UK technology firms servicing investment banks look set to be hit particularly hard by any budget cuts. Are redundancies on the cards?

When, in late November, UK technology company Detica announced that a sharp decline in demand from investment banks had dented its profits, it created a snowball of pessimism for others to announce credit crunch woes.

Rumours of tumbling IT budgets have hit the technology companies’ share prices hard already, particularly in the UK. The FinExtra50 Financial Technology Index showed Misys stocks sliding by 13.7% and other double-digit falls from Gresham, Microgen and Fidessa.

Capgemini has already wielded the axe and has cut 600 workers – over a quarter of the workforce. Though this was pinned on the loss of a contract from HMRC, the talk of budget cutbacks in i-banks can’t have helped.

To add to the gloomy outlook, UBS – which fared particularly badly in the credit squeeze – is heavily reliant on consultants, so headhunters predict contract cutbacks.

However, Stephen Feline, a consultant at Kaizen Partnership, thinks while tech consultants could be impacted, vendors of bespoke software solutions might benefit from any belt-tightening: “If things are going well, banks are more likely build their own systems, but if times are tight then they’ll just buy something off the shelf, which might not be as good, but will be cheaper.”

So software supermarkets like Misys and SunGard could be in for a windfall in the medium term. Indeed, India-based banking and lending software vendor Nucleus Software saw a stock surge of 21.7% in November thanks to an influx of new business.