Tech Spending Hit by Subprime Mess
- By Jeffrey Schwartz
- June 20, 2008
The subprime meltdown that has roiled the financial markets since last fall
will negatively impact the amount large investment houses, banks and brokerages
will spend on IT overall -- and on software development projects in particular
-- in the coming years.
That was the assessment at last week's annual Securities Industry and Financial
Markets Association (SIFMA) conference in New York, which drew more than 7,000
IT professionals and developers.
Reversal of Fortune
Before the subprime mortgage market began to collapse, technology spending among
financial services firms was on the upswing. The reversal in spending is noteworthy
in that the financial services sector is considered the most aggressive at adopting
new technologies, particularly Web services, high-performance computing and
Prior to the meltdown, overall spending by the largest financial services firms
was on pace to increase at a compounded annual growth rate of 8.5 percent over
the next three years, rising from $26.3 billion this year to $33.6 billion in
2011. That's according to the Tabb
Group LLC, a Westborough, Mass.-based market research firm that tracks IT
spending in the financial services sector.
In the wake of current market conditions, the Tabb Group now estimates that
tech spending declined 10 percent last year and is currently down about 3 percent
this year, with a possible modest rise projected for 2010. "It's getting
pretty ugly," said Tabb CEO Larry Tabb.
According to Tabb, spending on development is being refocused on projects that
can help firms improve their margins and, not surprisingly, do a better job
at risk management. As such, investments in capabilities such as algorithmic
trading and complex event processing (CEP) are likely to be pivotal in some
firms' efforts to become more competitive and improve their efforts at mitigating
But for some banks that have deployed such technologies -- the now-defunct Bear
Stearns, Lehman Brothers, Citigroup and Merrill Lynch -- the question is: How
did these companies fail to mitigate the risks that have slammed their businesses
if their development teams were developing and deploying sophisticated systems?
"There is definitely an awareness that perhaps the systems that existed
in place to assess the value of portfolios or judge risk [are being scrutinized],"
said Stevan Vidich, an industry architect in Microsoft's financial services
He added that there is strong interest in CEP and other risk management methodologies.
A growing number of shops have started deploying such solutions based on the
.NET Framework, Vidich said, and he believes such investments will continue.
"Clearly, there's a lot of need to deal with the immense influx of data
and being able to analyze data in a timely manner," Vidich said. "It
also drives need for systems like business intelligence, or BI, applied to a
near-real-time scenario, which is a very attractive proposition."
Indeed, providers of financial services applications say customers on Wall
Street have shown more reluctance to spend on new projects in wake of the market
"There's a lot more emphasis on ROI, total cost of ownership and savings,"
said Amnon Raviv, senior director of strategic alliances at data grid provider
GigaSpaces Technologies Inc.
Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.