NEW YORK - The deadly attack on New York's World Trade Center struck a blow at the heart of the financial services industry, but technology and meticulous preparation paid off and allowed most firms to resume operating within hours of the tragedy.
Preliminary estimates indicate it could cost $3 billion to $5 billion just to replace the technology infrastructure of financial services firms directly affected by the World Trade Center attack, said Larry Tabb, vice president-securities and investments research practice at the TowerGroup Inc., Needham, Mass. About $1.7 billion would be needed for hardware, with another $1.5 billion to cover services and software needed to install and connect the network, operating systems and applications infrastructures. To install, configure and manage the implementation of the replacement equipment will cost another $1.5 billion, according to the TowerGroup, an information technology research and consulting firm.
"We believe this spending will occur over the next 12 to 14 months," said Mr. Tabb.
"We estimate approximately 8,000 Intel-based servers and approximately 5,000 UNIX servers were lost, at an approximate replacement cost of another $370 million," he said. "We also estimate that approximately $300 million in printers, hubs, switches, data storage, and other networking hardware will be needed to support the vast network of technology that was lost."
However, except for those firms at or near ground zero, the computerized systems that are the industry's nerve center came through with flying colors, preventing the loss of records, financial data, transaction and client information. Advance preparations, along with disaster recovery and business continuity plans, served the industry well, allowing trades to resume on major domestic exchanges after an unprecedented four-day shutdown.
Many firms were forced to invoke their off-site disaster recovery plans for the first time, moving either to their own corporate backup sites or to commercial recovery centers. Most money managers, traders and alternative trading firms said their emergency preparations functioned as expected with minimal disruptions.
"It's difficult to find anything that didn't work," said Damon Kovelsky, an analyst at Meridien Research Inc., Newton, Mass. "The backups, the redundancies, everything worked and did what it was supposed to do." Meridien provides technology consulting and research to the financial services industry.
Systems safeguards are required for brokers. The Securities and Exchange Commission requires detailed customer and transaction records be maintained in secondary systems that should be located on a different electric and telecommunications grid. There are no such requirements for investment managers, said Mr. Kovelsky, but most money managers have implemented safeguards as a matter of "sound business policy ... more along the lines of best practices."
Safeguards are particularly prevalent in the greater New York area. "One thing which is a constant in New York are power blackouts and brownouts every summer," said Mr. Kovelsky. Installing and testing backup systems "is part of the culture among New York-based firms; they don't think twice, they just do it."
Following the World Trade Center disaster, "what problems did occur were more than manageable," said Mr. Kovelsky.
The terrorist attack might have served as a reminder to asset managers in other parts of the country about the importance of having adequate backup, said Mr. Kovelsky.
Citigroup Asset Management, which saw its headquarters at 7 World Trade Center, New York, crumble, is equipped for trading and was open and operating when the bond and stock markets reopened Sept. 17. Sept. 11, is starting to pick up the pieces.
Robert Battel, head of the Citigroup's institutional group, which manages $401 billion in total assets including $168 billion institutional, said the first priority was the safety of employees.
Citigroup Asset Management had 2,500 employees in 7 World Trade Center Tower; of that, about 1,100 were in the asset management group. The firm occupied 18 floors in the building. Four Citigroup financial employees remain unaccounted for, said Mr. Battel.
Mr. Battel said Citigroup had a continuity plan in place before the attack to deal with blizzards or hurricanes - but not terrorism. "In hindsight, it's fortunate we were not based solely out of one location," he said.
Citigroup's contingency site is in Rutherford, N.J., just across the Hudson River from Manhattan. The site
And while staffers are spread among sites in New Jersey, Manhattan and Connecticut, Mr. Battel said the contingency plan will allow the firm to function adequately while searching for a new headquarters.
Morgan Stanley Dean Witter & Co., one of the largest tenants in the World Trade Center, continued to operate from other sites in Manhattan, New Jersey and Brooklyn. Cantor Fitzgerald & Co., although suffering human losses in the hundreds, shifted its operation to a small office on Park Avenue in midtown Manhattan and two sites in New Jersey.
Terry Dennison, investment consultant with William M. Mercer Inc., Los Angeles, who works with several companies in the technology industry, said securities trading systems "functioned much better than most people would have expected" following the WTC tragedy.
"In general, they (money managers) have made some good judgments" about emergency backup systems, he said. "It's hard to generalize, but we haven't found anyone who was non-functional in the days after the attack," said Mr. Dennison.
The long-term impact of the attack on the center of the world's financial system remains cloudy but certainly will result in some soul-searching by financial services firm about their own security and locations.
Both Harris Bank and Harris Investment Management are "looking at their recovery plans with respect to where our backup locations exist," said Randy Johnson, senior partner and chief financial officer at Harris Investment Management, Chicago. "From an overall perspective, (the attacks have) heightened the industry's awareness of their physical location," said Mr. Johnson.
Harris Investment Management has portfolio and accounting systems in a backup facility in Toronto, which the firm would turn to if its Chicago office had to be evacuated, said Mr. Johnson.
Barry Strasnick, CitiStreet's chief information officer, refers to his company's backup systems as multiple layered. The Boston-based firm's core systems, voice-response systems and web-based functions are all redundant in CitiStreet locations in Massachusetts and in Florida. In the event of an emergency in either location, all calls and electronic transactions would be diverted to the other.
"We were already neurotic before the 11th," said Mr. Strasnick.
Reporter Dave Kovaleski contributed to this story.