Future of Banking

About a month ago, Citi announced they'll be launching a multi-disciplinary unit of bankers and data scientists that can improve their deal making. They call it the Strategic Advisory Solutions

https://www.barrons.com/articles/citigroup-furthe…

https://finadium.com/fn-citi-combines-investment-…

https://www.businessinsider.com/citi-forms-dealma…

The purpose is two-fold.

1) To deliver better and faster analytics to clients.

2) To automate certain tasks for bankers (ie. Mindlessly building financial models on Excel).

As a financial data scientist, this is the kind of change I love seeing. My prediction is that in the future, lots of modeling and valuation done through manual Excel work will be automated through large-scale precision statistics that is data science. That way, bankers will have get to focus more on sourcing deals, managing relationships, and providing expert financial opinions.

What do you bankers actually think? Will this trend decrease the number entry level banking jobs? How will this effect your hours? Will your pay be impacted? How much will your day to day schedule change?

 

I'm curious about the role of an entry level banker. How are they going to be "sourcing deals, managing relationships, and providing expert financial opinions"? Seems unrealistic given that they just got out of college. It's not like you can cut the role out entirely, because who will rise to the higher positions if you don't have lower positions? Where would they pluck out VPs and MDs if there aren't a plethora of analysts and associates to choose from? Curious to hear your thoughts on this.

 

I think 2 things would happen

1) Less spots, higher bar for entry level jobs.

2) The focus of the analyst programs would change. Less model building, more actual important work. Hence, a higher and different qualifications during the interview process.

From my understanding, the current "career pipeline" is to hire bunch of analysts, have them build bunch of Excel models, Powerpoint presentations, etc... Some will stand out and will become VPs and MDs. Couple of them will go to the buyside. While the rest move on to other roles like CorpDev.

With this change, higher percentage of people would become VPs and MDs and move to buyside. Less CorpDevs. Of course, the job market may change for the buyside as well.

I can also see new roles being created that bridges technology/data science and finance. I'm not in banking but in my work, such roles (not exact job titles yet...) are already being filled by people like myself. But companies might eventually notice that they need to create separate positions to be that bridge.

The most wise executives are probably aware that a drastic change would be bad and that many people won't be able to adjust.

 
Milton Friedchickenman:
From my understanding, the current "career pipeline" is to hire bunch of analysts, have them build bunch of Excel models, Powerpoint presentations, etc... Some will stand out and will become VPs and MDs. Couple of them will go to the buyside. While the rest move on to other roles like CorpDev.

With this change, higher percentage of people would become VPs and MDs and move to buyside. Less CorpDevs. Of course, the job market may change for the buyside as well.

Can you explain why you think there will be fewer exits to corpdev because of this?

 
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I remember seeing a thread a couple years ago asking what the future of banking will look like in 5-10 years and safe to say...(albeit Ive only been in banking 2-3 years including internship) not much has changed and don’t see anything changing within the next 6+ months.

In that sense while the role will definitely evolve it will take an extremely long time for things to look starkly different for the junior experience.

 

Oh absolutely.

I also think the slow change of pace is intentional. Finance is not an industry that changes fast like technology nor should it be. The bigwigs most likely understand that and try to make the change gradually so the job market isn't shocked and the clients expectations are managed (If all of a sudden, you change the way you serve clients, who knows how they'll react?).

 

I don’t think it’s super likely to impact me too much, since it’ll probably take too long to actually shift, but I’m hedging w a CS and business double major cuz it scares me how easy it seems like automating analysts’ work could be if banks decide to go that way.

 

Why don't we also talk about long term impacts of COVID & how it's exacerbating everything?

People are almost always the most expensive thing in a business, and in a time like this everyone wants to cut costs. There will definitely be some people who figure out a way to automate some more aspects of banking post-COVID. Some analyst will figure it out, go start it, and sell it back to their old bank. Not that everything will be automated immediately but surely there will be some innovation coming out of this experience

Does facetime culture shift at banks? How is WFH treated once everything is "back to normal"? Can people just work from home? What's the point of an office if people can work from home? Or maybe you only need 66% of the staff in office at most at all times? Do firms downsize/move offices? Cut people?

I think tech of course will change how banking works, but the Coronavirus probably shifted that timeline considerably forward.

 

I don't agree that Covid shifted the push for more automation further in banking.

All businesses will have to reevaluate the efficiency of their operation because of COVID. Manufacturers might want to push for more automation because you can't have people working in close proximity. But for banking, Covid's change will simply be on work procedures and how you communicate.

I bet all you monkeys were still building the same Excel models. Just at the comfort of your home.

 

In the end of the day, banking is a business of trust. Clients would rather want their models to be "hand-made" from qualified analysts than being made off a computer with god knows what type of algorithm. Automation is way more likely to be seen in the markets division (or literally any other field of finance) anytime soon than banking.

Also, I'll add that deals are not made because a certain analyst/associate's model shows the merger as accretive, but off of strategy that can't be quantified by numbers.

 

Both of your comments highlight why the junior level -- specifically analyst is going to get cut dramatically. If not by automation then by cheaper off-shore labor. Lots of firms already do it for some of the most time consuming and menial tasks.

Clients want models hand made --> DE shaw / 2 sig / ren tech actually manage people's money. LP's there don't mind and want the science to drive decisions. Experienced MD's are actually just extremely good process managers and negotiatiors who have been at mulitple tables of complex transactions before and can guide C suite through a process.

 
  1. You're talking about trusting a firm with managing money vs trusting a firm to handle the sale your life's work. Completely different things, there are a million other jobs in finance that would be cut before IB due to automation. Why pay big 4 accountants millions to trudge through the complexities of MBS tax regulations to get a single correct line number when a computer can do that much easier and faster?

  2. Deals are made because of the people, not the numbers. Banking is a client facing role unlike the quant firms you've described. The business models are inherently different and while analysts are dealt with more menial tasks, saying that they'll be replace by computers leaving MDs working with a bunch of programmers is science fiction.

Feel free to disagree with me that's just my two cents having been in the industry for a few years. Sounds like you're a prospect so if you're convinced juniors are going to be gone in a few years, why bother recruiting or spending time on WSO?

 

Exactly. But who are involved in the important deal winning part of the work? I don't think analysts get much to do with that.

I'm talking about the analyst role shifting towards more important part of banking. I'm sure that as of now, bankers spend 90% of their times that consists of only 10% of the value. If you can cut that time and work on things that actually matter. That's a huge win.

It's the same phenomenon in data science. We spend 90% of the time working on something trivial like data cleaning. All the most important things happen in the other 10%. At big tech, bunch of entry level data scientists get to do all the data cleaning. If somebody automated the data cleaning part, there will be less entry level data science jobs and the bar will get higher.

 

Ironically data science and marketing are in the top 10 for almost any chart that tracks career projections and they pay well too. Maybe when Cuban and others said that MBAs are losing value, they weren't saying anything too wild after all.

I know for a fact that a lot of IB is still stuck in the limbo that is Excel when in reality R and Python as a duo are far more formidable. I will note that this type of shift towards efficiency has been talked about for years now, so I wouldn't read much into it.

 

Yikes. Kids don't think nowadays do they?

I'm talking about there being a less need for low level analysts to make bunch of models. They are not the most crucial part of the job, but needs to be done anyways. The way it currently works is to hire bunch of analysts, have them build models. Couple will stand out and get promoted. But many analysts are probably just excess fat that could easily be cut.

Why hire bunch 100 analysts and pay them 100k a year if you can get the same results with 50 analysts and 10 data scientists each making 100k a year?

Much of the important deal winning work is done by associates , VPs, and MDs anyways.

 

Bankers literally sell bullshit to clients. Models in banking are nonsensical from a fundamental stand point to begin with. If you really don't believe me, look at management guidance from company's after a big merger or acquisition. A lot of the time they just take the bankers numbers on what they expect synergy to be at. 8/10 fast forward a few quarters and they don't realize any "synergies".

Analysts don't spend most of their time on excel models. This likely isn't going to cut headcount and save money. On top of that data scientists can demand a higher premium than analysts due to how technical their work is and competition from silicon valley and quant funds.

To think having data scientists to help with models is pretty stupid. The only add value is that perhaps a banker might have an extra talking point or two to a client in a meeting.

 

Curious what this group will bring over the years. A while back Peter Orszag of Lazard commented in the FT that they had won a mandate "where it had used machine learning and natural language processing in its analysis." Nonetheless, Data Science/AI/ML are big buzz words nowadays.

 

Mostly buzzwords that people throw around. But there are pockets in the financial industry who understand how to use it well.

JPM has a dedicated data science team hiring away top MS and PhDs from top tier CS programs. The buyside already had the quant revolution. Stock exchanges have been data driven for quite some time. And now I'm seeing a change in the sell side as well. I suppose the sell side is the last and the slowest to change because it has more constraints than other segments of the financial sector.

 

The big deal is that Goldman's IBD strat team is starting to become a norm in the industry.

The change would be gradual and not something you can "feel", but it seems to be happening and I see the entry level job market for IBD fundamentally changing in terms of the qualifications, the rigor, and in number.

I mean every highly competitive industry strives to be lean and mean. This seems like a step towards that. The pace is slow because IB has a constraint on how clients don't usually like drastic change.

 

Will Banking Just Become A Pure Sales Role Again? Like Being A Stock Broker?

 

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