The losses from lending to "sub-prime" borrowers who were a poor credit risk are racking up. UBS has declared losses of around £6.5bn, Citigroup £5.5bn and Morgan Stanley almost £5bn. UK high-street banks are not exempt: Barclays has written off £1.3bn, HSBC up to £3.4bn, RBS £1.25bn and Lloyds TSB £200m. Goldman Sachs forecasts sub-prime losses for entire financial sector at £200bn. With the financial services sector in turmoil, what does this mean for IT staff?
Anthony Ratcliffe, director of change solutions at Investigo, an IT recruitment consultancy that specialises in providing project and change management staff to the financial services sector, saw a partial recruitment freeze at the end of the summer, when the US sub-prime market first started to show cracks. "The shutters came down as banks took stock, and a lot of them got rid of contractors and cut down on their spending at that point," he says. "But many of them overshot and have had to start rehiring."
It is no surprise that the biggest slowdown is in demand for IT staff with product knowledge in areas most directly affected by sub-prime lending, such as asset-backed securities and the debt market in general. However, Ratcliffe says, "the market is still very buoyant for staff with experience in equities, commodity trading and emerging markets." Martin Luise, managing director of the Charles Fellowes Group, which focuses on headhunting senior staff earning £100,000-£250,000 for a number of sectors, including financial services, agrees that overall the slowdown in recruitment in investment banking has been less than expected, and retail banking is holding up well.
Moreover, Ratcliffe says, "big banks may be cutting down significantly on spending, but they are still running IT projects. The cost of not running those projects is greater than the cost of running them. Also, a lot of work is the result of regulatory changes - for instance, there is still a tail of work being spun off from the Markets in Financial Instruments Directive - and, credit crunch or not, that work has to happen. That means they are still hiring."
On top of that, says Alistair Leathwood, managing director of FreshMinds Talent, which concentrates on recruiting graduates and interim staff for IT roles, the financial services sector is still recruiting heavily at graduate level. "Companies are saying they expect to be using even more IT over the next five years to help them expand into different countries, markets and channels," he says. Even if IT projects are cut back in the short term, he points out, "the more entrepreneurial employers know they will need IT people in two or three years' time. Since people in the first couple of years of their career are relatively cheap and flexible, the attitude is 'let's get them in now'."
Some IT staff do have reason to be concerned. "Things are slowing at the senior level because companies are delaying some projects for at least a couple of months, so they are not hiring as many project managers on £100,000 a year," Leathwood says. Where companies are hiring for these roles, Ratcliffe says, positions are having to go up to a higher level for approval, so the recruitment process is taking longer.
For other staff, the market is still very buoyant. "Business-focused technologists who understand financial services products are still very much in demand," says Ratcliffe, and Luise says financial services companies are "still paying a premium for solution architects and data architects." And because the skills shortage was so acute before the credit crunch, there are still plenty of opportunities and they are having little difficulty finding new roles.
As a result, salaries and benefits are holding up. Ratcliffe thinks financial services companies will look to save money primarily by recruiting contract staff directly from recruitment consultants and managing them themselves rather than using consultancies to source those skills.
Yet IT staff working in the financial sector are undoubtedly worried. Luise says this nervousness is manifesting itself in two ways. Firstly, he says, "although many would prefer to stay with their current employers, they are becoming more willing to take calls from headhunters and explore their options." Secondly, he says, "candidates who have traditionally taken permanent roles are now more willing to consider contract opportunities because they are worried they will not get another permanent position as quickly as they would have done a year ago." Leathwood says that candidates are also getting out of previously "sexy" areas, such as working for smaller private equity houses, into roles in large banks catering to many market sectors, which are seen as offering great job security.
Luise is also seeing candidates who have spent their whole career in financial services looking to transfer their skills into other sectors because of the bad press and negative reputation financial services has gained recently. "Some are looking at moving into consultancies that serve not only financial services but also other sectors, as a way to maintain their salary but gain experience in different industries," he says. "Others are considering utilities which, like banks, are subject to complex regulation and run large systems with a strong focus on customer transactions. A third area is telcos, which offer the same kind of fast-paced environment found in financial services."
What is clear is that the financial services sector will remain jumpy throughout the first half of 2007, as the full impact of the sub-prime slump becomes clear. "People just don't know what nasty surprises are on the way, so the attitude at the moment is very much about being prudent," Ratcliffe says.