Are you an ‘alpha technologist’? Could you write the sort of code and deliver the sort of innovation that would prompt a bank to acquire your services, even if you worked from home, on short-term projects or were only active between 12-4am? Yes, in which case you may be the sort of person to help drive forward Deutsche Bank’s new open source tech project.
Deutsche’s investment bank has launched the Lodestone Foundation, an open source project that is encouraging banks to share their trading software secrets in order to allow the development community to download, customise and enhance for the benefit of all. This would cut down duplication, cut out costs and – ultimately you would think – negate the need for such an army of IT workers.
This isn’t the first time investment banks have backed open source projects – the codebases like A+ and OpenAdaptor are little known and not overly successful, for example. Also, and investment project by interdealer broker, ICAP, is snapping up small financial services-focused open source companies in order to acquire innovation.
But Deutsche’s venture appears to have more klout behind it and, in an era when firms are increasingly willing to pay out for talent, you have to think it will secure the backing of other investment banks.
As Deutsche Bank’s head of investment banking IT, Tony McCarthy, said during the promotional video for the new venture, it employs 8,000 technology staff and 14,000 external resources but still doesn’t have “all the skills”.
Generation Y, often these so-called ‘alpha technologists’, don’t like the corporate environment, will work on short-term projects but often don’t want to be publicly associated with working for a bank, he says.
Lodestone is being led by low latency guru Martin Thomson, who speaks passionately about how he struggled to recruit cutting edge talent when he started up his firm LMAX. Over time, though, the product was enhanced by developers getting in touch with him in a way that would have been difficult – or impossible – simply by using in-house staff. What’s obvious is that top technologists are motivated by the chance to improve or innovate on a project, rather than being tied to a desk job.
He’s supported by other tech experts – some with a background in banking, others are senior technology figures in banking and capital markets. For the time being, however, the motivation seems to be to pool together ideas collaboratively, rather than recruit externally.
Investment banks’ tech teams could be smaller
While this could undoubtedly encourage the innovation that is so often cited as being lacking from the investment banking industry, it will also dampen down their appetite to recruit. The ridiculousness of this process is highlighted by Dirk Ward, head of autobahn FX product management at Deutsche, who uses a pancake analogy.
Deutsche Bank hears that UBS has been serving its clients some amazing pancakes they need to compete with, so they put their current (“great”) project on the back burner and hire in UBS’s star pancake makers. For the first 18 months, they focus on “rebuilding the kitchen” – ie, the bank’s IT infrastructure – and eventually turn to making pancakes, which are essentially the same as those at UBS but “with some blueberries on top”. In other words, talent is hired simply to duplicate what is done elsewhere.
The idea is not to cut back the tech teams, but to free up their time for projects that will really add a competitive advantage to the bank, they insist. However, references to small teams – noticeably Facebook which has three times the market capitalisation of Deutsche Bank and just 800 staff – suggests there could be shrinkage.
Will it really make that much difference?
On the one hand, there could be little take up, with investment banks remaining convinced that the benefits of using proprietary code and keeping their ‘special sauce’ in-house - particularly algo and quant codes - outweigh the incentives for sharing.
However, Ward insists that the reaction to the project has been like “lighting a match in a dry forest” and has received support from some of the top technologists in the business.
Zar Amrolia, Deutsche Bank’s global head of foreign exchange, prefers scare tactics: “Competitors outside of this initiative will be standing still. They will never be able to attract the alpha technology talent we will…they’ll be alone.”