Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Will JPMorgan Chase & Co.'s more than $9.5 billion technology budget leave rivals playing catchup?

In the firm's 2016 annual report published Tuesday, Chief Operating Officer Matt Zames elaborated on the $3 billion spent just on innovation, specifically the areas of robotics and machine learning. The upshot? Thanks to a program that identifies clients who are best positioned for follow-on equity offerings, some of JPMorgan's investment bankers now have an easier time screening for potential business. Soon, the program will be rolled out to other parts of the bank, such as debt capital markets.

Establishing and maintaining relationships is vital in investment banking, and the technology arguably gives JPMorgan bankers an advantage over competitors who are spread thin trying to manage the needs of what is sometimes a wide-ranging roster of existing clients while pitching business to new ones. 

Using Every Advantage
It's early days yet, but JPMorgan's use of machines to identify clients that are ready to transact could help it gain share from rivals
Source: Bloomberg

That's just one example, but it may be enough to put rivals on notice. While banks don't all disclose their technology budgets, JPMorgan appears to be the biggest spender. Goldman, for instance, spent $809 million on communications and technology in 2016, representing 2.6 percent of its revenue that year. That's a fraction of JPMorgan's bill, which has totaled between 8 percent and 10 percent of revenue over the past eight years.

And there are other tech advancements. The bank is forging ahead with the development of a robo-adviser while elsewhere, Zames reckons the bank could save $30 million in 2017 by using bots to address 1.7 million systems-access requests such as employee password resets, with "substantially" more savings to come. It has also piloted virtual-assistant technology -- which combines robotics and machine learning to mimic human judgment -- to deal with employee requests. While JPMorgan hasn't said as much, assuming all goes well, it would be able to use such services to process client queries, which could reasonably lead to additional cost savings.

Even barring the client-facing aspect, it's surprising that other big banks like Wells Fargo & Co. and Bank of America Corp. aren't pushing harder to automate these seemingly basic administrative processes. (Like JPMorgan, they each have more than 200,000 full-time equivalent employees.)

Plugged In
JPMorgan, the biggest U.S. lender by market cap, spent $9.5 billion on technology in 2016 and makes sure investors and rivals are aware of that
Source: 2016 annual reports
*From Form 10-K

Perhaps the most coveted piece of JPMorgan's technology is a platform that can -- for example -- analyze 12,000 legal documents in seconds versus 360,000 hours. That software should save the lender a lump sum in legal fees annually, while also minimizing errors and potentially hastening its ability to process loans. It's unclear if the technology is sophisticated enough for the bank to license it to rivals, clients or even law firms, but I'm curious if monetizing it would one day be an option. 

JPMorgan isn't standing still, and its small successes to date should encourage rivals -- even those keeping a watchful eye on expenses -- to lift their tech spend, too.  

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net