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No Surprise: IT Spending on the Decline at US Financial Services Firms

TowerGroup forecasts short-term IT spending will wane—but will rebound starting in 2009

With the US Treasury handing out billions of dollars to US financial institutions, one might hope that at least bit of that money would go into IT improvements, to help those firms operate more efficiently and be better prepared to weather future economic downturns. Whether any of the bailout monies will go toward shoring up IT is uncertain, but according to a recent TowerGroup report on IT spending at financial services firms, banks could certainly use an infusion of funds in their IT areas right about now.

In a just-released report, TowerGroup, a research firm focused on the financial services industry, says that overall technology spending by US financial services institutions is now declining for the first time in US history, following several years of consistent 4 to 6 percent growth.

Bad News… Good News
Short-term expectations for IT spending at financial institutions are bleak, but the spending picture is brighter over the long term, according to the report. On the downside, TowerGroup forecasts that overall technology spending by US financial services institutions will decline 3.7 percent between 2008 and 2009.

However, the report also finds that many financial institutions are interested in developing long-term strategic plans for modernizing their IT structures. TowerGroup expects replacement IT spending to increase by 20.5 percent in 2009 and new technology spending to recover and increase at a compound annual growth rate of 5.8 percent between 2009 and 2012.

Virginia Garcia, senior research director in the Cross-Industry practice at TowerGroup, advises financial services firms to make strategic, long-term technology investment and improvement a priority. “Rumors of the financial services technology market’s demise have been greatly exaggerated,” Garcia said. “By executing on smart, long-term IT investments today, institutions will see business value—beyond a monetary return on investment—that is guaranteed to help organizations create the competitive edge they need to weather the current economic storm and plan for the future success of their businesses.”

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