An expected surge in demand for core banking products and a recent acquisition prompted Citigroup Global Markets to upgrade Temenos Group AG this week.

Citi analyst Hoi Chuen Lam wrote in a research report that the banking industry has put off significant investments in its technology infrastructure for the past 18 months. "However, signs that the freeze has ended are increasing, and we see Temenos as one of the key beneficiaries of this new cycle of investment."

Lam wrote that demand will be particularly strong in emerging markets, where the Swiss vendor has a strong presence. Lam upgraded Temenos to "buy" from "hold."

Temenos will also benefit from its Christmas Eve acquisition of Viveo Group, a French core banking software vendor. The $81 million purchase was the largest in the company's history.

Viveo had more than 750 bank clients in more than 35 countries, including more than 400 customers in France. Besides core processing, Viveo offered payments, compliance and anti-money laundering software.

Lam estimated that the purchase would boost Temenos' earnings in 2010 by 11.3%.

Temenos has been making other efforts to expand. In December, it announced a technology partnership with Microsoft Corp., optimizing its popular T24 core application to run more efficiently on Microsoft servers.

However, the company's plans to become more significant in the U.S. hit a bump last year after a partnership with Metavante Technologies Inc. was scuttled.

Metavante, of Milwaukee, had been working since 2007 to adapt a Temenos core product for large U.S. banks, but opted to exit the partnership in October after it was acquired by Fidelity National Information Services Inc., which already has an extensive suite of core banking products.

Lam said that the Viveo purchase as well as the 2008 acquisition of the U.K. core vendor Financial Objects Ltd., would help Temenos increase its cross sales. Though some deals were put on hold last year, Lam wrote, "as the market has now stabilized, we would expect to see some of these deals close in 2010."