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Asset Management

05:45 PM
Greg MacSweeney
Greg MacSweeney
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Wall Street Changes Are Visible

Citi may become a takeover candidate. IT spending cuts are looming. Financial products are becoming more exotic. What's next for the Street?

Isn't every year a year of change? Of course. Each new year, political, social and technology "pundits" say the next 12 months are going to be like none before. And every time the earth completes its revolution around the sun, we all sit back and marvel at all of the change that has occurred.

So far, 2008 is shaping up a lot like every year since man walked upright -- change is everywhere. Presidential candidates are positioning themselves as the change candidates, even though the only thing that really changes is their platforms (based on the most recent poll). Technologists say this is the year that Web 2.0, which changed the way we worked and lived for most of 2006 and 2007, further transforms business and society as we know it. And on Wall Street, the massive subprime losses that have continued in 2008 likely will transform finance forever.

For starters, the subprime losses felt across the globe have left financial firms in a very vulnerable position. Usually filthy rich, many firms have had to search for cash infusions to stay afloat. Banks that have weathered the CDO mess fairly well are in a good position to acquire businesses that were once thought untouchable. Financial behemoth Citi very well may become a takeover candidate if its losses continue to grow. (Last August, who thought Citi could be an acquisition target?)

Wall Street firms' IT budgets are another measuring stick that seems to be in flux. Although no financial firm has stated that it has slashed IT spending, vendors are reporting that firms are taking longer to sign contracts that had been considered "slam dunk" deals in early 2007. One provider of BPO services likens early 2008 to early 2002, when firms delayed purchases until Q3 as they closely watched the economy. Once it was determined that the economy was in decent shape, the firms opened their check books and made Q3 and Q4 very profitable for technology providers. Vendors can only hope we see the same in 2008.

Spending lag or no lag, by and large, firms have gotten much better at prioritizing and justifying IT spending than they were in years past. CIOs rarely approve IT projects that don't have sound business metrics. So most projects that were in original 2008 IT budgets already were well-vetted, scrutinized and considered important to the business. With financial products becoming more exotic (e.g., CDOs and other derivatives), any cutting of IT spending likely will cut critical, strategic projects -- a very risky move for any firm competing in the technology-intensive markets during this year of change.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio
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