By Paul Clarke
Of Financial News
Investment banks are preparing to roll out AI projects across their businesses in 2025, a move that could strip out a lot of drudge work for junior bankers after a renewed focus on the brutal hours clocked in the industry.
After exploring use cases of generative AI on their businesses in 2024, many investment banks are preparing to introduce more practical projects in 2025, according to senior dealmakers.
Much of the focus has been on trying to remove the need for dealmakers to spend countless hours on often repetitive tasks. This will affect the junior population of investment banks, senior dealmakers said, which are assigned tasks such as crunching numbers for pitchbooks or correcting senior bankers' mark-ups on documents.
"We need to put AI in context," said Nestor Paz-Galindo, head of global banking for EMEA at UBS. "When I started banking more than 30 years ago, a lot of tasks were done manually, with limited access to the internet and with less sophisticated tools and financial databases."
"Since then, the industry has experienced a significant increase in efficiency, specifically for analysts' work, while the number of analysts has also gone up," he added. "We see AI as an extension of this efficiency trend. AI will do some of the work that analysts spend a lot of time on right now, but it will then free up their time to focus on bespoke, higher value tasks, but not replace them."
Investment banks spent 2024 exploring hundreds of use cases for AI, with many of the initial ideas focused on their dealmaking divisions, senior bankers told Financial News.
Goldman Sachs has around a dozen proof of concept ideas for AI, FN reported previously, and about 1,000 developers working on AI projects. JPMorgan has around 400 use cases across the organization and employs around 2,000 AI or machine learning specialists.
This year Nomura generated around 1,000 ideas for using AI across its organization through an internal pitch process, while Lazard also called on its employees to come up with ways of using the technology and rolled out its own AI chatbot to all its employees.
UBS has started using AI to identify potential acquisition targets for clients, said Paz-Galindo, and has even started deploying it on admin tasks including employee reviews. Most banks are exploring the use of AI for pitchbooks and jobs such as building a first draft of regulatory filings or other more standard documents needed through a deal.
"I think there will be a number of products launched within banks in 2025 because they have not really been happening right now. There remains a question on how extensively they will be used," said Michael Marsh, head of EMEA financing at Goldman Sachs.
"There is no doubt that there will be AI applications that will help with efficiency," said Pat Guerin, co-head of global M&A at Baird. "Deployment will take time. We have to ensure that AI technology is consistent with the highest standards of confidentiality and compliance, and does not create unwanted biases."
Clare Woodman, head of EMEA at Morgan Stanley, said that AI had largely been focused on "driving efficiency gains" at the bank."
However, she said that now "we expect to see opportunities around revenue and costs grow."
The grueling working hours of junior bankers have been thrust back into the spotlight following the death of Bank of America associate, Leo Lukenas, in May 2024. Banks including JPMorgan have rolled out fresh caps on hours and recruited more juniors in a bid to tackle work-life balance.
AI is seen as a way to remove much of the routine work currently undertaken by analysts and associates. However, some bankers believe that this will also result in smaller numbers being hired.
"We've worked with consultants and we are being told to expect 25%-40% of efficiency gains among junior bankers," said the AI lead at a major investment bank speaking on the condition of anonymity.
"There is definitely going to be a reduction, but right now AI is filling gaps by doing things people could be doing, but don't get around to."
Senior bankers, asset managers, wealth managers and professional services executives told FN that they expect AI to continue to be a key theme in 2025.
In investment banking, senior dealmakers predict that AI will lead to a shift in the types of skills required. Investment banks tend to hire economics, mathematics and finance graduates, but softer skills could come to the fore as AI does more number crunching.
"AI is already helping to much more efficiently source, organize and present unstructured information," said Dominic Lester, EMEA head of investment banking at Jefferies. "It is enabling junior bankers to use their time more efficiently on value-add work and those bankers with insight, judgment and 'softer' skills will benefit most from the advancement of AI."
One senior banker said that banks may even start focusing on how skilled graduates are at interacting with AI tools when they recruit juniors.
"I asked our recruiting teams if we are going to continue to hire the same people with the same business degrees and they looked at me like I was simple--'of course we are,' they replied. I'm not convinced that's the right approach," they said.
Cyrus Kapadia, co-head of European investment banking at Lazard, said that AI would "provide enormous opportunities to our industry."
"We expect it will allow our colleagues to focus on the higher-value tasks, and help us deliver innovative solutions for our clients--who themselves are rapidly adapting and advancing their ways of working to incorporate this remarkable technology," he said. "The impact is already being felt and the potential remains significant."
Financial News is owned by News Corp, the parent company of The Wall Street Journal and Dow Jones Newswires.
Write to Paul Clarke at paul.clarke@dowjones.com
Website: www.fnlondon.com
(END) Dow Jones Newswires
December 30, 2024 07:51 ET (12:51 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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