Lehman Brothers invested in IT despite credit crunch

Lehman Brothers was increasing its investment in IT even as it headed into bankruptcy.

In the last quarter, ending 31 August 2008, it spent $309 million (£173 million) on technology and communications, up from $282m in the same period last year.

Lehman Brothers ICT costs rose 18 percent in 2007 from 2006 to reach $1.145 billion, reflecting increased costs from the continued expansion of its investment management platforms, according to filings by the bank.

Lehman is also heavily involved in a number of technology-related projects in the City of London and elsewhere.

Earlier this summer Lehman Brothers announced a joint venture with London Stock Exchange (LSE) to create a high speed trading platform for equities called Baikal.

Slated for launch in the first quarter of 2009, Baikal would combine a "dark liquidity pool" with algorithmic trading functionality to allow anonymity to traders so that their strategies remain secret.

Industry commentators see the project as the LSE's attempt to shore up its offerings in the face increased competition from new rival platforms that have blossomed in the past year.

An LSE spokesperson said the exchange remains committed to its Baikal dark-pool project remains even after its project partner, filed for bankruptcy protection. "Baikal is an important market efficiency solution for institutional business," she said.

"Since its announcement in June, we have held around 80 meetings with potential users of the platform. It has had a very positive reception from institutional investors, and a number of investment banks and brokers have expressed an interest in taking an equity stake in Baikal as well as using its services."

Last week (5 September) Credit Suisse announced a partnership deal with Lehman Brothers to link their respective dark pools in the US -- named AES CrossFinder and LXSM.

Credit Suisse declined to comment on the impact of Lehman's announcement to the deal.

Ralph Silva, senior analyst at financial services advisory firm Tower Group, said: "The units of Lehman currently selling technology to other banks are likely to be sold off."

"All banks are concerned about the ramifications of losing technology, and want more technology to be in-house. So in this kind of situation they tend to negotiate to get hold of the code or the entire systems. In Lehman's case, the phone calls are probably already happening."

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