Why banks' IT staff really should be given more credit
When it comes to bandying the term 'talent' around within investment banking, those in the technology divisions are given something of a short shrift.
After all, it's the relationship managers with the book of contacts, the big-swinger on the trading floor or the slick MD in advisory with a track record of mega-deals who are irreplaceable, right? The revenue they generate is there to see in black and white.
IT, by contrast, is something that can be commoditised, a cost centre that can easily be trimmed, a skill that can be found in lower cost locations like India or Eastern Europe...or Scotland and Bournemouth.
In reality, though, the importance of a good senior technologist to both lead the strategy within an investment bank as well as developers, business analysts and project/programme managers to help deliver a competitive advantage through IT shouldn't be underestimated.
Cut back and fall behind
A classic example of this is what's been going on in UBS's FX division. The Swiss bank has been eagerly hiring front office FX staff over the last year, yet it lost ground in the asset class.
Why? If a recent Reuters article is to be believed, the bank cut back on its spend on technology during the height of the crisis - an easy tactic, as HSBC's recent strategy day showed - while its competitors ramped up theirs.
If we're assuming that UBS's IT spending cuts started in 2008, and lasted until the bank started to see some green shoots of recovery, then it's got some serious catching up to do.
In spot FX, where trade speed is of the essence, the conversation has long moved on from milliseconds to microseconds and now there's talk of when trades will be completed in picoseconds - or one trillionth of a second.
Then there's a whole range of developments related to the electronification of FX derivatives, liquidity aggregation and the use of enhanced analytics like complex event processing.
The phrase 'a technology arms race' is as hackneyed as 'war for talent', but in the FX IT space both ring true. Most investment banks have been recruiting FX IT professionals for the last two years, and salaries have shot up by 30k just for mid-ranking technologists.
Conversely, according to a recent note by JP Morgan analyst Kian Abouhossein, Goldman Sachs' ongoing investment in technology has helped propel it to the top spot in US equity derivatives and cash equities as well as its success in FX, where it's a top three player.
In 2000, technologists accounted for 16% of Goldman's total headcount, a figure which increased to 27% in 2010.
IT consultancy Celent is predicting that securities and investment firms in the US, Europe and Asia-Pacific will spend a combined $74.8bn on technology this year. The message seems clear - pull back from IT investment and lose out. Unfortunately, in terms of hiring at least, most banks seem to be doing that again this year.
