IT budgets could get the ax at Goldman, Morgan Stanley

According to a story in today's Wall Street Journal, the survivors of this week's market debacle - including Goldman Sachs Group and Morgan Stanley - could face serious cutbacks in IT and other infrastructure to get profitability numbers back on track.

So far they've survived the credit crisis that has claimed three of the big five investment banks - Bear Sterns, Merrill and Lehman Brothers. But with highly profitable business lines such as deal making in the tank and regulation on the rise, profit margins at the two surviving firms are expected to shrink. The realignment on the expense side has yet to begin in earnest.

According to the story

Oppenheimer analyst Meredith Whitney pointed out that industry revenue was down 63% in the first half of 2008...but expenses were cut by just 10% during that period. Non-compensation expenses, which include buildings and technology, actually rose 25% from the prior year.

Until now management has resisted making cuts, figuring that things would get back to normal once the credit crisis passed. As reality sinks in that the changes to the business are permanent,  IT expenses will have to be realigned along with the rest of the business.

Coming off a 25% increase, it seems likely that IT will see a big swing in budgets going forward.

Copyright © 2008 IDG Communications, Inc.

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