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Wholesale Banks must move now to exploit cost cuts with bolder strategies

he recent job cuts in The City will be of little avail if Wholesale Banks don't follow up with strategic moves to deliver long-term cost savings, warns management consultancy Bluerock Consulting in a new study. It also suggests that there is a significant 'first-mover' advantage to be gained by institutions who overcome The City's traditional reluctance to adopt outsourcing.

Chris Beer, Head of Investment Banking consulting at Bluerock, said: "The downturn this year and recent cut backs made by Wholesale Banks means that they are in an excellent position to outsource key business processes while per transaction costs are lower than in a period of market buoyancy. The flexibility afforded through outsourcing, combined with careful strategic planning, will help banks to position themselves for rapid growth when economic recovery happens.

"Continued pressure on settlement cycles and stringent regulatory requirements mean that the expense of maintaining and improving Wholesale Bank infrastructures continues to escalate. The outsourcing proposition enables City institutions to address these issues in a cost effective manner and to concentrate on what they do best: realise shareholder value through the capture and cultivation of investor relationships.

"Since very few Wholesale Bank business processes are outsourced at present, a real opportunity exists for early movers to shape the market. Outsourcing providers will tailor their services to fit the requirements of their early customers, with late arrivals either having to accept packages designed for rivals or being forced to pay a premium for bespoke services.

"There is enormous growth potential here. Our estimates show that as many as 80% of The City's banks are considering sourcing options for their back and middle office functions. Annual overheads savings of 40% have been achieved using outsourcing arrangements in other areas of the Financial Services sector."

Chris Beer continued: "To date, senior management focus on M&A activity, coupled with concerns about losing control of key business processes has delayed the adoption of outsourcing arrangements across the sector. Whilst it is understandable that banks want to hold on to their business critical functions, we feel they have often defined this too broadly."

Using the Study, Bluerock has developed '10 Rules' (see below) of outsourcing for the Wholesale Banking sector. Chris Beer added: "We took into account some of the key issues that require consideration when reviewing sourcing options and produced what we hope is a useful guide for those considering outsourcing as an operational strategy."