Before financial products are traded, they must be created. And it’s the ‘pink-collared’ bankers in the capital markets divisions of investment banks who work on the production line.

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. Bonds come in all shapes and sizes, including treasury bonds issued by governments (the least likely to default), investment grade bonds issued by companies (not too likely to default) and so-called ‘high-yield bonds’ (which are more likely to default so pay a higher rate of return).

DCM is also called the fixed-income market. This is because bonds typically pay a fixed amount in interest until their redemption date (i.e. when the original issuer has to pay back the money on the bond to whoever owns it at that time). For example, a bond worth €100 (£60) might pay out €10 a year, making the interest rate 10%. If the rate paid on a bond falls, the amount the bond is bought and sold for will therefore need to rise – until the redemption date at the end of the bond’s life, when the owner will receive its ‘face value’, in this case €100. 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’ sales people and traders in the ‘secondary markets’.

Roles and career paths

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 travelling 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). These days, it is often not sufficient simply to be an equity or a bond specialist. Banks such as Morgan Stanley, J.P. Morgan, Citigroup and UBS have combined their equity and debt origination businesses, so it helps to understand both sides of the coin.

Pay and bonuses

In Hong Kong, DCM professionals with one to four years’ experience can earn anything in the range of HK$ 300k-850k ($38k-109k), according to the Robert Walters salary survey. This rises to HK$1.6m+ ($205k+) at the senior end, and ECM bankers can expect a similar figure.

In the UK, meanwhile, DCM salaries start at £30k-45k($48k-73k), according to the 2010 Michael Page salary survey. Associates (those with three to five years’ experience) can earn £50k-75k ($81k-122k), while managing directors should expect a salary of up to £250k ($407k).

In the US, capital markets analysts can expect $60k-65k in their first year, rising to $70k-90k after two years, according to recruitment sources.

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.”

Following the financial crisis, banks are less busy issuing complex financial products than before, but it will help if you have the mathematical ability to deal with complex products in case they become popular again – one day.

Finally, if you want to progress, it is important to look at the bigger picture and take an interest in industries and sectors outside your current area of specialisation, suggests George Davis, managing director, RBC Capital Markets.

“You need to understand your role, where you fit within your immediate group, and where your group fits within the firm’s broader objectives,” he says. “You should also have a clear understanding of client needs and the utmost in ethical conduct.”

Although you will be given a high level of individual responsibility, capital markets careers are not like trading careers, where individual excellence can reap the highest
rewards.You have to be a real team player, largely to keep a variety of parties happy throughout a complex process.