Lehman Brothers Holdings Inc. was boosting its investment in IT even as it headed toward bankruptcy.
In the quarter ended Aug. 31 ... [it] spent $309 million on technology and communications, up from $282 million in the same period last year ... Information and communications technology costs rose 18% in 2007 ... reflecting increased costs from the continued expansion of its investment management systems.
The firm is also heavily involved in a number of technology-related projects in London and elsewhere. Earlier this summer, Lehman Brothers announced a joint venture with London Stock Exchange Group PLC (LSE) to create a high-speed trading platform for equities called Baikal ... [which] would combine a "dark liquidity pool" with algorithmic trading functionality to allow anonymity to traders so that their strategies remain secret.
On Sept. 5, Credit Suisse Group announced a partnership deal with Lehman Brothers to link their respective dark pools in the U.S. -- named AES CrossFinder and LXSM.
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.
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.
On one of the rockiest days in recent Wall Street history ... stocks ended at their session lows as the sell-off accelerated in the last last hour of [Monday] trading. The Dow Jones Industrial Average ended down more than 500 points. Techs were unable to buck the trend and also ended near their lows, with Apple and RIM leading the laggards.
[The] mess wasn't a tech-driven disaster, so it isn't too surprising that the techs were spared the worst carnage even though they often take a big brunt of any bad news ... The general sell off was precipitated by the collapse of 158-year-old white-shoe brokerage Lehman Brothers, the purchase of global-financial-services company Merrill Lynch by Bank of America, and a liquidity crisis at AIG, the insurer. The trifecta further spooked markets still reeling from the bailouts of Freddie Mac, Fannie Mae and Bear Stearns.
The Wall Street sky is falling. but what does that mean to tech companies, and particularly to startups?
The last five or six years have been all about community, "social media" and other related types of communications. That era has ended and the next phase of the Web will be about *real* productivity. That means products that make you more efficient, and more effective. It means software that saves you money or makes you money. And yes, we are really going to have to start paying for the good stuff.
I find this "web meets world" concept particularly interesting ... The core of my thesis ... is not that free is inherently bad, but that too much free [is] distorting the value of the market because the free is only supported by VC money and not real value being delivered to users ... [It's] way too hard to start a small business and to grow it because you need to "get to scale" since everything is expected to be free and monetized by advertising, which requires lots of users ... "in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it.
This is a fantastic shift in the marketplace, because it means if you have a company that adds real value, you are less likely to get thrown off course by a flood of capital creating unsustainable competition.
It seems likely that the deepening problems in the financial sector will have ripples in the rest of the U.S. economy. That clearly includes the data center sector, where there are three key issues:
When it became obvious over the weekend that investment bank Lehman Brothers would finally fail and that no one was going to rescue it, Merrill Lynch CEO John Thain realized the market's reaction today would tank his company as well. So Thain met with Kenneth Lewis, CEO of Bank of America, and the pair reached a deal to sell Merrill Lynch to Bank of America for $44 billion. Which is, you might recall, around the price Microsoft wanted to pay for Yahoo. Of course, that kind of offer won't be coming for Yahoo again any time soon.
While not so severely or directly, Lehman Brothers' collapse and insurance giant AIG's tottering on the brink will affect your tech portfolio today ... Watch Yahoo and nine other tech stock's continuing destruction or dare you hope? miraculous resilience on live stock charts below.
Financial worries are ranking prominently in Google Hot Trends this morning, with terms related to the negative Wall Street news -- Lehman Brothers, Merrill Lynch, "financial news", etc. -- showing up in the top 100 terms. However, in the past hour the ranking of "black monday" has declined from the #24 spot to #41.
It could be a sign that people are not as worried about a repeat of the panics of 1929, 1987, and January 21 of this year -- or they are sitting tight and waiting to see how the markets perform.