North American securities industry IT spending to plummet

Date: Monday, September 22, 2008
Author: Finextra.com

The bankruptcy of Lehman Brothers and acquisition of Merrill Lynch by Bank of America will contribute to a fall of nearly 15% in IT spending by the securities industry in North America next year, according to Tabb Group.

Robert Iati, global head of consulting, Tabb, predicts technology spending will fall from $21.9 billion in 2008 to $17.9 billion in 2009, a 14.7% compound annual growth rate (CAGR) decrease.

He says Lehman's spending of $2.5 billion will be reduced to approximately $1 billion in 2009, eliminating redundancies with Barclays, which is buying the firm's key North American businesses.

In addition, Iati says synergy between Merrill Lynch and Band of America will lead to a reduction in technology spend.

"Their businesses are quite complimentary, which should minimise the redundancies between their technology. While many of Merrill Lynch's current businesses will be run in a manner similar to what has been done in the past, some operating redundancies are inevitable, forcing reduction of staff and systems by at least $1.5 billion to $2 billion," says Iati.

Events at Lehman Brothers and Merrill Lynch will also lead other investment banks to look to reduce their own 2009 budget plans by two per cent to three per cent.

The Tabb projections echo analysis from Financial Insights earlier this week that said, from a technology perspective, the US securities industry has shrunk by around six per cent in recent days following the Lehman Brothers and Merrill Lynch developments.

Up until recently, Lehman represented approximately 3.1% of the overall technology spending - including hardware, software and services - in the US securities and investment Services industry, while Merrill represented around 2.9% of the IT spending.