Morning Coffee: JP Morgan’s method of monitoring bankers’ morality. Exhibitionist bank CEOs
Of all the uses of artificial intelligence in banking, JP Morgan’s new application of “robots” that scrutinise expense claims is surely the most depressing. It’s something of a comedown from the ambitious (although in the end disastrous) Palantir project from last year, which aimed to apply Big Data techniques to email archives, phone records and even GPS tracker data in order to identify potential rogue traders or insider dealers. That project got shut down and the head of security fired when it turned out that he had “gone rogue” and started collecting data on senior executives as well, trying to find the source of a press leak. Now the ambitions appear to have been scaled back to the processing of pockets full of crumpled receipts.
In many ways, this was an inevitable application of the technology. The main use of machine learning in banking operations is to match up trades to counterparties, deal with errors, scrutinize multiple names and the other imprecisions that have historically required armies of back office human staff. Given the investment in developing that technology, it was natural to apply it to a similar problem of matching up receipts to itineraries, checking things against corporate spending and entertainment policies and making sure that, for example, innocent looking restaurant bills weren’t supplied by strip clubs.
Is the robot expenses revolution really a good thing? It’s more efficient, of course – the robots can process more expenses claims more quickly, and they don’t let anything slide. But rigid enforcement of expenses rules can be a false economy. For the right client, at the right time, a $5,000 bottle of Screaming Eagle can have a higher return on investment than any other money a good investment banker will ever spend.
If you develop a penny pinching culture, you might cut out a hundred cases where bankers abuse the system to subsidise their lifestyle and count a half-million dollar saving, but miss the ten million dollar deal that never got done, because a big financial sponsors client got poached by a rival who was more fun to be with. It’s understandable to have a policy against hotel minibars, but if a salesperson comes back from a marketing trip feeling miserable, they’re going to do fewer marketing trips and if a miniature bottle of gin can make the airport hotel a little bit more bearable, it might be cheap at the price. Robots are efficient, but banking is a people business and sometimes it needs human beings who understand what the job is like. Often, employers should be more worried about the expenses claims which are small and silly than the ones that big and fancy.
Separately, two independent data points means that there’s a new trend – Goldman Sachs has sent out a memo to all staff revealing that the management team are relocating within the New York Office to the mezzanine floor above the “Sky Lobby” in an open plan layout. Like Mike Corbat’s move to a similar spot in Citigroup’s new space, the idea is to exhibit themselves and take part in the “buzz” of the employee areas. It's all about opportunities for senior management to see and be seen.
That’s interesting enough in itself, but if you think about it, it’s potentially very informative about the future. If you want to know what someone is planning, look at what they do, not what they say, and the physical location and infrastructure is as tangible a piece of information as you can get. Think about it this way – can you have a difficult meeting in an open plan work space? Can you plan the closure of a business unit on a mezzanine? Definitely not. So any GS partners wanting to do things like that are going to have to find another space to do so. If the new mezzanine is as visible and open to staff as the memo suggests, then it is going to be really noticeable when if half the people nominally stationed on it are not in fact there.
Commiserations to all the FX traders and analysts who were asked to pull all-nighters during the UK elections, as banks required everyone to come in and deal with sterling fluctuations. Have a bacon roll or its non-meat equivalent, you’ve earned it. (Financial News)
Mitchell Nadel is leaving his job as Morgan Stanley’s head of macro trading, a move shortly following (but apparently not necessarily connected to – it is year-end after all) the Turkish lira trading losses. David Flowerdew will replace him (Bloomberg)
Lloyds of London has published a 30-page guide to trans- and non-binary inclusion for its workers. Although this might seem somewhat more surprising than, say, when Goldman Sachs did the same thing given the reputation of the Lloyds market, Marc McKenna-Coles, the global diversity manager said that “our research into the experiences of trans and non-binary people within this market allowed us to encounter a vigorous self-supporting trans and non-binary community already in existence in insurance”. And good luck to them. (Financial News)
Blackrock have run into political trouble in France – putting out a think-piece on the future of pension reform must have seemed like a natural thing to do, but it’s been seized on by left-wing politicians and media as an attempt at inappropriate influence. (Les Echos)
How do you get ahead in investment banking for Credit Suisse in Asia? According to Edwin Low, the co-head there, in order to be eligible for promotion to MD, you need to have generated successful referrals to the private bank for two years in a row. (Euromoney)
Tech firms in Silicon Valley are introducing “shoeless offices” and, unaccountably, treating this as a perk for employees rather than some bizarre kind of hazing ritual. (Guardian)
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