The bankruptcy of Lehman Brothers has sparked fear among IT workers in the City of London.

The bank, which went into administration overnight, is steadfastly refusing to say how many IT staff will be affected by its bankruptcy and the likely break up that will follow.

Lehman Brothers, which said this morning it was filing for bankruptcy protection, declined to comment on how its IT staff will be affected.

Lehman employs 6,436 employees across Europe. with over 5,000 of these are in the firm’s regional headquarters in Canary Wharf, London. It refused to disclose how many IT and back office staff it employs.

Ralph Silva, senior analyst at financial services advisory firm Tower Group, said that in the aftermath of Lehman Brothers bankruptcy and the dramatic takeover of Merrill Lynch by Bank of America, that staff working in centralised back offices at large banks “have to be worried”.

There will be a drive to cut costs and outsource work, he said. Silva also predicted smaller reductions in the number of front office IT jobs in the City.

Silva highlighted the drive to decentralisation of banks front office with banks splitting IT roles by business division in order to simplify any future business break up.

“If a CEO needs capital,” he said, “they may often have to look at selling part of the business. But it can be very difficult to decouple the business until the functions are split.”

This could even lead to temporarily higher investment in IT that could calm investors if they knew it was to enable future sell offs, he said.

Silva said he expected IT investment by banks to continue to be squeezed. “Innovation is no longer a word in their IT shops,” he said. “They’re only spending money to keep the lights on and lower transactional costs.”

Iain Smith, founder of IT human resources consultancy Diaz Research, said the problems at investment banks have been a “difficult subject” for IT workers.

“For some months now, the prime thrust has been cutting contractors,” he told CIO sister title Computerworld UK. “Contractor work has suffered; to appoint a contractor you have had to justify the role as being indispensible.”

At contract renewal stage, short term staff in investment banks have often found tougher terms and less pay in their new agreements, he said.

“The second step investment banks have taken is to control the costs of the IT staff permanently on their books,” he said. A common theme has been “not replacing people when they go”.

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