Big banks are jumping into the AI arms 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 efforts in generative AI with the goal of boosting profits. Some are striking deals and partnerships to get there fast. All are hiring specialized talent and inventing new technologies to transform their previously slow businesses. The game is still 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, computing and the internet.” Banks that get it right should boost productivity and cut operating costs — both of which would improve their bottom lines. In fact, adopting AI has the potential to boost bank profits by as much as $170 billion, or 9%, to more than $1.8 trillion by fiscal 2028, according to research by Citi analysts. Early-stage generative AI use cases are often “to augment your workforce to be faster, stronger, and better,” said Alexandra Mousavizadeh, co-CEO and co-founder of AI platform Evident Insights. “Over the next 12 to 18 to 24 months, I think we’ll see[generative AI]move along a maturity journey, from internal use cases that are being put into production[to]more external use cases that are being tested.” Companies are only just beginning to see the promise of the technology. After all, the world outside Silicon Valley didn’t wake up to the promise of generative AI until the viral launch of ChatGPT in late 2022. OpenAI’s ChatGPT, backed by Microsoft and powered by Nvidia chips, ignited an investor rush into anything related to AI. The AI business has also moved corporate boards in three ways: finding use cases for the technology, partnering to enable it, and hiring dedicated employees to build and support it. Morgan Stanley was one of the first Wall Street firms to publicly embrace the technology, unveiling AI assistants for financial advisors powered by OpenAI. Launched in September 2023, the AI@Morgan Stanley Assistant provides advisors and their staff with quick answers to questions about the market, investment recommendations, and various internal processes. It aims to free up staff from administrative and research tasks to engage more with their clients. Morgan Stanley this summer rolled out another assistant called Debrief, which uses AI to take notes on behalf of financial advisors in client meetings. The tool can summarize key discussion topics and even draft follow-up emails. “Our immediate focus is on using AI to maximize the time our staff spend with clients,” said Jeff McMillan, Morgan Stanley’s head of corporate-wide AI. “That means using AI to reduce time-consuming tasks like responding to emails, preparing for client meetings, finding information, and analyzing data.” He made the comments in a statement emailed to CNBC last week. “By freeing up that time, our people can focus more on building relationships and innovating.” In the long run, AI could help Morgan Stanley’s wealth business move closer to management’s goal of more than $10 trillion in client assets. In July, the company reported $7.2 trillion in client assets. To be sure, McMillan said in June that it would take at least a year to determine whether the technology is boosting advisor productivity. If so, that would be welcome news for shareholders after Morgan Stanley’s wealth division missed analysts’ revenue expectations in the second quarter. WFC YTD mountain Wells Fargo YTD It’s not just Morgan Stanley. Our other bank, which holds Wells Fargo, has its own virtual AI assistant. Called 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’s AI, launches in March 2023. For a large financial hub like Wells Fargo — a bank that historically serves Main Street — Fargo’s assistant could bolster the bank’s largest reporting segment. The consumer, banking and lending unit accounted for nearly 43% of the company’s $20.69 billion in companywide revenue in the second quarter. Investing in AI deals and partnerships None of this would be possible without partnerships. Big banks have tapped startups and tech giants alike to access their large language models (LLMs) to build their own AI products. In addition to Morgan Stanley’s OpenAI deal and Wells Fargo’s relationship with Google, Deutsche Bank also partnered with Nvidia in 2022 to help develop fraud prevention apps. On July 10, BNP Paribas announced a deal with Mistral AI — often seen as Europe’s alternative to OpenAI — to embed the company’s MBAs across its client services, sales and IT businesses. Shortly after, TD Bank Group signed an agreement with Canadian AI firm Cohere to leverage its MBA pool as well. “We’re watching these[deals]because it means they’re absorbing a lot of this capability,” said Evident’s Mousavizadeh. Big AI firms hiring for big Wall Street Banks have also had to do a lot of hiring to make their AI dreams come true — snapping up large numbers of data scientists, data engineers, machine learning engineers, software developers, model risk analysts, and policy and governance managers. Despite layoffs across the banking sector, AI talent at banks has grown 9% in the past six months, according to July data from Evident, which tracks 50 of the world’s largest banks. That’s double the growth seen in total headcount across the sector. “One of the key characteristics of AI-leading banks is that they don’t stop hiring,” Mousavizadeh said. “The leading banks are the ones that are hiring the most AI talent.” In July, Wells Fargo hired Tracy Kerins as its new head of consumer technology to oversee the company’s new AI team. McMillan was promoted from Morgan Stanley to head of AI in March after serving as chief technology officer for the wealth division. He helped oversee Morgan Stanley’s OpenAI-related projects. JPMorgan also hired Teresa Heitzenreither last year as its head of data and analytics, responsible for AI adoption. The bottom line is that the more we see these companies spending and investing in AI talent, the more serious they seem about the future of emerging technology. We don’t expect these third-party partnerships, new use cases, and a series of hires to create massive returns overnight. However, as long as these costs don’t outweigh the return on investment (ROI), we’re happy with Wells Fargo and Morgan Stanley’s moves toward innovation. “We’re in the foothills of this, and we’ll see more ROI from AI use cases in 2025,” Mousavizadeh said. “But I think you’ll see a real tipping point in 2026.” (Jim Cramer’s philanthropic fund is long NVDA, WFC, GOOGL, MSFT, and MS. See here for a full list of stocks.) As a subscriber to 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 philanthropic fund’s portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after issuing a trade alert before executing the trade. The above Investing Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No fiduciary obligation or duty is, and is not, created by your receipt of any information provided in connection with the Investing Club. No specific outcome or profit is guaranteed.
Pedestrians walk along Wall Street near the New York Stock Exchange (NYSE) in New York, U.S., Tuesday, Aug. 27, 2024.
Bloomberg | Bloomberg | Getty Images
Big banks are joining the AI arms race.
