As bond e-trading takes off, debt sales business may be ripe for automation
LONDON (Reuters) – With banks’ bond trading desks increasingly going electronic, another of the last bastions of old-school banking – the business of helping companies and countries raise capital – may be about to succumb to the tide of technology.
FILE PHOTO: People walk through the Canary Wharf financial district of London, Britain, December 7, 2018. REUTERS/Simon Dawson
A clutch of start-ups want to disrupt the cosy world of syndicated debt sales, where borrowers enlist banks’ help to raise capital from investors, by using new technology to shake up the sector.
“There is a lot of money spent on mundane work like data entry, which tends to be done at a very high cost, by highly paid people in highly expensive office space,” said Richard Cohen, legal counsel at London-based Nivaura, which is pitching its digital capital markets platform to banks.
Such start-ups are touting a one-stop-shop digital platform that will automate the generation and tracking of deal-related data. It will end manual processing through Artificial Intelligence, Blockchain and “smart tech”. Some even hope to use their technology to connect smaller borrowers with investors directly, eventually cutting out middlemen banks altogether.
Up against them is the world of primary syndicated debt sales, which has been slow to adopt new technology and is virtually unchanged in 25 years.
By contrast, equity and currency markets embraced the shift to electronic systems more than a decade ago and bond trading has gone the same way in recent years.
The resistance to the march of the machines comes down to the relationship-driven nature of bond sales. Successful pitches can hinge on person-to-person ties forged over lunches in City restaurants, while bankers leave a long paper-trail of documentation on deals that can take months of back-and-forth.
The sheer volume of analysis and the number of parties involved – from banks to law firms to investors – also make it harder to reduce primary dealership business to spreadsheets. Planning deals can take months of delicate negotiations between bank, borrower and end investor.
Banks’ resistance to change may be overcome by the squeeze on profitability, howeve