Tuesday, May 24, 2016

Its not only the assembly line where robots rule!

For years we have been told that many blue collar jobs have disappeared; replaced by the assembly line robot.

Well the financial world is seeing the same thing.

A long long time ago, when I started in finance an order was written by hand (badly) on a ticket -- there was the counterpart, the amount and the price and time of trade.  This was then shipped to middle and back office for confirmation and booking.

For many many years the paper tickets have been replaced (although you still see the occasional dusty time punch...in the trading rooms).  Over the years more and more of the back and middle office functions have been replaced by computers -- reconciliation and confirmation is a lot easier. As I was leaving the capital markets an increasingly large portion of trading (stocks & bonds) was done by machines with little human intervention.  F/X was one of the last bastions and even there products such as Autobahn from DB was showing the future of no human intervention.

Now for a reality check -- how has automation changed Wall Street?  In a nutshell nearly 1/5th of all jobs have disappeared from Wall Street between 2011 and 2016 -- worse affected were commodities over the past 12 months -- which is not surprising, but over the long term its bond desk -32% that have been the most affected (because so much of their work can be automated).

I predict its just going to get worse for Wall Street

  • Trade finance will become the domaine of Fintechs (few legacy costs)
  • Payments (domestic and international) already many new low cost players are emerging both cheaper and faster (new players will often execute an international payment within hours -- as opposed to days/weeks for High street banks)
  • Receivables financing they never liked the business and were rather bad at it
  • Investment banking:  Honestly, so much BS in the prospectus written by junior bankers who know nothing, building models based on WAG assumptions.  If a computer can write fiction -- it should be amazing at writing a prospectus.
  • Research:  Honestly, surprisingly that low value business (honestly when was the last time you read a research report worth the paper it was written on).  Its even easier now since there is almost no proprietary information (excluding hedge funds and they don't share their thoughts with the planet)

Ok these last two are just a dream -- so much of the low level IB work is completely redundant and the same for a large percentage of research...

Still a business that accounts for nearly 7% of America's GDP, and probably a larger percentage of its profits is shedding workers at an unprecedented rate.  These high paying jobs are gone, replaced by algorithms and robots -- the overlords are here...

This may be a good thing for Wall Street; few weeks go buy these days without some other market rigging mega fine payed by some mega banks (which doesn't recognize any guilt, but is just paying billions...'cause they are good guys really).  Machine are less likely to do these things to "improve their bonus pools" because they don't have bonus pools...

Anyway, Wall Street may soon be the only fully automated business in America, long live our robot overlords!

End of rant.


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