Despite write downs and personnel cuts following the credit crunch, Wall Street firms are continuing to invest in IT - particularly risk technology - and expect budgets to increase next year, according to research released by IBM and the Securities Industry and Financial Markets Association (Sifma).
The IBM study surveyed 500 IT professionals within the financial markets industry, of which 200 were from leading Wall Street firms and a further 300 or so were from technology vendors, consultancies, infrastructure companies and other specialists .
Around a third of the 200 IT professionals from Wall Street firms said their IT budgets increased from 2007 to 2008. The majority of these also expect budgets to be the same or bigger in 2009. IBM says smaller firms are more intent on increasing spending with half expecting a larger IT budget next year, compared to just eight per cent who think budgets will shrink.
IBM says the expected increase in IT investment is being driven by an increased focus on risk management, as respondents look to safeguard against further exposure. The majority of Wall Street firms - 67% - cite risk transparency as the primary future regulatory action impacting IT.
"Almost universally there is a recognition that further investment in risk-modelling is required in order to enable greater risk transparency, not only as a business imperative, but also in anticipation of future potential regulatory requirements," says Ian Hurst, general manager, IBM Financial Services Sector.
Hurst also says that as all firms focusing on risk simultaneously, there will be a skills shortage and a "battle for talent in the risk arena".
Key challenges cited by the Wall Street firms included implementation costs and limited supply of staff with IT and risk management skills being in short supply. IBM says 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.
Randy Snook, senior MD and EVP, Sifma, says respondents don't think technology was to blame for the sub-prime crisis, but the crunch has been a "catalyst" to increase spending on IT and risk management.
In separate research also released today, Microsoft says the credit crisis is driving Wall Street firms to use high-performance computing (HPC) to conduct real-time and intra-day risk analysis.
Microsoft says a survey conducted by KRC Research found that capital markets firms in the last 12 months have faced increased demands to run real-time market risk analysis (25%), middle-office risk analytics (34%) and portfolio-related calculations, such as rebalancing and hedging strategies (42%). At the same time, Wall Street firms are turning to HPC resources to assist with these activities, with companies reporting "a lot or some" demand for HPC to handle real-time market risk analysis (51%), middle-office risk analytics (50%) and portfolio-related calculations (54%), says Microsoft.
"Impacted by the credit crisis, capital markets firms are aligning their HPC resources toward uncovering and managing risk," says Craig Saint-Amour, US capital markets industry solutions director at Microsoft. "At the same, it appears that companies are seeking more bang for their buck from their HPC vendors in terms of greater ease of deployment, manageability and support."
Microsoft says the survey found the most common lines of business using HPC environments include equities (30%), fixed income (20%), commodities (13%), foreign exchange (13%), derivatives (23%) and algorithmic trading (18%).