Bank nationalisation will stifle IT innovation

John McFall, chairman of the Treasury select committee, called for the complete nationalisation of Lloyds TSB and Royal Bank of Scotland after shares...

John McFall, chairman of the Treasury select committee, called for the complete nationalisation of Lloyds TSB and Royal Bank of Scotland after shares in both banks plummeted.

But the proposal could hold back the development of innovative IT-based services of the companies currently regarded as flag bearers for the use of IT in business.

Chris Skinner, CEO at financial services think-tank Balatro, says although the government insists it will not interfere with the business plans of banks under its control, their CIOs "can forget it" when it comes to spending on innovative IT.

"The case for doing any discretionary spending is going to be completely eradicated. This would only leave maintenance spending," he says.

The government would attempt to rationalise RBS and Lloyds IT, he says. Outsourcing, server consolidation and offshoring are likely strategies

But rival, private sector banks will have resources to spend on IT to make themselves more competitive.

Ralph Silva, analyst at Towergroup, says, "The nationalised banks' IT priorities will be to keep the lights on, whereas other banks will be able to spend some proportion [of their IT budget] on innovation"

HSBC, for example, is investing in IT at a time when other banks are cutting back. The bank's One HSBC strategy will receive £1.2bn funding this year.

The project has business benefits such as enabling customers to deal with the bank through automated electronic services and helping the business to expand into new regions without having to build complex banking IT infrastructures from scratch.

But Peter Redshaw, analyst at Gartner, says that even nationalised banks need to invest in technology if they are to retain and win customers during the current difficult trading conditions. "The nationalised banks may have to jump through more hoops, but I think they will continue to spend," he says.

Technologies that improve the customer's experience through automated services, cannot be ignored.

Redshaw says nationalised banks will find it difficult to justify outsourcing. "The biggest pressure will be on their freedom to do outsourcing and offshoring." This is because the government will not want job losses in the UK.

The current economic turmoil has forced most banks to cut costs. Those that have the luxury of being able to spend on IT to take the business forward will be in a strong position in the upturn.


Candidates for nationalisation 

RBS will report between £7bn and £8bn in losses related to its day-to-day business in its annual results next month. But write-offs related to its takeover of Dutch bank ABN AMRO are expected to increase this figure. It now has a stock market value of less than £4bn, down from as much as £78bn in 2007. Lloyds TSB agreed to government-brokered takeover of troubled bank HBOS in a deal worth . It lost a third of its value last week amid growing fears that it will need more cash to survive the recession.


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