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* Poor returns make technology investment vital for banksseeking profit
* Banks need to be creative, redraw culture to luretechnology talent
* Banks will spend $471 bln on IT this year and $563 bln in2017
By Steve Slater
LONDON, June 20 (Reuters) - The investment banking industryis heading into a digital revolution that could redraw not onlyits business model but also the traditional image of its staff.
Stuck with dwindling profits in an era of poor returns andheavy regulation, the likes of Goldman Sachs, JP MorganChase and HSBC are battling to hire the bestsoftware programmers, systems engineers and data analysts, tohelp them get ahead via new technology and cost-cutting.
With IT expertise now a must for the boardroom, banks'conservative workplaces are likely to undergo cultural change asthey welcome ambitious, differently-minded people.
"Traditionally, banks have been a lot more narrow in their(hiring) focus. Now collectively they have realised the need tobe more creative," said Jeffrey Wallis, managing partner atSunGard Consulting Services, specialising in financial firms.
Adopting new technology is an evident strategy forindustries in economic distress and investment banks havealready spent billions to overhaul systems and cut staffingcosts - 60 to 75 percent of equities now trade electronically,according to industry estimates, and that proportion is expectedto continue to grow. Tighter regulation post-financial crisishas also prompted banks to overhaul their risk managementsystems - Goldman Sachs says it can now track and account for 6million positions each day.
But the latest wave of technology hires has come aboutbecause banks are aiming more specifically to grow revenues bydeveloping tailor-made products and mobile applications based onclients' trading patterns. To do that, they need to attract thetop quantitative analysts and software developers - which maymean allowing some of them to work in shorts and tee-shirts fromPalo Alto, California, rather than in suit and tie from askyscraper in London's Canary Wharf.
"In the 1980s there was an influx of technology people intofinancial services. There was a real wave of people and a newage way of thinking came in. That injection of new talent andthinking hasn't really been coming in for a while," said DavidBoehmer, managing partner of the Americas' financial servicesdivision for executive search firm Heidrick & Struggles.
Spending on banking and securities IT is expected to top$471 billion this year, up 14 percent from 2010, and rise by afifth again to hit $563 billion in 2017, Gartner estimates.
McKinsey consultants estimate banks have only cut operatingcosts by about eight percent since the financial crisis. Theirneed to overhaul IT systems has been underscored by regularevidence that those systems struggle with the complexity ofmodern-day trades. JP Morgan, which is close to concluding afour-year overhaul of its platforms, took a $6 billion hit lastyear from a scandal that was in part due to flawed valuationsystems, while the May 2010 "flash crash" in U.S. stock marketstook regulators five months to root out the cause.
IT AT THE TOP
Recent appointments suggest that outside technologyspecialists have gone straight to the top of the industry.
Barclays' new head of operations and technology, ShayganKheradpir - a former executive at telecoms firm Verizon -now sits on the bank's executive committee. Oliver Bussmann,formerly at German software firm SAP, is now UBS's newchief information officer and Greg Lavender joined Citi last year in Palo Alto as head of technology infrastructure,after senior roles at Cisco and Oracle.
Citigroup is also considering hiring a new director withtechnology expertise to help keep an eye on how management isdoing at simplifying and standardising the thousands ofdifferent IT systems it inherited from years of acquisitions. That process is expected to take at least twomore years to complete, say people with knowledge of the plan,but it has the potential to add $750 million to annual profitsstarting in 2015 from improvements in consumer banking alone.
Goldman Sachs has added 6 percent more IT staff since 2009,while cutting elsewhere. That has left it with 8,000 technologyemployees, making its department bigger than many technologyfirms, and it works hard to lure professionals away from SiliconValley with the message that its technology business is key.
"One of the things we strive to do is provide an awarenesson campus of the activities that technologists do at the firm.It's not intuitive to think of a bank in that way," said MichaelDesmarais, head of recruitment at Goldman.
NEW LOCATIONS, NEW PAY AWARDS
As part of tempting IT expertise and graduate talent, banksare setting up in more attractive locations. Citi's IT hubsinclude San Francisco and Israel, JPMorgan has sites in Delawareand in Bournemouth on Britain's south coast, UBS is in Singaporeand HSBC's technology centres include Curitiba in Brazil.
Britain's Barclays last week opened a newtechnology hub in Dallas, Texas, to recruit IT experts fromnon-financial backgrounds. It aims to have 700 staff there bythe end of next year to build and develop software and systemssuch as trading platforms for fixed income, and develop digitaland mobile platforms for consumer banking.
As part of the shift to more of a Silicon Valley culture,banks may also have to redraw their salary packages.
New graduates can expect to start earning around 45,000pounds in investment banking jobs in Britain, compared to around29,000 pounds in IT and telecoms, according to High Fliersresearch.
But top executives from the technology industry may be moreinterested in an equity stake than cash, said Boehmer - who gaveexecutives at Davos in January a presentation entitled "Hiringan Oddball."
That's a big cultural change in an industry where jobsatisfaction has long been closely tied to the annual bonus.
Sungard's Wallis said if banks were on a path from zero to100 to retool for the impact of technology, they are still onlyin the 20s.
"We are seeing subtle changes, but we are very much at thebeginning of the leap," Boehmer said.
