IBM Survey: Americans Choose Investing Over Holiday Spending

Two-thirds lack basic investment knowledge; "trust gap" provides opportunity for next generation of banking winners

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ARMONK, N.Y. - 16 Dec 2009: New IBM (NYSE: IBM) research reveals that despite the recent volatility in the financial markets, investors are more likely to cut holiday spending than investment contributions. At the same time, research from the IBM Institute for Business Value indicates that a majority of investors believe that a "trust gap" exists between banks and their customers, and that this is a major factor in decisions by banks to invest in analytics and other solutions to provide greater insight into client needs. 

According to the investor survey, while two-thirds of American investors claim to be paying more attention to financial news, many still lack basic knowledge required to make smart investment decisions. Globally, more than 60 percent of clients believe banks operate primarily in their own interests rather than those of their customers. 

The investor survey is part of IBM's ongoing worldwide research into investor sentiment and the banking industry, which confirms that desire is growing among consumers for unbiased financial advice. 

The survey found that: 

The survey was conducted by Braun Research and was based on telephone interviews with 1,000 U.S. investors from November 6, 2009 to November 13, 2009. It has a 2.5 percent margin of error. 

New banking study from Institute for Business Value
The survey builds upon an extensive global research of the banking industry that the IBM Institute for Business Value (IBV) conducted over the past year and published today in a report, entitled Fit, focused and ready to fight: How banks can get in shape for the battle ahead ( 

"The banks that emerge from the current economic crisis as winners will be the ones that are focused on client's success," said Shanker Ramamurthy, IBM's Global Industry Leader, Banking & Financial Markets. "But restoring client relationships is only part of the solution - banks must also become far less complex and develop an enterprise-wide view of risk." 

According to the IBV report, banks should invest in analytics to gain an understanding of clients' perception of value and what they are willing to pay a premium for. Today, banks rely on less useful demographic metrics, such as age, health, and stage of life. Improved segmentation will lead to a healthier, more sustainable relationship with clients and, in turn, a more profitable one. 

The report notes that an integrated risk management framework helps banks transcend organizational silos and cohesively address financial risk, fraud and compliance reporting. Banks need to invest in analytics to manage risk at the organizational level and provide inputs to evaluating risk at the systemic level. 

On the financial front, while banks need to strengthen their capital, the equity markets are constrained by the decline in public wealth and investor confidence in banks' loan portfolios. In addition, banks have a high cost of operation in many parts of the world, rendering the operating models of the past obsolete. As a result, banks should lower operating costs through business model changes that are supported by long-term savings initiatives in areas such as IT, shared services and front/back office integration. 

IBM research also indicates that the industry is likely to undergo a period of divestitures and mergers and acquisitions.

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