Bank-Earning Slowdown Won't Imperil IT Spending

FRAMINGHAM (04/18/2000) - Financial experts believe that the nation's top banks may have hit a high-water mark with their recent earnings reports, given the expectation that the downturn in the U.S. stock markets and likely interest-rate increases will dampen their future profits.

Nevertheless, the threat of shrinking earnings at big banks should do little to curtail the banks' information technology spending plans, say industry experts.

"In normal bank industry downturns, it doesn't have a major negative impact" on IT spending, said Stephen McClellan, an analyst at Merrill Lynch & Co. in San Francisco.

Yesterday, New York-based Citigroup Inc., the largest U.S. financial services company, posted a 52% jump in first-quarter earnings. Meanwhile, other financial giants such as Bank of America Corp. and Bank of New York Co. have also exceeded analysts' earning expectations.

"What [banks are] going to be doing is re-evaluating their technology and their investment in it," said Larry Tabb, an analyst at Needham, Massachusetts-based TowerGroup.

"[But] there's no way they are going to be cutting back. . . . There's no way they can afford that," he added.

According to McClellan, the economic outlook for banks would have to be "much more severe" for an earnings crunch to affect their IT spending. Additionally, the banking industry is still recovering from its year 2000 lockdown and has a pent-up demand for IT projects, he said.

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