Promontory Financial Group Signs Up With IBM -- Update
September 29 2016 - 6:07PM
Dow Jones News
By Ryan Tracy and Katy Burne
Promontory Financial Group, one of the best-connected and most
powerful financial consultancies, is selling out.
The Washington-based firm has agreed to be bought by
International Business Machines Corp., which plans to set up a new
unit combining Promontory's consultants with its own
artificial-intelligence technology to advise clients on financial
regulation.
Privately held Promontory was founded in 2001 by Eugene Ludwig,
a former U.S. Comptroller of the Currency, and has hired a small
army of former senior regulators and government officials. Banks
and government agencies use the firm as an adviser, but also as a
sort of outsourced regulator, which sometimes performs jobs the
government doesn't have the resources to do. Regulators, for
example, might hire Promontory to monitor a financial firm's
compliance with the terms of a settlement.
The sale comes a year after a run-in with New York regulators
who alleged Promontory watered down reports about potential
sanctions violations by British bank Standard Chartered PLC. The
New York Department of Financial Services said the firm exhibited
"a lack of independent judgment in the preparation and submission
of certain reports" from 2010 to 2011. Promontory admitted it
didn't meet certain standards and agreed to pay $15 million to
settle the matter.
IBM hopes to combine Promontory's financial regulatory expertise
with Watson, the technology company's artificial-intelligence
computer system, to help banks meet ever-rising regulatory
expectations in areas such as anti-money-laundering detection
systems, consumer-complaint databases and so-called stress
tests.
"There is no way that professionals can keep up with critical
information growing at these rates," IBM Senior Vice President
Bridget van Kralingen said in an interview. "Watson is going to
learn...by continuously ingesting this regulatory information as it
is created."
IBM has run technology systems for financial institutions for
decades, but this acquisition represents a new foray into financial
regulatory compliance work.
Ms. van Kralingen said the increasingly data-driven world of
financial regulation is a logical expansion of its Watson cognitive
computing technology, which the company also is applying in cancer
research and other areas.
With anti-money-laundering compliance, for example, banks are
expected to track millions of customers and financial transactions,
looking for suspicious activity and reporting it to the government.
If they miss activity such as terrorism financing or sanctions
evasion, they can face multimillion-dollar or even billion-dollar
fines.
Promontory's experts and IBM's Watson team are looking to create
a smarter system for catching suspicious transactions and
customers, which then could be sold to banks, executives said
Thursday.
Promontory previously drew criticism from members of Congress
for pay it received when regulators tapped it to search for errors
in mortgage foreclosures at big banks after the financial crisis.
Promontory was paid more than $900 million for the work, it
disclosed in 2013. The company said at the time that it put in
several million hours on the project and stood by the quality of
its work.
In recent years, Promontory hasn't attracted a piece of business
as sizable as the foreclosure review, according to people familiar
with the company.
Mr. Ludwig, 70 years old and deeply involved in day-to-day
operations, has a "multiyear commitment" to the company and remains
its CEO, said Promontory spokesman Todd Davenport.
Promontory last year had briefly explored a sale to Boston
Consulting Group, according to a person briefed on the matter, but
both sides walked away. David Fondiller, a spokesman for BCG, had
no immediate comment.
Mr. Davenport said Promontory "has regularly received
indications of interest and has on occasion discussed potential
strategic opportunities with various entities."
He said the company didn't proceed "until IBM approached us with
a transformational opportunity that stands to benefit our clients,
their customers and the financial system."
Mr. Ludwig, in an interview, said formal discussions with IBM
had been going on for about the past six months, although he first
approached the company with the idea of a joint venture a decade
ago. "To get [regulatory compliance] right for large institutions
takes tremendous computing power, but it also takes domain
expertise" that Promontory has, he said.
The new venture, to be called Watson Financial Services, will be
part of IBM's Industry Platforms unit, Ms. van Kralingen said.
The companies didn't disclose financial details of the deal,
which they said is subject to regulatory approvals and expected to
close by the end of the year.
Write to Ryan Tracy at ryan.tracy@wsj.com and Katy Burne at
katy.burne@wsj.com
(END) Dow Jones Newswires
September 29, 2016 18:52 ET (22:52 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
International Business M... (NYSE:IBM)
Historical Stock Chart
From Aug 2024 to Sep 2024
International Business M... (NYSE:IBM)
Historical Stock Chart
From Sep 2023 to Sep 2024