IBM is acquiring Promontory Financial Group, an influential Washington, D.C., bank advisory firm, the two companies announced today. Financial terms were not disclosed.
The computing giant says it wants to apply the expertise of Promontory’s 600-odd consultants to its Watson system of artificial intelligence, “teaching” the company’s computer to operate better in the complex and evolving arts of financial and regulatory analysis.
Watson is a cognitive computing system developed by IBM, which made headlines when it bested a champion on the television quiz show “Jeopardy.” Its chief innovation is in the way in which its complex algorithms absorb lessons from decisions made by human beings and become more sophisticated.
IBM is hoping to automate the expertise of Promontory’s experts and apply it to complex analysis of unwieldy financial data.
“Automating and scaling is a great thing even with traditional technology, but it’s an awesome step function with a cognitive learning capability,” Promontory chief executive Gene Ludwig said in an interview. “There’s a potential for one and one makes three, or maybe 15.”
Promontory, with 19 offices around the globe, has been troubleshooting for banks and financial services firms worldwide for more than a decade. The firm’s ranks are brimming with former regulators and Beltway insiders, and it has been critically scrutinized for the role it plays in what has been called the outsourcing of oversight.
Its customers, including IBM, see Promontory’s prominence in Washington as an advantage.
“We’re excited to have a strong presence with [Promontory] now in Washington,” Alistair Rennie, IBM’s general manager of industry solutions, said. “They’re close to a lot of the institutions driving regulatory frameworks.”
Some have said they are too close. Last year, New York’s top bank regulator accused Promontory of softening a report it prepared on behalf of Britain-based Standard Chartered outlining the bank’s role in moving money from such countries as Sudan, Iran and Myanmar (also known as Burma) that faced sanctions from the United States. Acknowledging that “in certain instances” its actions “did not meet the department’s current requirements for consultants performing regulatory compliance work for entities supervised by the department,” Promontory agreed to pay $15 million and abstain from certain consulting engagements for six months.
Ludwig says the sale has nothing to do with the fallout of his company’s tiff with regulators.
“That’s long since in the rearview mirror,” he said.
Under the terms of the deal, Promontory will operate as a wholly owned private subsidiary of IBM. The terms of the deal were not disclosed because Promontory is a private company. IBM is a public company but is required to report only those transactions that reach a certain threshold.