Many who debate the consequences of artificial intelligence for white collar jobs predict it will mean fewer entry-level jobs. In capital markets, those making that observation may have their binoculars trained on the right animals, but they mistake the hunters for the hunted.
In investment banking, in the broadest sense of the term, the most popular train of thought about AI's impact on the traditional career ladder runs as follows: AI will take over menial tasks, allowing firms to hire fewer juniors.
A surface reading of that outcome is that it sounds great for the greyhairs. They can continue to service their established client relationships, without needing as many pimply PowerPoint pilots and eager Excel experts to do their grunt work.
Looking further ahead, those who foresee this outcome wonder where tomorrow's apex predators will come from if there are no autotrophs gradually evolving from the mire.
Here, we must make a distinction between different activities within investment banking. In M&A and strategic advisory work — the sort clients may only pay banks for once in a blue moon — trusted senior bankers are of paramount importance. Fewer juniors may be needed to keep them humming.
But in more commoditised businesses — say, debt capital markets — the picture may develop rather differently.
The standard analysis neglects a vital factor: the incentives for the banks and their most senior managers, who are the ultimate decision makers in this chain.
The senior capital markets bankers of tomorrow will keep coming from the lower ranks, as they always have. But what is likely to change is that they will get there faster. It will be the old guard who have the weakest defence when it comes to job security.
Over time we can expect AI to hallucinate less and analyse data ever more accurately, shaving hours of work from junior bankers' workloads. As AI gets better and users come to understand and use it more effectively, junior bankers are likely to have a lot more free time on their hands.
What are the bosses to do with them? This cadre of analysts and associates will likely be the most adept at using AI and will have engaged with it far more than the generations above them who still harbour a romantic attachment to their ancient HP-12C calculators.
From the banks' point of view, they must decide how best to deploy their resources. On one hand will be a group of younger, cheaper employees with time on their hands, who are already AI-literate.
On the other, an older, expensive group, probably far less engaged in what AI can do for their business. Or, as one bank boss delicately put it, "lower value human capital".
The solution is clear: juniors will be pushed in front of clients far more, making the expensive phalanx of tassled loafer-sporting managing directors ever less of a necessity.
Those senior bankers can of course argue that they bring years of nuanced understanding, crisis navigation, an ability to have the feel of the market on any given day and their reputation with their clients. But that can only get them so far.
Banks can mandate that juniors must be given ever more client contact, or simply reassign responsibilities away from the most senior bankers, trimming the numbers as they go.
The juniors now no longer spending their days crunching numbers or shunting logos around on a presentation deck will be able to observe the market more closely and pick up how to handle clients far more quickly from their seniors — or at least those who are incentivised to stick around and teach them.
How important are people, anyway?
But capital markets are a people business, protests every market participant over 30. What of those hard-won relationships built on deep roots of trust, developed over many years?
Perhaps they are not as important as many would like to believe.
Individuals at bank and client may like and trust each other, and that can enhance the institutional relationship. But those ties are at their heart between firms, not individuals. To put it bluntly, the client will speak to whomever the bank puts in front of it.
If that sounds far-fetched, consider that banks have already juniorised some parts of their front office operations as profitability diminished in the face of rising competition.
The markets are littered with tales of senior, well-respected bankers, beloved by clients, who found themselves pushed aside one day in favour of cheaper, younger alternatives. Far harder to find are examples where the bank's business suffered meaningfully in the long-term as a result.
The institutional relationships between client and bank endure, even if they do not always run quite as smoothly for a time.
The cause of the senior banker is not lost, however — at least not in the short term.
Banks are selling issuers their access to capital — from their own balance sheets or investors — their underwriting, hedging and trading capability and their advice.
Capital access and deal execution are about institutional strengths. Advice, however, requires seasoned expertise, so it would be a foolhardy bank that cuts all its veterans straight away.
There is value in having experienced hands on deck, especially when things go wrong. But that value the most senior bankers hold will decline as others gain the same experience.
Another argument in favour of the more experienced is that the older generation instils culture in those below.
But culture changes over time. Investment bankers operate differently from how they did in the 1980s, 1990s and 2000s — the result of broader cultural change influencing the industry, but also regulation. Banks have other means of achieving cultural change too, through incentives and codes of conduct.
The direction of travel is clear, and the speed of the journey is accelerating. Cheaper, junior bankers, freed from drudgery, stand to get far more client access earlier in their careers.
As AI infiltrates the capital markets, it is those who offer their employers a similar value proposition — efficiency and cheapness — that stand to benefit the most.