking technology spending through 2013, $bn 29
Figure 14: Retail and corporate banking technology spending growth in Western European, 2007-2010, $m 30
Figure 15: Growth of Asia Pacific and CEE retail and corporate banking markets, 2005-2013 31
Figure 16: Composition of North American banking IT spend by source, 2007, 2010 and 2013 32
Figure 17: North American retail and corporate banking IT spending through 2013 by source 34