Commerzbank is hoping that computers will soon be able to do at least as good a job writing its equity research reports as the armies of junior analysts that the big banks are no doubt looking to trim thanks to expensive MifidII regulations and restrictions that have cut funding costs for research departments.
Even as its captured the attention of bank executives, automated and computerized equity analysis has, for the most part, been a disaster over the last couple of years. While some larger firms may use algorithms and some automation to crank out macro economic reports, and while computers may be getting better at scraping and reporting data (without actually analyzing it), performing equity analysis requires a deeper look behind the numbers and its simply not a task optimized for automation.
However, we are apparently at that stage in the cycle where cutting costs becomes far more important then being productive or effective, particularly since MiFid II is forcing a race to bottom as investment banks seek out deep cuts in their research departments, driven by a drop in revenue that has accompanied being forced to charge a separate, optional, rate for research instead of bundling those costs with trading fees.
One of these competitors, Germany's second largest bank has decided that the time has come to automate some of its equity analysis, and according to the Financial Times "Commerzbank is experimenting with artificial intelligence technology that automatically generates sports reports to see if it can write basic analyst notes, as Mifid II forces banks across the world to trim research costs."
The German bank is working on the project with Retresco, a content automation company in which it invested two years ago through its fintech incubator unit. The project is still at an early stage and could take years to produce reports that banks would be happy to send to their clients, but the notion of AI replacing human research analysts is already attracting attention from senior bankers.
"There’s definitely work that can be done, parts of the [research] process that can be enhanced by algos and AI tools," the head of one investment bank told the Financial Times, describing earnings reports as something that "should be robo-written."
Research into AI and automation solutions that can lessen the burden of data-intensive research will likely soon be a theme across the big banks, as they scramble to reduce one of their biggest cost-centers in a time of declining revenues.
The Europe head of another investment bank said research was an area that was rife for automation over time, while analysts at several other banks said their managers were experimenting with AI and automation applications.
Banks are under fierce pressure to cut the costs of producing research on stocks and bonds following the implementation in January of European investor protections known as Mifid II....