Investment banks have been laggards with big data and analytics, but there are signs they are throwing more resources and capital at a field that has the potential to transform the industry.
Goldman Sachs has taken the lead with a $15 million investment in big data analytics start-up Kensho. A number of senior changes in Deutsche Bank’s corporate banking and securities business relate to a new approach to customer data analysis. And BBVA’s acquisition of Spanish big data analytics start-up Madiva in December shows how this approach is continuing to be applied in corporate and retail banking to speed-up previously time-consuming tasks, from valuing portfolios of assets to approving mortgages for clients.
Investment banks have been slower in their embrace of big data than consumer retailers. Few have been built with this type of technological advance in mind. Indeed, the complex morass of often-outdated data systems architecture inside most investment banks is an acute challenge, frustrating their ability to analyse and extract deeper insight and value from the wealth of client data they have, while also raising doubts about risk management.
As Goldman’s investment in Kensho – a Buddhist term for enlightenment – shows, investment banks are willing to seek and secure expert help externally, breaking with the past when most have focused on developing technologies in-house.
This has been particularly true so far in back-office operations such as risk management, but it is now happening in front-office operations, where Kensho’s platform is focused, according to Adam Broun, head of strategy and business development at the firm, and a former chief information officer of front-office operations for investment banking, private banking and asset management at Credit Suisse.
Broun says that investment banks’ use of big data analytics has been pretty sophisticated in the back office but its use is “definitely less sexy than a ‘Minority Report’ interface where I can visualize the world’s data.”
That, on some level, is what Kensho does. Its automated technology enables Goldman’s front-office teams to query and immediately answer millions of complex questions on and around certain global market scenarios. Where before this would have taken analysts hours, if not days, to carry out manually, now it takes seconds.
“What we have done is create what we believe is the largest database in the world of timelines of precedent events that affect markets,” says Broun. “So to take a very simple example: if I want to know whether Apple is a good buy around new iPad releases we have the timelines of every iPad release. Something more complex would be seeing how heating oil prices change on occasions when Russia has exhibited belligerence towards it neighbours, or has cut-off gas supplies to Ukraine or Europe. We have that set of precedent events in our database, which creates statistical observations, and from there patterns can be found.”
Importantly, Broun says that this kind of real-time analysis reveals correlation, not causation, and “it’s only as good as the person using it.” He would not be drawn on whether Kensho’s partnership with Goldman is exclusive or whether it is in similar discussions with other investment banks. It is a platform that should be of interest to most.
At Deutsche Bank, a number of senior changes last year point to how seriously the bank is now approaching this field too. The new role of Zar Amrolia, Deutsche’s former co-head of fixed income and currencies, leading the development of digital technology within its corporate banking and securities (CB&S) business forms part of this. Deutsche has appointed Sam Wisnia, a former partner at Goldman and co-head of its technology-focused global strategies and structuring team, as head of FIC structuring and head of strategic analytics for the CB&S division – a newly created role at Deutsche.
Wisnia reports to Ram Nayak, head of global structuring, and is responsible for leading the build out of the CB&S division’s analytics platform to help “drive business performance and resource optimization”.
Nobody at Deutsche was available to provide greater detail on this but broadly, by using sophisticated analytics to garner greater insight into what clients are buying, investment banks can make their sales force more effective. However the ability to do that well, hinges on the ability of a bank to access and use data. As Jason Batt, co-head of Deutsche Bank’s markets and electronic trading group, told Euromoney last year: “There is a huge amount of focus on data because it is well understood that this is what is going to take our business to the next level.”
Another sign that Deutsche wants to improve is the hire of JP Rangaswami at group level as its first-ever chief data officer – the latest in a string of CDOs appointed in the past few years by global banks. Rangaswami, who joins in January, is in charge of standardizing the bank’s processes, tools and corporate governance on information and will support its digital strategy.
Rangaswami was formerly global chief information officer at Dresdner Kleinwort Wasserstein, where he was partly responsible for launching the investment banking industry’s first known digital markets division in 2005. Though short-lived, that division serves as a precursor to the way investment banks are using technology and analytics today.