IT Analysts Calm as Credit Crisis Claims Largest Victim to Date

 
 
By Deb Perelman  |  Posted 2008-03-17 Email Print this article Print
 
 
 
 
 
 
 

Observers say they aren't afraid the weekend's financial crises will further shake IT spending or employment.

 

The credit crisis has claimed its biggest victim yet, reawakening worries about what it will mean for IT spending and employment.

Bear Stearns, on the verge of a collapse wrought by the credit crisis, was bailed out by JPMorgan Chase for a 93 percent discount late March 16. Having built its reputation on mortgages, Bear Stearns has been one of the hardest hit by the market's upheaval.

In a surprising move, the Federal Reserve-concerned that the sweeping panic that caused Bear Stearns' stock to fall 47 percent would topple other financial institutions-announced a new program beginning March 17 that would allow firms to secure short-term emergency loans.

Some said this move suggested that a lack of confidence, not cash, could ultimately topple even the oldest and most venerable banking institutions.

"The short answer is that this is a market overreaction based on a real problem," Andrew Bartels, vice president and research analyst at Forrester Research, told eWEEK.

Nevertheless, Bartels and other observers did not feel that Bear Stearns' fate raised the stakes for IT. Instead, they held to their earlier views that this economic slowdown would be short, not go very deep and have little impact on technical fields.

"It is clear that the impact on the credit market will be broader than originally thought. The Bear Stearns piece might cause a little more of a ripple into the credit market than would have been expected a few weeks ago. But the epicenter of this crisis is mortgage markets and mortgage-backed securities. Tech won't be as hard hit as the mortgage industry," Dr. Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida, told eWEEK.

But just being out of the mortgage firing zone alone might not be enough to keep IT jobs and investments insulated from credit miseries. Instead, what will keep the industry healthy is businesses' ongoing need to make IT investments, analysts said.

"By the end of 2008, most of the remaining banks will be past this crisis, but with a tightened income statement. From an IT perspective, look beyond the crisis that's impacting this and the reality is that most will end up coming through and will continue to need and invest in technology," Bartels said.

Until IT is out of the woods, however, some cuts to IT spending should be expected.

"We're still going by the assumption that there will be a recession in the first half of 2008 and that financial services will take a big hit. This will cause a significant slowdown in IT purchases, to 1 to 3 percent. But it's not going to be enough to pull the economy into a deeper recession that will cause a decline in IT investment," Bartels said.

Outside financial markets, the IT spending contraction isn't expected to cause any reduction in head count or long-term spending and should have no resemblance to the tech-focused 2001 dot-com bust, observers said.

"IT might feel a pinch but you won't see anything like the severed limb of the dot-com bust," Snaith said. "IT feels a crunch whenever banks get nervous to lend. Anxiety may be riding higher than it otherwise may be. But is just a matter of time before the financial markets regain their footing."

After a rocky start-losing almost 200 points before gaining 100-the Dow Jones industrial average closed relatively unscathed March 17, up 21 points.

 
 
 
 
 
 
 
 
 
 
 

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