Large investment banks are set to dramatically increase their spend on technology related to credit value adjustment (CVA) management, and Europe looks likely to be the epicentre of this. Recruitment is back on the agenda.
The hiring for CVA trading desks may have largely finished in the front office, but IT transformational projects within the large investment banks are only just getting started. By 2015, $1.1bn will be spent on upgrading or enhancing CVA IT applications and infrastructure, according to analysts at Celent, up from the $849m spent this year.
The top tier investment banks will account for 70% of this, as they grapple with regulatory capital charges imposed by the likes of Dodd-Frank and Basel III. Currently, very few banks have straight-through automation on their CVA desks, but “it is headed in that direction”, suggests Cubillas Ding, analyst at Celent.
Citi, Deutsche Bank, JPMorgan, BarCap, BNP Paribas, Goldman Sachs, Morgan Stanley, Credit Suisse, and Bank of America Merrill Lynch are all “already on their next-generation initiatives to upgrade their credit value adjustment desks and spearhead dynamic pricing capabilities in the front office”, says Ding.
“There was a raft of recruitment around upgrading CVA systems last year, and new transformation projects have kicked off in 2012, which is prompting the need for the large investment banks to hire more technologists,” says Paul Bennie, managing director of IT in finance headhunters Bennie MacLean.
The good news is that the majority of the spending is taking place in Europe. As the chart below shows, $510m will be spend on CVA IT in Europe this year (or 60% of the total) and will continue to account for that proportion going forward to 2015.
While recruiters suggest that knowledge of CVA systems remain relatively niche, the core technology should be familiar to a lot of developers. Most roles require an in-depth knowledge of C#, together with a working knowledge of SQL.
Most of the large investment banks are continuing to build their CVA management systems in-house. However, only around 50% of regional and local banks have CVA desks, suggests Celent, and their investment in technology is likely to focus on purchasing systems from vendors.
The suggestion, therefore, is that vendors may need to recruit expertise to deal with a potential uptick in business. Algorithmics, Markit/QUIC and SunGard all offer products in this area.