For the bulge bracket investment banks, being king of the hill is not without its challenges. These players are facing mounting pressures on several fronts – cutthroat competition from boutiques, fewer deals, more layoffs – just to name a few. But the pain point that must sting the most is the declining interest in the investment banking profession itself. The age old rite of passage for those moving up through the ranks in investment banking filled with long work hours and personal sacrifice simply does not have the same appeal as it did in the past. It can be difficult for junior bankers and prospective analysts to accept the idea that a career in investment banking is like an apprenticeship where skills and relationships are built up over time. As a result, many of these highly educated and motivated individuals headed off to careers in Fintech which is perceived to be a more attractive option.
This increasing trend of junior banker attrition is a thorn in the side for top banks. Program changes, incentives and more reasonable hours have been met with mixed results. Banks are now beginning to reassess the M&A workflow with an eye on optimizing processes to address challenges facing analysts. Outsourcing repetitive, lower value tasks has eliminated much of the grunt work but consistency and quality of work remains a concern. A more complex issue is the amount of industry knowledge and insight that gets lost when processes are sub-optimized.
Banks are responding by giving analysts new tools to support a more streamlined M&A workflow. Productivity gains can be directed towards intellectually rewarding, higher value work. Artificial Intelligence (AI) based solutions enable automation of even the most complex processes like income statement normalization across different reporting periods and with reliable, error-free outputs. Our own Kognetics application can drive productivity increases of up to 70% for common M&A tasks like comps spreads. Less time spent on complex and repetitive processes leads to a more motivated and engaged analyst team.
Senior bankers often think that higher levels of automation equate to “dumbing down” the analyst. Instead, it redefines the analyst role without redundant tasks, but incorporating more value added aspects. Analysts still direct the workflow and need to understand the numbers intimately. They simply stop spending a major chunk of their time on necessary but low value added work of searching for information, performing calculations and updating pitch book charts. More time can be spent on deeper industry analysis or identifying more relevant companies for comps or gaining more insights on valuation.
Automation may be the game changer that investment banking really needs.