As CTOs in the banks across UK, US and Europe consider their capex plans for 2014, they will have to trim their shopping lists again as a result of two weeks of bad news for the banks.
Banks have been told that they will be subject to tougher requirements relating the equity of the banks to the amount that they can lend. The Bank of England’s Prudential Regulation Authority has ordered the top eight UK banks to comply early with a 3% leverage ratio and the regulators monitoring the Basel III are now requiring better compliance to tougher regulations. Until recently the banks had probably thought that they were on track to meet the regulators’ requirements and would be able to build their businesses from that base. It looks as if they could be mistaken.
This is not just an academic discussion as it will have an impact on the cost base and spending plans of all the banks, where technology is often the second largest expense (after salaries and bonuses, naturally). CFOs will demand further cuts in IT budgets and higher hurdle rates as they try and direct as much capital as possible to the basic business. CTOs will consequently have to look again at strategic cost reduction and outsourcing, possibly postponing their more grandiose plans for big in-house IT investments.
The finance sector is a major contributor to overall demand for the UK SITS market and the additional constraints on bank spending endorses TechMarketView’s stance that the UK market is still shrinking in real terms, as discussed in our Trends and Forecast document (see UK SITS Market Trends and Forecast 2013)