Morning Coffee: Morgan Stanley engineers solved banks’ most intractable coding problem. What to do when David Solomon gives you a demotion

For investment bank technology staff, the word “legacy” isn’t just a description of how your boss got into Harvard – it’s the name for all the ancient code that powers key banking functions, which nobody really understands.  Often written in archaic languages like COBOL, the legacy code is frustrating, because everyone knows that it’s likely to be inefficient and costly, but it works, and it’s generally doing mission-critical things.  So trying to update it is like trying to mend an aeroplane while it’s in flight; you don’t dare to do more than tinker around the edges, because you really don’t want to risk any changes that might bring the whole system crashing to the ground.

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But with some help from artificial intelligence, the Wall Street Journal says Morgan Stanley’s tech team are beginning to take on the challenge.  They even appear to be doing so in a way that doesn’t directly put their own jobs at risk.

The secret appears to be that COBOL has a slightly unfairly bad reputation.  When people complain about “COBOL systems”, they are usually just complaining that the legacy system is very old.  Because it’s old, it isn’t optimized for modern hardware, and it tends to have lots of bolt-on features to allow it to interface with web servers, APIs and the like.  Many of the “COBOL” problems relate to auxiliary libraries that were written to solve specific problems, decades ago, by people who have long since left the bank without properly documenting what they were doing.

So Mike Pizzi, the global head of technology and operations at MS, says the best results come from training the AI on their entire code base, then using it to “reverse engineer” the legacy code, extracting the “business logic” from the reams of patchy COBOL and custom libraries and turning them into a clear and comprehensive set of specifications.  Once the really tricky question of “what on earth does this stuff all do, exactly?” has been answered, it’s relatively simple for competent coders with modern tools to write a new system that takes the same inputs and produces the same outputs, but runs faster and will (hopefully) be easier to maintain in future.

What makes this even more of a success story for Morgan Stanley is that they have done nearly all the development in-house; Pizzi says that although they investigated products from top consultancies and AI startups, “building it ourselves gave us certain capabilities that we’re not really seeing in some of the commercial products”.  That gives MS “the opportunity to get the jump early”, as well as making the technology team less scared that they might become “legacy assets” themselves.

Elsewhere, what do you do when your boss tells you that he wants you to leave a big and profitable team in New York, and go and run a significantly smaller team in London. “What’s in it for me?” might be a natural response, or “Why would I trade a large opportunity for a smaller one?”.

That’s pretty close to what Business Insider says Denis Coleman of Goldman Sachs actually said to David Solomon when asked to go from being global co-head of leveraged finance to go and lead the EMEA financing group.  Solomon’s response, though, was a great lesson in Goldman’s “long term greedy” corporate ethos.

Coleman was advised to see his mandatory move into a smaller job not from the point of view of the size of the P&L number attached to his name, but in terms of “seizing an opportunity that could make a meaningful difference for the firm”.  Effectively, Solomon reminded him that the “big opportunity” in his existing team was actually largely created by the Goldman franchise, and that he would be rewarded better if he were to take on something where he was adding value rather than benefiting from the company name.

This advice worked pretty well for Coleman; the EMEA financing business grew and gained market share, and today he’s the CFO of the entire business.  The lesson he’s taken from the experience was “Trust the firm, trust the people you work with, and be willing to take risks with your career”, but it’s also a lesson in not confusing your own value with the revenue that would come in to anyone who was sitting at your desk.

Meanwhile …

While the Goldman franchise is famously greater than the sum of its parts, there are some other firms which appear to have been less than their individual components.  The latest HSBC investment banker to have been snapped up by a prestigious Wall Street firm is Mark Milano, who is going to “a senior role” at Moelis.  (Bloomberg)

Marianne Lake is taking on responsibility for the international expansion of JPMorgan’s consumer banking business.  This was previously handled by Dan Pinto, but he is moving on to a vice-chair role and Sanoke Viswanathan (the current head of international consumer and wealth) is leaving the bank.  It obviously further fuels rumours about succession, but after the failure of Goldman Sachs’ ventures in the same area, this could also be seen as a poison chalice. (FT)

A reporter discovers what many sell-side bankers have known for a long time – if there’s bad weather in Chicago, you are going to have miserable time at a Midwestern airport. (WSJ)

Santander has a problem with its CFO-designate, as Alexsandro Broedel Lopes is subject to an investigation for fraud at a previous job which is going very slowly through the Brazilian courts.  They are now considering reopening the recruitment process. (Bloomberg)

“Deel” and “Rippling” are two VC-backed human resources software startups, who have somehow got into an espionage scandal that makes Tidjane Thiam’s Credit Suisse look like a polite misunderstanding.  So far, one employee has admitted to smashing his phone up with an axe and throwing the pieces down a drain; he’s now claiming to have been a whistleblower. (FT)

If you have $5,000 spare from the disappointing bonus season, and are OK with avoiding alcohol and sex for five days, you can get a hair transplant in Turkey. (The Cut)

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