June 22, 2024

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AI’s potential to simplify investment banking

3 min read
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Investment banking is one profession within the financial services industry that is salivating at the chance to use generative artificial intelligence to lighten the workload.

The field has been using AI for certain tasks for years. But now, large language models have gained popularity and could simplify arduous tasks, such as processing large swaths of legal documents that are ubiquitous in investment banking.

“It’s about accelerating tasks,” said Larry Lerner, a partner at McKinsey who advises financial institutions on advanced analytics and data transformations. “That’s really across many functions that are information intensive. Think legal and compliance, customer service and technology” as these are areas within investment banking which could be transformed.

McKinsey research has estimated that different types of AI and analytics could generate $29 billion of value for capital markets and investment banking.

“Banks are slowly and carefully rolling out these products to their analysts,” said Sourish Sarkar, senior director of solutions architecture at Moody’s Analytics. “It’s efficiency gains. Over the next few months and years, everyone will be looking at how their analysts, relationship managers and other key players can become more efficient.”

Sarkar used the example of an investment bank interested in fulfilling requirements for an environmental, social and governance investment.

Currently, an employee needs to read over compliance forms and complete the necessary paperwork. But in the future, this work could be completed with assistance from a large language model. This same generative AI technology could also help that same employee by reviewing pages of compliance and legal documents and distilling down the necessary information. This same idea can then be applied to any legal, regulatory or compliance task at an investment bank.

Other mundane tasks that could benefit from the help of AI are the pitch books investment bankers use to sell clients on a potential deal, said Ed Rasmussen, managing director of global financial and professional services at Williams Lea. For instance, a standard slide within these presentations is listing the last two dozen or so deals completed along with each company’s logo. It can take an analyst hours to find the necessary logos, make sure the art is usable and insert the image into the pitch book, Rasmussen said. But Rasmussen’s firm now utilizes an AI-based search platform that can complete this task. 

“It’s clean and crisp. It’s done through an automated process, creating efficiency tools,” he added.

That will likely mean that the responsibilities of junior investment bankers and analysts will transform from “repetition, manual or difficult tasks into jobs that are more reflection, more analysis,” said Bruno Campenon, head of bank, brokers and corporates at BNP Paribas’ Securities Services business. 

That will require different skill sets than these employees may have needed in the past. But given that younger generations grow up utilizing the latest technology, this likely won’t be a barrier to employment. It also won’t particularly mean a reduction in headcounts.

“I think the best way to answer [the question of staff reductions] is to look at the past. When IT arrived, the exact same question about jobs disappearing was asked. There was this assumption that so many jobs would be killed,” Campenon said. “But the answer is clearly no, that didn’t happen.”

Piper Sandler is currently considering how to use AI to become more efficient, said David Sandler, co-head of investment banking in the financial services group at the firm. He said that the company has always tried to be open to technology and was one of the first firms to embrace software to help with asset liability management. But those programs were much slower than what can be accomplished today.

“You hit F9, you went out for dinner and a movie and hopefully it was done calculating when you got back,” he added.

He said that the firm has always tried to be open to technology and was one of the first to embrace software to help with asset liability management. In terms of AI, Piper Sandler is “working with certain partners to design some productive use cases around AI. We have an oar in the water. I think AI will be positively transformational for us but also for the industry at large,” Sandler added.


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