Big banks are diving headfirst into the AI race. Over the past year, Wall Street’s biggest names—including Goldman Sachs, Bank of America, Morgan Stanley, Wells Fargo, and JPMorgan Chase—have ramped up their generative AI efforts in an effort to boost profits. Some are striking deals and partnerships to get there quickly. All are hiring specialized talent and creating new technologies to transform their once-sluggish businesses. It’s early days, but the stakes are high. In his annual letter to shareholders, JPMorgan CEO Jamie Dimon compared AI to “the printing press, the steam engine, electricity, computers, and the internet.” Banks that succeed should increase productivity and reduce operating costs, which would improve their bottom lines. In fact, AI adoption has the potential to boost banking profits by $170 billion, or 9%, to more than $1.8 trillion by fiscal 2028, according to a study by Citi analysts. Early-stage generative AI use cases often focus on “increasing the productivity of your workforce so they can be faster, stronger, and better,” said Alexandra Mousavizadeh, co-CEO and co-founder of AI benchmarking and intelligence platform Evident Insights. “Over the next 12, 18, 24 months, I think we’re going to see generative AI progress along the maturity path from internal use cases that are in production to more tested external use cases.” Companies are just beginning to grasp the promise of the technology. After all, it wasn’t until the viral launch of ChatGPT in late 2022 that the world outside Silicon Valley woke up to the promise of generative AI. OpenAI’s ChatGPT, backed by Microsoft and powered by Nvidia chips, sparked a rush of investors into all things AI. The AI industry has also pushed corporate boards in three ways: finding use cases for the technology, partnering to operationalize it, and hiring dedicated staff to develop and support it. Morgan Stanley was among the first on Wall Street to publicly embrace the technology, unveiling two AI assistants for financial advisors powered by OpenAI. Launching in September 2023, the AI Assistant @ Morgan Stanley gives advisors and their staff quick answers to questions about the market, investment recommendations, and various internal processes. It aims to free up employees from administrative and research tasks to better engage with their clients. Morgan Stanley rolled out another assistant this summer, called Debrief, that uses AI to take notes on behalf of financial advisors during their client meetings. The tool can summarize key discussion topics and even draft follow-up emails. “Our immediate goal is to use AI to increase the time our employees spend with clients. That means using AI to reduce time-consuming tasks like responding to emails, preparing for client meetings, finding insights and analyzing data,” said Jeff McMillan, Morgan Stanley’s head of firm-wide AI. He made the comments in an emailed statement to CNBC last week. “By freeing up this time, our employees can focus more on building relationships and innovating.” In the long term, AI could help Morgan Stanley’s wealth management division move closer to management’s goal of more than $10 trillion in client assets. In July, the company said its client assets totaled $7.2 trillion. Indeed, McMillan said in June that it would take at least a year to determine whether technology is driving advisor productivity. If so, that would be welcome news for shareholders after Morgan Stanley’s wealth management segment missed analysts’ revenue expectations in the second quarter. WFC YTD mountain Wells Fargo YTD It’s not just Morgan Stanley. Our other bank holding company Wells Fargo has its own AI virtual assistant. Dubbed Fargo, it helps retail clients get answers to their banking questions and perform tasks like turning debit cards on and off, checking credit limits and providing transaction details. Fargo, powered by Google Cloud AI, launched in March 2023. For a large central bank like Wells Fargo — a bank that historically caters to Main Street — Fargo Assistant could bolster the bank’s largest reporting segment. The consumer, banking and lending unit accounted for about 43% of the company’s $20.69 billion in revenue in the second quarter. Making AI deals, striking partnerships None of this would be possible without partnerships. Big banks have been tapping startups and tech giants for access to their large language models (LLMs) to build their own AI products. In addition to Morgan Stanley’s OpenAI deal and Wells Fargo’s ties to Google, Deutsche Bank also partnered with Nvidia in 2022 to help develop fraud protection applications. BNP Paribas announced on July 10 a deal with Mistral AI — often considered Europe’s alternative to OpenAI — to integrate the company’s LLMs into its customer service, sales and IT businesses. Shortly after, TD Bank Group signed a deal with Canadian AI unicorn Cohere to also use its LLM suite. “We’re watching these (deals) because it means they’re embedding a lot of this capability,” said Mousavizadeh of Evident. Big Wall Street firms have also had to hire a lot of AI specialists to make their AI dreams come true — poaching groups of data scientists, data engineers, machine learning engineers, software developers, model risk analysts, policy and governance officers. Despite layoffs across the banking sector, AI talent at banks has grown 9% over the past six months, according to July data from Evident, which tracks 50 of the world’s largest banks. That’s double the growth rate seen in the industry’s total headcount. Mousavizadeh said one of the key “characteristics of the leading banks in AI is that they don’t stop hiring. The leading banks are the ones that are hiring the most AI talent.” In July, Wells Fargo named Tracy Kerrins as head of consumer technology to oversee the company’s new generative AI team. And Morgan Stanley’s McMillan was promoted to head of AI in March after serving as a technical executive in the wealth management division. He helped oversee Morgan Stanley’s OpenAI-related projects. Last year, JPMorgan also named Teresa Heitsenrether as its chief data and analytics officer to lead AI adoption. Bottom Line The more we see these companies spending and investing in AI talent, the more serious they seem about the future of this nascent technology. We don’t expect these third-party partnerships, new use cases, and massive hiring to create exponential returns overnight. However, as long as these costs don’t outweigh the return on investment (ROI), we’re pleased with the innovation initiatives at Wells Fargo and Morgan Stanley. “We’re really at the very beginning of this trend and we’re going to see a much larger ROI from AI use cases in 2025,” Mousavizadeh said. “But I think we’re going to see a real tipping point in 2026.” (Jim Cramer’s Charitable Trust is long NVDA, WFC, GOOGL, MSFT, MS. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after sending the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. 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Pedestrians walk along Wall Street near the New York Stock Exchange (NYSE) in New York, U.S., Tuesday, Aug. 27, 2024.
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Big banks are diving headfirst into the AI race.
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