Technology in finance: Good year vs. bad year 2008

The headline story of 2008 for IT in finance has been one of cost-reduction and shelving plans for projects, but while some areas have undoubtedly suffered, others have gained traction, or at least remained relatively healthy.

2008 WAS A GOOD YEAR FOR...

Risk management

The realisation that banks and other financial institutions had been spending far too little on their risk management technology systems, highlighted by Ernst & Young back in April, created something of a frenzy around this space.

Banks, fund managers, insurance firms and hedge funds all view it as a key area of investment and technologists cognisant of risk systems have been hot property throughout 2008. This looks set to continue.

Robert Iati, partner and global head of consulting at Tabb Group, says he expects to see "double-digit spending increases" in risk management next year.

Similarly, Chermaine Lee, analyst at Celent, says key areas of focus will be "risk management and compliance, reducing counterparty risk".

Business analysts

With banks looking at ways to cut their IT budgets and focus on key projects, business savvy technologists were in demand throughout the past year.

In fact, while salaries remained largely static for most IT roles, business analysts saw a 5% upswing, according to IT in finance recruiters JM Group.

"This highlights the continued demand for technologists with strong commercial skills and the resilience and acumen to engage with the business that they serve," says Rory Ferguson, director and head of the firm.

Commodities

The rush to develop cutting edge systems to gain a bigger piece of the commodities pie shows no sign of abating, with firms hiring technology staff in healthy numbers.

Abigail Wauby, manager of the IT division at recruiters Project Partners, says: "Throughout the year, there's been a good demand within the commodities space, both within investment banks and the commodity trading houses."

AND 2008 WAS A BAD YEAR FOR...

Contractors

What started out as a couple of investment banks trimming IT contractors' daily rate, soon escalated into an industry-wide compulsory pay cut averaging at 12% over the course of the year, according the Association of Technology Staffing Companies (ATSCo).

As if the across-the-board wage cut wasn't bad enough, it seems financial firms have been viewing culling contractors as an easy way to reduce costs.

"Contractors are typically the first into and first out of any recession," says Ann Swain, chief executive of ATSCo.

HSBC and Credit Suisse included IT contractors in their recent lay-offs and asset managers and hedge funds also trimmed contractor headcount.

In September, the number of roles offered to IT contractors in the financial services space fell by 49%, according to employment screening firm Powerchex.

Back office

Banks' appetite for outsourcing and offshoring IT functions escalated as belt-tightening increased throughout the year. Data from TPI reveals that 282 contracts worth €39bn have been signed this year (though that's across all industries) and outsourcing firms themselves are faced with financial firms looking to renegotiate the rates they pay.

This means that banks' more operational and back office IT jobs, previously based in the UK, have been shipped off to cheaper destinations this year.

Barclays, HBOS and Lloyds TSB have continued to offshore technology roles, much to the outrage of trade unions.

"Organisations have claimed for a number of years that offshoring is about improving quality of service and seeking innovation in their agreements. But ultimately it's about cost," says Nigel Roxburgh, research director at the National Outsourcing Association.

Merrill Lynch, Citigroup, Lehman Brothers

Most financial institutions have been cutting back on technology, but these three have made the most dramatic move from big spenders to IT scrooges.

Previously, Merrill Lynch shelled out an estimated $4bn annually on technology.

In the immediate aftermath of the Bank of America merger it spent $39m trimming headcount in its IT division in the third quarter of this year.

Then, in October, CEO John Thain then announced plans for "thousands" of job cuts, mainly in IT, operations and finance, with the aim of saving $7bn across the combined Merrill-BofA platforms.

Citigroup's plans to chop 52,000 jobs will involve a fair proportion of IT positions, according to TowerGroup analyst Guillermo Kopp as the firm works towards "simplification and standardization" of its technology platforms. It aims to save at least $3bn on operations and IT over the next three years.

Lehman, meanwhile, was expected to spend around $2.5bn on technology this year, suggests research from Tabb Group. It leaves a legacy of 6,000 IT staff worldwide and some 26,666 servers, according to an SEC filing by restructuring experts Alverez & Marshal