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IT spending: what goes up must come down

Analyst, Octavio Marenzi, who wrote the report, 'IT Spending in the US Securities Industry: the Coming Contraction', says increased IT spending by securities firms will only last two or three years, and will be followed by a contraction in IT spending every bit as severe as the downturn that accompanied the bear market of 2000-2003.

The predicted downturn, in IT spending not business, comes from a belief that securities firms are currently engaged in a variety of IT projects that will consolidate and rationalise IT architectures. These projects tend to have a time of horizon of at least two to three years. At some firms, these projects are well underway already. This means that the securities industry will see the savings generated by these rationalisation projects materialise at least two to three years into the future. As a result, Celent forecasts that IT spending levels in the US securities industry will actually drop in 2008 and 2009.

Marenzi says: "Rationalisation will include merging silos -- which very few banks in the US have done - functionality and geographies. Where there is a separate system for different regions there is a greater move today towards centralisation. This will impact hiring, as by 200, there will be a reduction in the amount spent on software and external consultants, and obviously fewer internal staff will be needed to run and maintain centralised IT functions."

Meanwhile technology headcount at some of the leading US securities firms analysed by Celent showed a modest increase, with the notable exception of Charles Schwab, which has continued to reduce, either through layoffs or by selling portions of its business to other firms.

Two firms -Merrill Lynch and Morgan Stanley-stand out in the report as spending in excess of US$2 billion on IT each. However, Celent explains that its figures differ significantly from any numbers for IT spending that are occasionally quoted in annual reports because its definition of IT spending includes all internal and external IT spending. Frequently, the IT spending numbers that firms provide to refer only external IT and telecommunications costs and do not take the very considerable internal spending, including salaries of IT staff, into consideration.

Celent estimates that between 40-50% of securities firms' IT budgets is spent internally, by which it includes all expenses associated with the internal management, analysis, development, maintenance, support and operation of IT.

Marenzi expects hiring levels amongst US securities firms to see a modest increase in 2005.

AUTHORAnonymous Insider Comment

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