Geeks venture into Goldman Sachs' world of big deals and egos www.reuters.com
Technology whizzes who helped Goldman Sachs (GS.N) eliminate hundreds of trading jobs over the past few years are venturing into the bank's flagship M&A business, making some junior bankers uneasy.
A team of 75 programmers, internally referred to as "strats," has been developing technology to make Goldman's elite dealmakers more productive. That team within investment banking has doubled in size since 2014, when long time tech banker George Lee was appointed chief information officer for the investment banking division.
Programmers are now supporting those handling equity underwriting, leveraged buyouts and deals within the financial services and real estate sectors. They are also analyzing client data to offer better advice on deal targets and types of actions that might please a particular company’s investor base.
Conventional wisdom holds that investment banking does not yield itself to automation the way trading does, because it relies so much on personal relationships forged over years of business lunches, rounds of golf and boardroom presentations.
Goldman executives say technology aims to reduce the grunt-work junior bankers now perform, so they can spend more time helping top dealmakers rake in more money.
But some who joined Goldman in recent years expecting to advance from supporting cast to lead roles on big deals are wondering whether technology will be their friend or foe.
One employee who asked not to be named told Reuters investment bank staff are looking at how trading got automated, and wondering if the same fate awaits them.
There is more water-cooler chatter among young employees about using their Goldman experience to build a career outside banking, he said. Automation is not the only concern, but it does come up, he added.
"Banking used to be an area where the top undergrads and MBAs wanted jobs, but now so much of those roles are automatable," said Tom Davenport, a professor of information technology and management at Babson College.
One concern is that technology may make some staff redundant. Another is that the strats themselves – more likely to hold engineering PhDs from the Massachusetts Institute of Technology than MBAs from Wharton – could get ahead of bankers on a career path.
Worries have been exacerbated by weak business and broader job cuts across the industry.
At Goldman, revenue fell 9 percent last year to its lowest since 2011, and its return on equity remains below the 10 percent investors generally expect. Investment banking had a rough year, hurt by a near-empty calendar for initial public offerings, and a broad slowdown in M&A activity.
The top 10 Wall Street firms have cut the number of client-facing investment bankers they employ by 15 percent since 2010, according to research firm Coalition.
Advances in technology could thin the ranks of low-level staff at Goldman as much as 10 percent in the next few years, people familiar with the matter said. Kognetics, a software company that uses artificial intelligence to assist investment bankers, says about a quarter of their routine can be automated.
Goldman's strats recently launched "Sellside," an application that allows junior bankers to quickly compile deal information, such as when bids from different buyers arrive. They have also made it possible for senior bankers to check deals remotely while traveling, instead of calling analysts for updates.
As certain tasks get automated, it could become harder for junior bankers to learn the basics of their job and advance to more senior positions, said Jeanne Branthover, managing partner at executive search firm DHR International.
"The pipeline of talent will dwindle," she said.
But Goldman executives involved in the technology push say their goal is to makes junior staff more efficient and call concerns about job losses overblown. Expanding strats' roles is necessary to stay competitive, they say.
Goldman's deputy finance chief, Marty Chavez, has been telling people worried about their jobs to learn skills that cannot be replicated by a computer. At a Harvard event last month, Chavez said some investment banking tasks were "begging to be automated," according to an MIT Technology Review report.
Chavez, a computer scientist who made his name leading teams of strats, is now considered a contender to eventually succeed Chief Executive Lloyd Blankfein.
Blankfein himself likes to say Goldman is more of a technology firm than a financial one, even though dealmakers and traders have led the bank for its entire 148-year history.
Executives also note that programmers have been helping investment banking for over a decade, the cooperation has just intensified lately. They also point out that Goldman has thousands of investment bankers around the globe, compared with just 75 programmers inside the division.
"No CEO is going to just use a computer to decide what company they're going to merge with," said one. "The nature of an M&A transaction is much more intimate than that."
Published Date:2017-02-14