Why Google, Apple and Facebook Don’t Want to be Banks…

by. Brett King

Recent research has shown that banks spend more on IT than any other industry sector (See Deutsche Bank Research – IT in banks: What does it cost?). In fact, on average banks expend 7.3% of their budgets on technology, where other industries average half of that at 3.7%.

Bankers would defend these costs because of high compliance and regulatory costs, as well as legacy system support, security and fraud measures along with mission critical performance requirements.

“The reasons for a higher use of IT in the banking industry are manifold,” writes Mai. “Financial service firms have to fulfil exacting regulatory requirements which translate into IT costs that do not contribute to the firms’ earnings. Furthermore, banks rely heavily on IT in their back offices as well as their distribution channels”
Heike Mai – Deutsche Bank.
Source: Business Insider – Banks Spend Way More On Info Tech Than Any Other Business

While that may be a reason for such high spend, in this day and age of transformation and innovation, it’s hardly an excuse.

Banking has long been considered one of the more profitable segments of the market, and big banks (these days called the TBTF crowd) have often been amongst the best or safest blue chip performers on the stock market. Since 2009 and the great recession, we’ve had to rethink that. Although many bank stocks have recovered quite well this year, of the 4 dominant banks in the US (BofA, JP Morgan Chase, Wells Fargo and Citi) their average Beta β is 1.935 making them extremely volatile historically. Comparatively the 4 dominant tech brands (Google, Apple, Microsoft, Oracle) have an average of just 0.983 – meaning they are as half as volatile as bank stocks. Amazon shares this characteristic with an Beta of 0.8. Admittedly Facebook doesn’t have enough operating history to provide a meaningful Beta right now, but it would probably be pretty volatile as well.

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