The investment banking world is getting simpler by virtue of there being fewer players and maybe getting simpler with less emphasis on the most complex and hard to understand derivatives. Credit Suisse not only announced a painful reduction of staff in its investment banking wing but also that it will move away from trading its own money and away from the highly leveraged exotics. To quote the FT coverage:
Yet Brady Dougan, Credit Suisse chief executive, yesterday painted a picture of an investment banking future all but stripped of the exotic derivatives and highly-leveraged products that dragged the Swiss bank into losses. It will, henceforth, emphasise client flows over proprietary trading
As a strategy it makes sense in the new investment banking world: exotics have a greater potential for profit and for loss. If this becomes a general trend (as seems plausible), how will it impact IT spending? Less proprietary trading and less interest in complex instruments will certainly change the focus of IT projects in investment banks over recent years: Potentially less growth in volume meaning less investment in infrastructure capable of supporting the volume, and less exotics mean less investment in systems capable of trading and more importantly calculating the risk.
This thought reminded me a recent conversation with a vendor who saw the big growth in Financial Services in core banking system replacement projects - as banks consolidate, so will the core banking systems and hence so will the need for the integration projects required to wire these systems in.
The combination of the two trends would certainly change many banks' IT strategies (and vendor sales strategies). And that is all before the EU review of hedge fund regulation even starts!
Ronan
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