eFinancialCareers

Get in on the ground floor.

Capital markets are where traded financial products are born. Working on the ‘factory floor’ of the financial markets, these… er… blue collar bankers produce financial products for companies and institutions that want to raise money. The two main products are shares, traded on the equity capital markets (ECM) and bonds, traded on the debt capital markets (DCM).

Until the redemption date, the issuers of most bonds pay regular interest to the bondholder. Because these are a fixed-cash sum, bonds are known as fixed-income products. Similarly, the bond markets can be known as the fixed-income (FI) markets. As well as simple equities and bonds, capital markets divisions also issue more complex products (bonds that can be converted into equities at a pre-arranged price) and derivatives.

Fixed-income capital markets are much larger than equity capital markets. In 2006, for instance, Dealogic calculated that the value of bonds issued in Europe, the Middle East and Africa was US$2.25 trillion, while the value of equities issued in the region in the same period was just US$267.5bn.

Trends

Like most areas of investment banking, capital markets experienced a boom in 2006. The amount of equity issued on stock exchanges in Europe, the Middle East and Africa rose 19% compared to 2005, while the amount of debt issued rose 13%.

One of the biggest stories of recent years has been the number of companies floating on the Alternative Investment Market, or AIM. AIM is part of the London Stock Exchange (LSE) and its regulatory standards can be easier to satisfy than those of the LSE’s main market. The number of companies listing on AIM doubled from 2003 to 2006. Many came from overseas, particularly from emerging markets such as Russia and China.

However, as AIM and other European listings have gone through the roof, US markets such as Nasdaq have lost out. In January 2007, a report commissioned by the mayor of New York suggested the city risked losing its status as the world’s leading financial centre – largely due to stringent regulations such as the Sarbanes Oxley Act, which deterred companies from listing on American stock exchanges. By comparison, London’s AIM, in particular, has been accused of being too lenient.

Key players

If US banks dominate the European M&A league tables, European banks do a little better in the capital markets arena. In 2006, Barclays Capital was the leading advisor on European debt issues by value, followed by Deutsche Bank, with UBS the leading equities issuer. However, US banks followed closed behind, particularly in the equities market, with JPMorgan, Goldman Sachs and Morgan Stanley in second, third and fourth places.

Roles and career paths

If you work in the capital markets division, you could find yourself doing anything from originating (bringing in business), to structuring (assembling complex derivatives products) or syndicating (preparing for the sale of finished products to investors).

Origination specialists are usually senior capital markets bankers. It’s a job that involves a lot of travel: originators spend their time meeting clients in an effort to gain insight into their financing needs and persuade them to deliver up their business. By comparison, structurers are distinctly desk-bound. They spend their time creating esoteric financial products that suit a company’s financing needs, as communicated by the originators. It’s up to the people on the syndication desk to prepare the ground for the sale. They calculate the best price range for the products concerned, assess how many people will want to buy them and make sure the correct documents are in place.

Pay

Top capital markets bankers aren’t paid as much as top derivatives traders, but they still do very, very well. In 2006, average total pay for a managing director originating debt deals for a top investment bank was around £875k, according to headhunter Napier Scott.

By comparison, pay for analysts in debt capital markets can be anywhere between £45k and £88k.

Skills

Debt and equity capital markets jobs are highly sought after and the increasing complexity of financial products means you will need a strong academic record to get in, advises Richard Moore, EMEA head of campus recruitment at UBS: “The appetite and awareness of clients for financial products is more complex now, so you need to have a good degree of technical and mathematical skill. But you also have to have good relationship management skills,” he explains.

Sally Whitman, head of specialist resourcing at Deutsche Bank, says: “You need to look carefully at what it is you want to do. Some areas can be very analytical and there we might look for someone with a PhD. But, for most areas, problem solving skills as well as strong communication are essential.”

Julian Bell, a director a headhunter Sheffield Haworth and former director of equity capital markets at Société Générale, agrees: “You’ll need to be deal oriented, to know how markets work and to understand why a deal can or can’t be priced in a certain way,” he says