Traders at Wall Street banks, including J.P. Morgan, Bank of America Merrill Lynch and Morgan Stanley, are twiddling their thumbs, frustrated by the low market volatility and interest rates that have led to a boring-yet-challenging trading environment.
Goldman Sachs already blamed low volatility for its poor performance in the first quarter, and the way things are going the second quarter doesn't look good either. - And not just at Goldman. J.P. Morgan says revenue from its trading businesses has dropped 15% so far in the second quarter from the same period a year ago because of low market volatility. Fixed-income trading is down for the first two months of the period and equities are up slightly.
The Brexit referendum and Donald Trump’s unexpected election win spurred more corporate bond and interest rates trading over the past year, boosting trading revenue across Wall Street. Now, however, the fixed income reboot isn't happening after all. Bank of America CEO Brian Moynihan also said trading revenues would be lower in the second quarter compared to last year. Morgan Stanley CEO James Gorman said his firm is seeing similar declines in trading volume, with its second-quarter trading revenue on pace to drop at least 10%.
“Low rates, a more cautious outlook on rates, low volatility have led to low client flows and a generally quiet, subdued and challenging trading environment,” said J.P. Morgan CFO Marianne Lake at an investor conference in New York. “There’s not a lot to trade around right now, and so there’s not a lot of market themes.”
On the other hand, Credit Suisse is more optimistic, with the bank’s director of investment strategy and research telling Bloomberg that “animal spirits seem to be back in both the real world and the financial world.”
Separately, as director Ridley Scott prepares his long-awaited sequel Blade Runner 2049 for a fall release, a famous quote from the classic 1982 original – “‘More human than human’ is our motto” – now applies to front-office executives at one of the biggest banks on Wall Street.
Whether you call them cyborgs, human-android hybrids or replicants as in the movie, Morgan Stanley is preparing to enhance its 16k-plus financial advisers with machine-learning (ML) algorithms in an attempt to create an unstoppable wealth-management army.
The ML algos suggest trades, take over routine tasks and send advisers reminders when their clients’ birthdays are near, according to Bloomberg.
The brokerage behemoth’s primary goal for the project – known by its top-secret code name “Next Best Action” – is to use artificial intelligence (AI) to upgrade its workforce to better compete with fully automated robo-advisers. The bank is betting that wealthy families will gravitate more toward human advisers with ML-algorithmic assistants than mass-market asset-allocation software, although it is planning to offer one of the latter as well.
Algorithms will send Morgan Stanley employees multiple-choice recommendations based on things like market changes and events in a client’s life such as considering a mortgage and dealing with the death of a parent. ML programs will catalog all of advisers’ phone, email and website interactions, then track and improve their suggestions over time with the goal of generating more business.
Eventually the AI assistant will be able to answer questions by sifting through the bank’s 80k annual research reports, execute wire transfers and update a digital repository of client documents, such as wills and tax returns. Morgan Stanley is hiring associates to train baby-boomers who aren’t so tech-savvy to use the assistants.
The adoption of this technology is not a good sign for financial advisers’ compensation – top advisers used to be able to land multimillion-dollar bonuses by jumping to a competitor, but the combination of regulatory changes and automation will put a significant damper on that.
“Advisers [backed by algorithms] are going to be part of a value proposition, rather than the service conduit for the industry,” said Kendra Thompson, a managing director at Accenture, told Bloomberg. “The cutting of the bonus check, it’s nearly over.”
Financial advisers afraid that ML and AI are going to put them out of business have to pin their hopes on the old saw that the wealthy have complicated financial-planning needs that are best met by human experts. Tell that to the cyborgs.
As AI becomes powerful enough to forecast market moves better than humans, the next sector of the financial services industry it will disrupt is equity hedge funds.
This Goldman Sachs business hires people with piercings who wear jeans to the office and write on walls, tables and windows – and it is changing the broader bank’s culture. (Business Insider)
Goldman promoted U.S. equity trader Elizabeth Martin to the head of EMEA equities execution and global chief operating officer for electronic equities execution services. (The Trade)
A Citi currencies trader, who his boss described as a “good guy” but fired for confirming the identity of a client in an electronic chat with a rival, lost his employment lawsuit against the bank. (Bloomberg)
UBS is moving staff to lower-cost, smaller cities. (Finews.com)
The head the U.S. prime brokerage and clearing business at Societe Generale has left to join Euronext as chief information and technology officer. (The Trade)
This man went from working as a scientist at an aerospace manufacturer to Merrill Lynch, and now he works with entrepreneurs. (WSJ)
The pay for the CEOs of the biggest financial services companies in the U.S. doesn't always match their performance. (WSJ))
Do a cost/benefit analysis of having an investment conscience. (Bloomberg)
Tips for throwing a work party without getting fired. (Bloomberg)
Literary genius Marcel Proust kept in close contact with his banker and made aggressive bets as an investor. (MarginalRevolution)
Photo credit: Ladd Co., The Shaw Brothers, Warner Bros. & Blade Runner Partnership