The Future of Investment Banking

The Future of Investment Banking

In this article, we look at how technology such as robotic automation, artificial intelligence and machine learning is changing and benefiting the investment banking industry.

A quick guide to investment banking

Banks are made up of different areas. They have retail banking, which is about providing loans, bank accounts and other services to the general public. There is business banking which provides loans, banks accounts and other services to small businesses. Investment banking is a division of a bank that is far more complex and riskier than retail or business banking.

It has several different areas:

1. Proprietary Trading – is when the bank takes its own funds and uses this money to gamble on commodities, equities, bonds, etc. This is done by traders who bet huge sums of money with the aim to make more money from these trading activities.

2. Market Making – for the stock market to work it needs buyers and sellers willing to trade shares. This means if a buyer wants to buy shares in a stock, they’ll always be someone willing to trade. It also means if someone wants to sell their shares there will always be a buyer. Banks act as market makers proving liquidity in the stock market. While not a profitable service for banks, it is seen as a prestigious service to offer.

3. Mergers & Acquisitions – one strategic way to grow your organisation and reduce competition is by merging or acquiring your competitors or other complementary businesses. Investment banks offer advice, deal structures and due diligence to companies during M&A activities.

4. Corporate Events – an organisation might want to raise capital and they can do this by issuing shares or bonds. The investment bank can do two main things during this process, 1. Offer advice and find buyers to buy the shares, 2. Underwriting, which means the bank will buy the shares for a percentage of the fee raised.

5. Structured Products – is a packaged product such as a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currencies, that are used to sell to the public or organisations.

What’s happening in investment banking?

Anyone with any interest in investment banking or the stock market knows banks have been using computers to perform trades for years, known as algorithmic trading.

Algorithmic trading uses a computer program that follows a defined set of instructions to place a trade at a speed and frequency that is impossible for a human trader to execute.

There is also High-Frequency Trading (HFT) which is a subset of algorithmic trading where stocks are bought and then sold in fractions of a second.

Over the years more and more trading is being done by computers rather than people.

According to Byrnes (2017) in her article ‘As Goldman Embraces Automation, Even the Masters of the Universe Ar…’ – “in 2000, Goldman Sachs’s New York headquarters employed 600 traders, buying and selling stock on the orders of the investment bank’s large clients. Today there are just two equity traders left.”

The average cost of a trader is $500,000 a year, but now four traders can be replaced by one computer engineer. In 2017, over 30% of Goldman Sachs employees were computer engineers.

The world of investment banking has changed, and it continues to get more technologically advanced.

Investment banks and hedge funds are now focusing on hiring computer programmers, artificial intelligence experts, data scientists and other computer experts.

Instead of headhunting bankers from other banks. They’re acquiring talent from outside the industry such as IBM and Microsoft.

In September 2018, JP Morgan headhunted Apoorv Saxena who was the Head of Product Cloud AI Verticals at Google. Now at JP Morgan, Saxena is the Head of Artificial Intelligence.

Earlier in 2018 JP Morgan also hired Dr Manuela Veloso.  Veloso was the Head of the Machine Learning Department at Carnegie Mellon University, widely considered the best institution in the field of artificial intelligence. She joined JP Morgan as the Head of Artificial Intelligence (AI) Research.

About one-third of J.P. Morgan’s recent senior hires are from outside the industry. In fact, JP Morgan has a team of 50,000 technologists, which is more than Twitter and Facebook combined. They spend $10.8 billion a year investing in this area of their bank.

Banks are certainly in the war for talent regarding computer experts. Banks are trying to provide customers with simpler, better and faster ways of conducting business with them. Automation and AI are ways that banks believe will offer their customers a superior service.

If you’re looking to work in banking, no longer does it seem that attending a top university to study economics is the best a route. Instead, one should focus on studying computer science, artificial intelligence or mathematics.

Apart from trading, what else is being computerised in investment banking?

Automating Initial Public Offering

In June 2017, Goldman Sachs announced that it had mapped out the 127 steps it takes to execute an Initial Public Offering. It found that about half of those steps could be done by computers rather than people.

So, Goldman Sachs developed “Deal Link” a computer system that arranges and tracks legal and compliance diligence, fills out forms, and generates reports needed for an Initial Public Offering.

Goldman Sachs has reduced thousands of hours of work done by people releasing them to do more value-added work.

Preventing Activist Investor Attacks

An activist investor is an investor who buys a large number of shares in a public company. Then uses their shareholding and position to pressure change within the company.

These changes tend to be negative to the long-term strategy of the organisation. They push out the company’s leadership and stop expansion activities, all in favour of boosting payouts to shareholders. 

Therefore, it’s important for public listed companies to defend against active investors.

It takes a team of analysts’ days to analyse a company’s vulnerability to attacks from active investors. However, Goldman Sachs has created an automation tool called “Jupiter”, which does all this work and provides the customer with an answer in 30 seconds.

AI-powered Virtual Assistants

JP Morgan is the first major bank to roll out an AI-powered virtual assistant that make it easier for their corporate clients to move money around the world, whether that’s for routine payroll or multi-million-pound M&As.

Artificial Intelligence allows JP Morgan to provide a multi-channel, consistent customer service experience.

Using machine learning the AI-powered virtual assistant can adapt to the clients’ behaviour and make intelligent recommendations.

Eventually, the virtual assistants will significantly reduce the need for banking staff to answer low-level questions such as “Was my trade executed?” or “I’ve forgotten my password, what do I do?”


It’s evident that banks no longer see themselves as just banks, but as technology companies also.

Banks have tried and tested processes, a need for high security, they’re data rich, heavily customer facing, and they’re cash rich, which makes them the perfect industry for technology advancement.

As a result, banks are now competing with top-tier technology giants for consumer attention and employee talent.

At Edge Tech, we have the knowledge and practical experience of attracting some of the hardest to find emerging technology experts across the globe.

If you’re looking for emerging technology experts or for an emerging technology position we’d like to learn more about you.

Harrison Goode – Co-Founder, Edge Tech Headhunters


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