European Banks Make the Shift to Third-Party IT Solutions
Deutsche Bank, UBS Warburg, HSBC and ABN Amro will spend more than any other European banks on information technology, according to a new report from consulting firm Celent Communications.Deutsche Bank will top the list with [euro]3.1bn, while UBS Warburg and HSBC will spend [euro]2.8bn each and ABN Amro will spend [euro]2.3bn.
Spending by commercial banks in the European Union will total [euro]45.8bn ($44.9bn) this year - approximately 23% more than the [euro]37.1bn spent by US commercial banks.
Information technology spending consists of outlays on hardware, software and technology-related services.
It encompasses expenses for internal and external technology activities, including spending on the management and operation of data centres, hardware and software development, third-party licensing fees, professional fees to contractors and vendor-supplied technologists, internal technology staff and their management, fees paid to outsourcers and any other expenditure on IT or IT management.
It is at the heart of fierce debate among banks' board members, who are fighting to keep down costs in a bear market.
On the one hand, technology is often the most expensive item on a company's balance sheet and so rationalisation offers quick cost savings. On the other hand, its adoption provides a sensible way to cut headcount and improve efficiency, both of which offer huge cost savings after the initial outlay.
Last week, US bank Merrill Lynch abandoned trading in 75% of the lowest volume Nasdaq stocks and cut trading staff, while two of its competitors increased the number of stocks on their books by adopting improved technology. It was an embarrassing about-turn for Merrill Lynch after its decision two years ago to buy Herzog Heine Geduld, the Nasdaq market maker.
Credit Suisse First Boston and Salomon Smith Barney also slashed the number of Nasdaq stocks they trade.
However, JP Morgan and Morgan Stanley have increased the number of Nasdaq stocks they trade by boosting their use of technology, rather than by raising staff numbers.
While the extra 7,000 or so stocks might not be consistently profitable, the cost of keeping them on the books is low as few staff are involved.
Banks in Europe are looking at ways to make cross-border settlement and payments processing cheaper in response to pressure from clients to lower trading costs.
This is prompting interest in joining central-matching utilities such as Omgeo, the network owned by Thomson Financial and the Depository Trust & Clearing Corporation, as well as encouraging banks to adopt technology to automate back-office processes and reduce manual intervention. …