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IBM’s Watson Gets Wall Street Job After ‘Jeopardy’ Win

By Beth Jinks
March 06, 2012 4:23 PM EST 38 Comments
"Jeopardy!" contestant Ken Jennings, who won a record 74 consecutive games, before starting a practice match against another "Jeopardy!" champion and an IBM computer called "Watson" in Yorktown Heights, New York, on Jan. 13, 2011.
Photographer: Seth Wenig/AP
"Jeopardy!" contestant Ken Jennings, who won a record 74 consecutive games, before starting a practice match against another "Jeopardy!" champion and an IBM computer called "Watson" in Yorktown Heights, New York, on Jan. 13, 2011.

International Business Machines Corp. (IBM)’s Watson computer, which beat champions of the quiz show “Jeopardy!” a year ago, will soon be advising Wall Street on risks, portfolios and clients.

Citigroup Inc. (C), the third-largest U.S. lender, is Watson’s first financial services client, IBM said yesterday. It will help analyze customer needs and process financial, economic and client data to advance and personalize digital banking.

IBM expects to generate billions in new revenue by 2015 by putting Watson to work. The technology giant has already sold Watson to health-care clients, helping WellPoint Inc. (WLP) and Seton Health Family analyze data to improve care. IBM executives say Watson’s skills -- understanding and processing natural language, consulting vast volumes of unstructured information, and accurately answering questions with humanlike cognition -- are also well suited for the finance industry.

Financial services is the “next big one for us,” said Manoj Saxena, the man responsible for finding Watson work. IBM is confident that with a little training, the quiz-show star that can read and understand 200 million pages in three seconds can make money for IBM by helping financial firms identify risks, rewards and customer wants mere human experts may overlook.

Banks spent about $400 billion on information technology last year, said Michael Versace, head of risk research at International Data Corp.’s Financial Insights, which has done research for IBM.

Cloud-Based Service

Watson the financial assistant will be delivered as a cloud-based service and earn a percentage of the additional revenue and cost savings it is able to help financial institutions realize. Watson, including its work in the health- care and finance industries, will contribute “a portion” of IBM’s target of $16 billion of analytics revenues in 2015, Saxena said, and that portion will “have a B next to it.”

Watson may add $2.65 billion in revenue in 2015, adding 52 cents of earnings per share, Ed Maguire, an analyst at CLSA in New York, estimated in a November research note.

IBM, the world’s biggest computer-services provider, reported revenue of $107 billion in 2011 and earnings of $13.06 a share. The company ended 2011 with $11.9 billion in cash.

IBM shares closed above $200 for the first time yesterday, factoring in stock splits. The stock fell 1.7 percent to $197.26 at the close in New York today.

Language of Wall Street

Watson “can give an edge” in finance, said Stephen Baker, author of books The Numerati and Final Jeopardy, a Watson biography. “It can go through newspaper articles, documents, SEC filings, and try to make some sense out of them, put them into a context banks are interested in, like risk.”

In addition to Citigroup, Armonk, New York-based IBM has been working with financial institutions teaching Watson the language of Wall Street, and adding content including regulatory announcements, news and social media feeds. IBM won’t say which other institutions Watson is already working with.

“It’s not selling them software, it’s selling them outcomes,” Saxena said in a phone interview.

Watson offers a “more global” picture by looking beyond financial data, Saxena said. For example, Watson can comb 10-Ks, prospectuses, loan performances and earnings quality while also uncovering sentiment and news not in the usual metrics before offering securities portfolio recommendations. It can also monitor trading, news sources and Facebook (FB) to help a treasurer manage foreign exchange risk.

‘Huge Marketing Edge’

Some of the biggest financial institutions have already built big data centers. IBM is competing with most other major technology companies to sell them tools to analyze and use accumulated information, Versace said.

“Apparently Citi gets it -- analytics is the new core in competitive banking,” Versace said. “The ability to efficiently and effectively exploit big data, advanced modeling, text analytics, in memory and real-time decisions across channels and operations will distinguish those that thrive in uncertain and uneven markets, from those that fumble.”

Watson gives IBM “a huge marketing edge” in the race among tech giants including Google Inc. and Microsoft Corp. (MSFT) to obtain intelligence for businesses by teaching machines to understand sentences and paragraphs rather than searching for single words or phrases, said author Baker.

Parts of Watson could already be combined with other IBM technologies to help banks with regulatory compliance by surveying internal documents and flagging those that seem amiss, Baker said. Watson was designed to be loaded with information rather than grapple with a live streaming feed, making it likely IBM will partner it with other technologies.

Applications Beyond Banking

Beyond banks and other financial institutions, and insurance companies, Watson may have applications for telecommunications companies, and perhaps even call centers, said Saxena, who joined IBM when it acquired his company Webify Solutions Inc. in 2006.

IBM plans to use Watson in financial services “mostly for portfolio risk management, they’re not going to do stock picking,” CLSA’s Maguire said in a Feb. 17 phone interview. “They think that Watson can make a difference.” Still, Watson isn’t perfect. It is weak in languages other than English, and its processing of social media streams from platforms including Facebook and Twitter can be sluggish. The lag is “getting shorter”, Saxena said.

Precise Answers

A year ago last month, about 15 million viewers watched Watson beat former Jeopardy champions Ken Jennings and Brad Rutter -- a highly publicized victory in artificial intelligence that IBM always aimed to apply to the business world.

Watson had to learn how people speak and write, and evaluate its level of understanding, said Eric Brown, a member of the team that built him in an IBM research facility in New York. Precise answers delivered with confidence distinguish Watson from Web searches, enabling the technology to advise real-life decision makers, Brown said.

“I’m sure they use all this stuff internally to manage their own portfolio,” said CLSA’s Maguire. “IBM’s treasury is bigger than a lot of trading desks. If they went into asset management they would kick ass, but that’s not what they do.”

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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