IT growth in banking industry but efficiency rules

Banks are hiring in their IT departments but cautiously with an eye toward efficiency.

Financial institutions are modestly increasing their IT departments after the boom days of the late 1990s but demanding much more efficiency from pricey infrastructure, a senior vice president for Sun Microsystems said Tuesday at a financial technology conference.

Money flowed so freely in the late 1990s that heavy investments were made in IT systems, said Peter Cunningham, who works in advanced technology projects for Sun's financial services. But since 2000, when mergers and acquisitions declined along with investment banking, costs -- especially in IT systems -- are increasingly looked to as places that can be trimmed while gaining efficiency, he said.

Investment banks realized systems were being used relatively inefficiently, Cunningham said, and started to look at how the IT assets were being utilized.

"In the last year or so we've seen a resumption in hiring," Cunningham said. "I think that the resumption in hiring and spending has occurred, but it's much more profiled and targeted."

Cunningham addressed banking IT personnel at "SunLIVE FS 2005," a two-day seminar hosted by Sun in London addressing IT issues facing the financial industry such as regulatory and compliance demands, the increasing need for larger data storage and coping with higher trading volumes.

It's not cheap for investment firms to employ IT staff. The cost of a systems administrator in New York -- with indirect costs, benefits and salary all told -- can be somewhere between US$150,000 to US$200,000 per year. Investment banks may employ hundreds of people to maintain their systems, Cunningham said.

The increasing sophistication of IT tools used by investment bankers and investment products offered has meant that banks are demanding more than ever from their systems. But they also want efficiency, Cunningham said.

"Because of some forces like globalization and rationalization, banks and large financial institutions are turning for probably the first time in a way to really push hard for efficiencies across the organization in their IT structure," Cunningham said.

Five years ago, financial institutions may have been satisfied buying systems where only 15 percent to 20 percent of their total capacity was used. These days, that's no more, and banks want systems running at 50 percent to 70 percent of capacity with room for growth, Cunningham said.

Banks are also facing the choice of whether to develop their own middleware or use off-the-shelf products from a third party. Cunningham said on the application level, banks are well-justified developing their own because of the intense complexity. But middleware on the market has flexibility and could be a cost saver, he said.

"I think as well that part of this has been a realization that the costs that are locked up in IT across the group are so large that if you are able to rationalize and consolidate, the prize or the reward is savings that flow directly to the bottom line," Cunningham said.

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