Capital markets

eFinancialCareers Australia Get in on the ground floor of the finance market. Capital markets divisions 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). 1) Shares: also known as equities. If you own a share, you own a tiny 'share' of a company. Shareholders receive a proportion of the company’s profits in the form of dividends. If a share price rises, investors can sell the shares at a profit; if it falls, they can make a loss. 2) Bonds: a form of debt. Like equities, a company (or a government) sells bonds to investors to raise money. However, at some point in the future, the company promises to pay the bond holders back. Since bonds can also be sold on to other investors (in the bond markets), the bond holder who is eventually reimbursed is likely to be totally different to whoever bought the bond originally. Until the redemption date, anyone who owns a bond receives interest payments from the company as thanks for lending it their money. Because these interest payments take the form of 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, such as equity-linked products (bonds that can be converted into equities at a pre-arranged price) and derivatives. Fixed-income capital markets are a lot larger than equity capital markets. According to Thomson Financial research, the value of domestic bonds issued in Australia in 2006 was US$86.6bn, compared with US$49.37bn raised in equity. Trends ECM divisions and DCM divisions have traditionally been separate. Over the past few years, however, a trend has emerged for banks to combine them into one division. Morgan Stanley, Merrill Lynch, Lehman Brothers and Dresdner Kleinwort have all taken this approach. Both types of market grew in 2006: companies raised a record AU$11.9bn in the 2005-06 financial year in listing their shares for the first time on the Australian stock market, and the total value of listed companies rose 21% to more than AU$1.4 trillion. Bond issues rose 12.6% to US$87bn as companies took advantage of low interest rates and raised money through the debt markets. The 2006-07 year has started in a similar vein, with sustained IPO activity (initial public offering, when a company floats on the stock market for the first time) plus M&A and private equity buyouts dominating the markets. Antony Cohen, KPMG’s executive director corporate finance, says it still has a way to go: “Private equity upped the stakes in 2005-06, pushing up multiples. We expect this to continue as superannuation funds continue to pump funds through to them.” Cohen also believes that the global quest for cleaner energy will sustain the Australian stockmarket: “Alternative energy sources such as uranium will attract more focus and investment. As Australia possesses around a third of the world’s uranium reserves, we expect to see a good deal of investment in that sector.” Key players Takeovers, mergers and acquisitions, either by public or private equity, dominated the Australian market. UBS led the field of bookrunners for Australian equity, though Goldman Sachs and Deutsche Bank led in Asian markets. Australian bond markets were headed by Deutsche Bank and National Australia Bank. Roles and career paths If you work in a 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 the 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 product concerned, assess how many people will want to buy it, and make sure the correct documents are in place. Pay Capital markets bankers are usually paid similarly to mergers and acquistions corporate financiers, but with M&A activity surging ahead, capital markets pros are lagging slightly. Analysts can expect to start on a minimum of AU$65k (plus bonus). Pay is heavily loaded in favour of a performance-related bonus. After seven years working on a capital markets team, a DCM vice-president could expect a package in the AU$350 to AU$500k bracket. Directors and managing directors can earn substantially more, with pay for successful originators topping AU$2m. Depending on the health of the respective markets, either ECM or DCM can prove more lucrative than the other. Both draw high salaries in Australia at present because the bourse is powering ahead, but also because of the strength of the activity in leveraged finance (the highly geared debt component of private-equity-led transactions), says Patrick Everest, partner at recruiter Jon Michel. Skills DCM and ECM jobs are highly sought after. To get in, you’ll need a strong academic record plus a raft of other attributes. • Everest at Jon Michel says: ‘It doesn’t matter so much what degree you’ve got as whether you have a clear track record of success and achievement. We don’t expect graduates to know debt and equity markets but we do want to see evidence of their capacity to succeed.” • Emilie Everett, head of recruiting at UBS, says capital markets are not as client-driven as many aspects of investment banking. “It is more market-driven. Even in sales, you might start the day early but by five or six in the evening, the day’s over for you. It is good for a work-life balance. You need to be very numerate and understand the workings of the global markets, be quick to comprehend the significance of movements and quick to act on them, but you will not be at your desk for the long hours common in other divisions. It’s still exciting, and demanding, but you can have a life.” • Elizabeth Ong, head of graduate recruiting at Deutsche Bank, says: “We look for people who are going to be able within a very few years to generate a great deal of money in the markets, who will be able to lead a deal. We look for evidence of leadership standards, a range of people skills, general competencies and familiarity with particular industries and sectors.” Source : * © Copyright 2000-2011 eFinancialCareers Ltd. eFinancialCareers is a Dice Holdings, Inc. company. Dice Holdings, Inc. is a publicly traded company listed on the New York Stock Exchange (Ticker: DHX)