In a recent keynote speech at the Cisco AI summit in California, Goldman Sachs CEO David Solomon pointed out that AI can draft an IPO prospectus. The Financial Times reported Solomon saying AI can accurately compile 95 per cent of such document. Comparing with the conventional method of preparing an initial registration prospectus or S-1, he noted that AI could do within minutes what a six-person team took two weeks to prepare. Essentially the six person teams comprising investment bankers and lawyers drafting the prospectus are redundant after AI took over the task. The Goldman CEO noted that the final 5 per cent is where human input is needed and is the most crucial part. With Artificial Intelligence taking over routine tasks, human investment bankers role have been relegated to supervision or editing of the IPO prospectus prepared by the AI. A major shift is happening in the financial sector evident after Solomon informed that out of their 46,000 employees, 11,000 are engineers who are “using AI to help draft public filing documents.”
The AI investment bankers and financial analysts
Giant investment banks like JP Morgan & Goldman Sachs that move billions of dollars every day act as bankers to governments, monarchies and trillion-dollar companies. They are the forces that fuel the global economic system by funding huge infrastructure projects, raising public investments and managing pension funds. Investment bankers, financial analysts and portfolio managers determine the flow of capital and influence asset prices across the world. The bulk of an investment banker’s job involves analyzing financial metrics, drafting research reports and due diligence documents, underwriting loans and securitization of assets to enable investment decisions. The rise of Artificial intelligence has resulted in a mechanization of key skills including drafting, calculating, and optimizing resource allocation based on algorithms or predetermined criteria. The drafting of S-1 for purpose of Initial Public Offer (IPO) is one such job description being delegated to AI applications. The painstaking work of typing the draft, editing it, and the vetting process has been reduced to a supervisory role wherein the team can simply generate the first draft within minutes. As the CEO of Goldman Sachs revealed, a manual intervention is necessary only in 5 per cent of the work whereas 95 per cent of the work is automated.
Realizing the potential for cost-cutting, major banks are integrating AI into their operations. AI tools are replacing compliance, finance, client support and HR management functions. In fact, vital roles like risk management functions too are assisted by AI algorithms. AI Chatbots are being used as virtual assistants by clients and investors. While investment banks automate compliance to serve the clients quickly, regulators too are working on AI-based solutions to manage the regulatory filings. The Securities Exchange Commission (SEC) is employing risk-based data tools to scrutinize corporate financial reports and trades. While the SEC has always harnessed data analytics in oversight and enforcement, the agency is leveraging AI to detect trends in thousands of tips, complaints and referrals it receives. In India, Securities and Exchange Board of India (SEBI) is working on an AI-based processing of IPO documents. In July 2024, SEBI introduced “SEVA” – an AI powered chatbot to assist investors with information on securities market, latest master circulars, and grievance redressal.
AI engineers replacing bankers
Few years ago, Former Goldman Sachs CFO Marty Chavez predicted that it will be important for Wall Street traders to know how to code as writing an English sentence. With AI replacing key functions, investment banks could be as productive with a lesser number of analysts, engineers and lawyers. The rise in AI utilities in future will correspond with a decline in new opportunities in the financial sector. Except for the roles that require human elements like discussion, negotiations, leadership and managerial skills, AI will be integrated into every process of large banks. The era where quants and coding nerds dominated the financial sector to carry out flash trades are seeing a transition. It won’t be quants but AI engineers who will rule the roost in determining and automating the key operations of traditional investment banks. Even among the coders, the hardcore code writing entry-level jobs will get redundant paving way for AI-assisted coding. The engineers can generate numerous codes by just giving a command in English sentence before integrating it to consolidate into a tech product.
Conclusion:
The future of investment banking will be AI-driven. Large multinational banks would be less human-intensive. The investment banker will be an enabler and not an analyst or calculator of financial reports. The research reports and trading decisions will be AI-executed with minimal human interface. The productivity will rise exponentially with improvement in AI. AI Tech companies will replace traditional energy companies and financial sector giants at the top of the market capitalization pyramid. As per a McKinsey report, an estimated $200 billion to $400 billion in value will be added by generative AI throughout the cross section of banking, wholesale and retail investors. Generative AI will draft prospectus, make key analysis of financial metrics, file compliance documents to regulatory agencies. AI of regulators will analyze the filed documents, authenticate it and verify the patterns to scrutinize the data. The rein of AI in the global financial system has begun.
