Contractors set to ride out Lehman Brothers' storm

Contractors are better placed than full-time IT staff to survive the fallout from the collapse of Lehman Brothers and the troubles of its shaken neighbouring institutions, agencies say.

For being quicker to hire, specifically skilled and higher value-adders, IT recruiters in London said that financers were seeing freelancers as the "preferred option at the moment."

Tech recruiters in New York, Boston and Philadelphia also told ContractorUK that since Lehman's demise, global banks which they supply had laid off employees -- solely to retain their contractors.

Yet in line with estimates that Lehman and Merrill Lynch will cut IT spend by about $1.5bn in 2009, the London agent said the era of financial contractor 'rates spiralling up, and up' was 'over.'

The contractors facing pay cuts, or worse, were on non-core transformation projects or new initiatives, warned Paul Elworthy, a director of financial IT recruitment at Hudson.

"Those projects have been scrutinised and those deemed a luxury rather than an essential have been pulled, and the contractors within released; if there's no project - there's no funds".

Pay rate cuts should not affect most IT contractors, even those at some global banks, in New York, Boston and Philadelphia until January, when budgets are reallocated after review.

Jonas Adler, Hudson's vice president for telecoms and IT recruitment in the region, said the most vulnerable IT workers were those occupying "purely operations-related roles."

"A lot of the feedback from our clients, who include global banks, is that they still have to see out the 2008 season…[but] I am being asked to look a little more closely at 2009 budgets.

"Most companies are right in the middle of budget season, so it's an awkward time…[though] IT accounting will probably ask staff to assess what they absolutely need, versus want."

Feedback from the agent's clients show they are about to submit one, two, or in some cases, three versions of IT staff budgets for the best, average and worst case scenarios.

Robert Iati, of analyst TABB Group, predicts that IT budgets for staff and systems at Lehman of $2.5bn and at Merrill of $4bn will be cut to $1bn and by up to $2bn respectively, next year.

"Even if markets bounce back, there will be a reaction against the complex systems that have led us to what happened," testified the Institute for the Management of Information Systems (IMIS).

"All private sector systems that are not essential to the business are liable to review, [while] government[s] will have to make drastic economies in the face of mounting debt."

But "core networks" designed for low-latency trading at Merrill are "likely to be kept up well", according to Iati, to enable the combined entity of Merrill-Bank of America.

For IT contractors however, it is the banks "which went through mergers and acquisitions prior to the market upheaval" that were tipped to provide them the most jobs.

"Essentially these banks made strategic moves to buy or join companies not out of panic but because they were good investment decisions at the time," Adler said.

Yet Wells Fargo, America's fifth largest bank, which he named as being less likely to add to the market turmoil, was yesterday quoted as having axed a raft of IT positions.

The DesMoines Register reported that an undisclosed number of technical jobs at the bank's home and consumer finance division were eliminated to "better align [its] technology skills".

This influx of IT staff into the jobs market is gaining momentum (Lehman and Merrill will collectively dispose of 400 senior techies before 2009), indicating more applicants per role.

Elworthy said: "For IT contractors, the one thing that they maybe should be concerned about is the number of roles overall is less than 12 months ago, so there's more competition for contracts.

"But we are not seeing that our clients are just refusing to accommodate contractors, if anything they're almost the preferred option at the moment.

"As we are about to enter the budgeting period for 2009, and if contractors are in contract up to the end of the year, unless their project gets pulled, I can't see them being canned because the budget is already there, unless of course there has been an overspend."

The agency's New York arm said how its city clients tend to use IT contractors – typically in pockets of their businesses – was less likely to cause serious problems for jobbing IT staff.

"The UK market uses a pretty hefty consultant-base to get their IT work done, but in the US it's not as heavy, so whereas we might have 10-20 contractors within a division, in the UK there's likely to be at least 50," Adler said.

He argued, therefore, that if one division within a US firm starts to struggle, the contractor heads that may roll would not be plentiful, and the business would still provide contracts.

Phil Virgo, advisor to IMIS, was less optimistic. He said the next few years for rank-and-file IT staff would be "dire", and hinted contractors might train or travel away from the uncertainty.

"There are niches that will do very well over the next few years, like in network security and resilience. In looking overseas, the Middle East, Singapore and Switzerland are more likely to offer opportunities to those without language skills than Western Europe".

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