The catastrophic events in the UK financial services
sector have forced financial services firms to rapidly change their
IT strategies.
Those that have emerged unscathed are still focusing on using IT
to steal a march over the competition, but many are rapidly
switching their focus to cost cutting.
Recent cost cutting has seen
Bradford & Bingley close a mortgage processing centre with
the loss of 300 IT jobs. HSBC has slashed 1,100 jobs including IT
in its investment banking division, and
Barclays is expected to cut IT jobs after announcing it will no
longer offer new loans through its
FirstPlus loans business.
"Banks that are struggling to survive are focused on cost
cutting, banks that are going through acquisitions and mergers are
focussed on integration and those that are not in trouble are
focussed on efficiency and innovation," says Peter Redshaw, analyst
at Gartner.
Tony Rawlinson, managing director of financial services at
sourcing consultant Equaterra, says, "The focus is on survival and
not efficiency for struggling banks."
"Outsourcing and offshoring are also showing signs of growth as
companies attempt to cut costs and focus on their core businesses,"
he says.
Citigroup selling its back office support operations to Tata
Consultancy Services for £291m, and outsourcing the service to
the same company, is a recent example.
Banks struggling with mergers and acquisitions, often as a
result of involuntary consolidation, face massive disruption to
their IT strategies.
IT integration projects in the finance sector are complicated
enough under normal circumstances, but when conducted at short
notice with little advanced planning they are "a headache for
CIOs," says Rawlinson.
"Fortis for example was one minute planning the integration of
the parts of ABN AMRO it acquired and the next minute it was being
rescued by another bank."
Lloyds TSB's government-brokered takeover of HBOS, for £12.2bn,
is in doubt as a result of the ongoing crisis.
Banks that remain strong will use IT to strengthen their
position and capitalise on their competitors' struggles. "They will
continue to invest in IT for efficiency and look at short term
innovations to help them take advantage of their struggling
competitors," Redshaw at Gartner says.
These banks are in a strong position to acquire rivals, says
Rawlinson. "Some banks are seeing this as a buying opportunity and
they will continue to invest in IT for innovation and efficiency as
well as looking to roll out their technology platforms into other
banks."
Santander, which acquired Abbey in 2004, has agreed takeovers
for UK firms Alliance & Leicester and Bradford & Bingley.
The Spanish bank plans to integrate these into its core banking
platform.
Bob McDowall, analyst at Towergroup predicts that stronger banks
will invest in IT to take advantage of their strong market
position.
"I do not think they will make major strategic IT investments
until the dust settles but they will invest in short term tactics
to take advantage of struggling competition," he says.
When the dust does settle, firms will be forced to invest in IT
to reflect the requirements of a wave of new regulations that are
expected to follow. The regulations are likely to demand
investments in software to make reporting more transparent and real
time.
Financial services firms are the biggest business consumers of
IT and whether struggling, merging or attempting to grow, their
CIOs will be put to the test.
Credit crunch fall out hits UK shores
18 September
Lloyds TSB agrees to acquire troubled bank HBOS for £12.2bn
29 September
Bradford & Bingley's savings business to be acquired by Banco
Santander for an agreed £612m
08 October
Government announces part-nationalisation of some large banks