Capital Markets

Investment Banking: Where financial products are born Bankers in the capital markets divisions of investment banks produce the securities companies and institutions use to raise money through public markets. The two main products are stocks, which are traded on equity capital markets, and bonds traded in the debt or fixed income markets. Equity capital markets (ECM) bankers help companies raise money by issuing shares and related derivative products, which are sold to investors. They act as “underwriters” in the process. This means that, in exchange for a fee, they guarantee they will sell the shares the company is issuing for a certain price. If they can’t find enough people to buy the shares at the price they’ve agreed with the client, the bank is obliged to buy the shares. Debt capital markets (DCM), meanwhile, deal with saleable units of debt in the form of bonds that are issued by companies or governments. Bonds come in a variety of types, such as investment grade corporate bonds, less than investment grade high yield or so-called “junk” bonds, municipal or muni bonds, and treasuries, which are issued by the federal government. DCM is also often referred to as the fixed-income market. This is because the origins of bond underwriting were in debt securities that paid a fixed amount of interest. Financial products that have been created by capital markets bankers in the so-called “primary markets” go on to be bought and sold by banks’ salespeople and traders in the “secondary markets.”

Roles and career paths

A guide to finding a job in securities and banking

As banks are essentially offering similar services, they have to convince clients that their firm is the one to use. So before new equity or debt-related products can be created, deal “originators” are deployed to bring in new business.

Origination specialists spend a lot of time traveling to clients to gain an insight into their financing needs. However, you are unlikely to become one until you’ve worked in capital markets for some time.

As a junior capital markets professional, you are more likely to be involved in structuring the products so that they meet the client company’s financing needs and are compelling for investors, or in the syndication process (preparing for the sale of finished products to investors).

Skills sought

If you want to work in capital markets, it will help to have an understanding of, and interest in, the technicalities of company financing, but this isn’t the limit of the job. “Product knowledge, such as how to structure and price various equity products, and market understanding are key skills of a capital markets banker,” says Darius Naraghi, director, equity capital markets at Deutsche Bank in Hong Kong. “As ECM bankers become more senior, it is also important to develop strong relationships with regional companies that are looking to raise money and also with institutions that are looking to invest.”

NOTE!

You have to be a real team player, largely to keep a variety of parties happy throughout a complex process.