Despite recent billion dollar write-downs and thousands of personnel reductions, technology spending is the one area that is going to be largely unaffected by cost-cutting, according to a recent survey.
The survey was conducted by IBM (NYSE: IBM), in conjunction with the Securities Industry and Financial Markets Association (SIFMA), to better understand attitudes toward both recent business and IT challenges in the industry and the priorities for future IT spending, given current market conditions. Of the total of approximately 500 information technology (IT) professionals within the financial markets industry that responded to the survey, about 200 were from leading Wall Street firms (Universal Banks and Brokers/Dealers) and a further 300 or so were from technology vendors, consultancies, infrastructure companies and other specialists that support the financial markets industry.
When respondents from Wall Street firms (Universal Banks and Brokers/Dealers) were asked to contrast their IT budgets from 2007 to 2008, one-third suggested that their 2008 budgets had increased. That sentiment continued when asked about their IT budgets for 2009. The majority of IT budgets were expected to remain the same and/or increase in size going into 2009, easing most of the IT budget declines that might have been experienced between 2007 and 2008. In fact, smaller firms on Wall Street intend to be particularly aggressive, with half anticipating increased IT budgets in 2009 against only 8% who anticipate a decrease.
"Almost universally there is a recognition that further investment in risk-modeling is required in order to enable greater risk transparency, not only as a business imperative, but also in anticipation of future potential regulatory requirements," said Ian Hurst, general manager, IBM Financial Services Sector. "However, with all firms focusing on this simultaneously we foresee a skills shortage and a battle for talent in the risk arena."
"Although the majority of survey respondents believe the sub-prime crisis was caused by factors unrelated to technology, this crisis is serving as a catalyst to increase the amount of money invested in technology/risk management initiatives. At our member firms, people are being asked to do more with less and rely more heavily on technology. It is clear that changes are needed in our industry and that technology is an integral part of the answer but not the only answer. The anticipated technology investments are one of several important building blocks necessary to mitigate the financial impact of future disruptions" said Randy Snook, Sr. Managing Director & EVP, SIFMA.
Key challenges cited by the Wall Street firms (Universal Banks and Brokers/Dealers) included implementation costs, given the complexity of enabling greater risk transparency, and limited IT staff/human capital with key IT and risk management skills being in short supply. Ironically this is expected to lead to a war for talent in this area, just as automation and rationalization are leading to thousands of job cuts in other areas.
There is expected to be an increase in IT investment which is being driven largely by the increased focus on risk management, as most respondents look to safeguard against further risk exposure. In particular, responses from the 200 or so IT professionals from the Wall Street firms (Universal Banks and Brokers/Dealers) showed that:
- Most Wall Street firms have significant development/implementation activity around improving their IT infrastructure, enhancing electronic trading, and improving data capacity/bandwidth.
- Implementation costs and shortage of IT skills are key factors impacting IT strategy/development.
- Large firms are focused on economic uncertainty and short-term earnings pressures ~ far more than mid-market companies.
- While firms see risk-modeling and data mining/predictive modeling technologies as key areas with potential to drive significant business/operating model changes, most (67%) cite risk transparency as the primary future regulatory action impacting IT.
