In what can only be the most ironic of stories today, Reuters is reporting that Citigroup has become the first financial services client for IBM's Jeopardy-playing human-cognitive 'machine' Watson. While IBM expects the financial services segment to provide significant revenues, we worry that Congress will enact some protectionist policy as thousands of highly paid extrapolators analysts are suddenly outsourced to a non-eating, non-bonused, non-champagne-buying, non-tax-paying server farm somewhere. Supposedly Watson offers a 'huge marketing edge' as the government-owned bank is likely to use the uber-computer for "risk management (as opposed to stock picking)" as it offers a 'more global picture' combing through 10-Ks, prospectuses, loan performances, and earnings quality while uncovering sentiment and news not in the usual metrics. We look forward to the next conference call as Vikram is replaced by a Siri-Watson discussion of why TBTF exists.
International Business Machines Corp. (IBM)’s Watson computer, which beat champions of the quiz show “Jeopardy!” a year ago, will soon be advising Wall Street on risks, portfolios and clients.
Citigroup Inc. (C), the third-largest U.S. lender, is Watson’s first financial services client, IBM said yesterday. It will help analyze customer needs and process financial, economic and client data to advance and personalize digital banking.
Financial services is the “next big one for us,” said Manoj Saxena, the man responsible for finding Watson work. IBM is confident that with a little training, the quiz-show star that can read and understand 200 million pages in three seconds can make money for IBM by helping financial firms identify risks, rewards and customer wants mere human experts may overlook.
Banks spent about $400 billion on information technology last year, said Michael Versace, head of risk research at International Data Corp.’s Financial Insights, which has done research for IBM.
Watson the financial assistant will be delivered as a cloud-based service and earn a percentage of the additional revenue and cost savings it is able to help financial institutions realize. Watson, including its work in the health- care and finance industries, will contribute “a portion” of IBM’s target of $16 billion of analytics revenues in 2015, Saxena said, and that portion will “have a B next to it.”
Watson “can give an edge” in finance, said Stephen Baker, author of books The Numerati and Final Jeopardy, a Watson biography. “It can go through newspaper articles, documents, SEC filings, and try to make some sense out of them, put them into a context banks are interested in, like risk.”
In addition to Citigroup, Armonk, New York-based IBM has been working with financial institutions teaching Watson the language of Wall Street, and adding content including regulatory announcements, news and social media feeds. IBM won’t say which other institutions Watson is already working with.
“It’s not selling them software, it’s selling them outcomes,” Saxena said in a phone interview.
Watson offers a “more global” picture by looking beyond financial data, Saxena said. For example, Watson can comb 10-Ks, prospectuses, loan performances and earnings quality while also uncovering sentiment and news not in the usual metrics before offering securities portfolio recommendations. It can also monitor trading, news sources and Facebook (FB) to help a treasurer manage foreign exchange risk.
‘Huge Marketing Edge’
Some of the biggest financial institutions have already built big data centers. IBM is competing with most other major technology companies to sell them tools to analyze and use accumulated information, Versace said.
“Apparently Citi gets it -- analytics is the new core in competitive banking,” Versace said. “The ability to efficiently and effectively exploit big data, advanced modeling, text analytics, in memory and real-time decisions across channels and operations will distinguish those that thrive in uncertain and uneven markets, from those that fumble.”
Watson gives IBM “a huge marketing edge” in the race among tech giants including Google Inc. and Microsoft Corp. (MSFT) to obtain intelligence for businesses by teaching machines to understand sentences and paragraphs rather than searching for single words or phrases, said author Baker.
IBM plans to use Watson in financial services “mostly for portfolio risk management, they’re not going to do stock picking,” CLSA’s Maguire said in a Feb. 17 phone interview. “They think that Watson can make a difference.” Still, Watson isn’t perfect. It is weak in languages other than English, and its processing of social media streams from platforms including Facebook and Twitter can be sluggish. The lag is “getting shorter”, Saxena said.
“I’m sure they use all this stuff internally to manage their own portfolio,” said CLSA’s Maguire. “IBM’s treasury is bigger than a lot of trading desks. If they went into asset management they would kick ass, but that’s not what they do.”