Bank IT spending continues to increase in spite of lower bank earnings reports

Implications: With many big banks such as BoA, Wachovia and Citigroup reporting record breaking losses in the 3Q, there shouldn't be any less spending for new bank technology in the future. We may see consolidation of banking & trading divisions, but technology will come to the forefront in spending from banks.

Analysis:  When it comes to IT, bankers know you don’t mess with sacred turf. Sell off unprofitable business units in a heartbeat, cut salaries in the executive suite with one e-mail, reduce benefits as an alternative to pink slips, increase ATM fees for real-time P&L remedy, but leave IT alone. The proof is in the stats. In the past 13 years, IT spending has increased on average at the rate of 15.6% per year, with not one down year. Ironically, the largest and the smallest financial institutions were the most gluttonous. Large commercial banks’ IT spending increased 252% in 13 years. Credit unions increased their IT spending 260%.
These findings make perfectly good sense. Sub prime mortgages are not the fault of IT. Ben Bernanke’s fed rate changes have nothing to do with IT. Citi’s and BofA’s poor earning reports are not the result of bad IT decisions.
IT is a long term commitment. You can’t tweak it every quarter to compensate for a low earnings report. And after all the nail-biting occurs, it is IT that can solve some of a bank’s earnings deficiency with added technologies.
Now that doesn’t mean Fiserv, Fidelity, Metavante, Jack Henry, Open Solutions and Harland Financial Solutions can sit back and take a breather. Their biggest nemesis is that in 40 years of playing catch-up with technology, banks have caught up and there are no brand new technologies to whet their appetite. If nothing new shows up in the horizon a couple of years from now, even the stragglers will have adopted good-enough technology, and that’s like Bill Gates saying I don’t have a new version of Windows to sell.