22 Investment Banking
Equity Capital Markets guiding companies into the public sphere
Stock markets may be the public face of the financial sector, but before a company’s shares can be traded they must be created, and it’s the equity capital markets (ECM) bankers who help companies do this.
the overview
Equity capital markets bankers help companies raise funds on the stock market
It’s all about trust, relationships…and charm
Careers can be sales-driven or highly quantitative
When a company chooses to raise capital by issuing stock for the first time, possibly to fund an expansion, it’s known as going public, and an initial public offering (IPO) is simply the method by which shares are sold on a stock exchange.
Investment banks act as ‘underwriters’ in the process, meaning that, in exchange for a fee, they guarantee that they will sell the shares a company is issuing for a certain price. If they can’t find enough people to buy the shares at the price they’ve agreed for the company, the bank is obliged to buy the shares. IPOs are the best- known form of share issuance, but ECM bankers are also involved in a number of other types of (often more complex) deals. These include:
Follow-on offering – after a company has been public for more than a year, it may choose to issue additional stock. Because the firm is already publicly traded, the markets determine the follow-on issuance share price, so investment banks focus their efforts on marketing, rather than valuation.
7/10 8/10 7/10 7/10
Secondary offering – a chance for companies to increase the amount of tradeable stock and spread market capitalisation (its value) over a greater number of shares. Usually, it’s down to major shareholders, typically company founders or initial shareholders, looking to offload some of their stock.
Rights issue – allowing publicly listed, cash- strapped companies to issue additional stock, usually at a discount rate, in order to meet their financing obligations.
Block trade – a privately negotiated stock sale organised through investment banks that allows two parties to buy and sell large quantities of a company’s stock without affecting its supply and demand. Big trades can cause dramatic fluctuations in share price.
Registered direct offering – a pre-determined amount of stock sold to a select band of registered institutional and accredited investors, rather than the ‘man on the street’.
key players Global ECM bookrunner ranking 2012 ($bn)
net bank
1. Goldman Sachs 2. Citi
3. Morgan Stanley 4.
J.P.Morgan
5. Bank of America Merrill Lynch
Source: Dealogic Roles and career paths
Like other front-office roles in investment banking, job titles and career progression are relatively straightforward. You start out as an analyst, either structuring products by being at the heart of the valuation process, or being part of syndication (preparing the sale of finished products to investors). Associates stay with the number crunching, but are also likely to be more involved with clients. As you move up to vice president, expect the role to become more process-driven – namely, stepping away from the data and liaising with third parties like lawyers, accountants and other financial advisers in order to gather and synthesise information for clients.
It’s only later, at director and managing director level, where the pressure mounts and you become an ‘originator’, nurturing relationships with existing clients, pitching for new business and ‘hand holding’ clients, particularly those going to market for the first time.
Within the ECM team you can either choose to become an industry specialist – consumer, financials, telecoms etc – or move into a particular group. For example, working in a team originating deals is different from the syndication division, which more closely liaises with investors and the bank’s equity sales team. Or, you could specialise in convertible bonds – a low-yielding corporate debt issuance that has the option to convert into equity. These roles sit in the ECM team, but are much more quantitative.
Skills sought Rupert Mitchell
Managing director, Head of Asia- Pacific equity syndicate, Citigroup
We can teach you all the corporate finance skills you will ever need but I have never hired anyone who did not have a strong interest in financial news and markets. Be informed, have a view.
If you harbour ambitions to become a senior ECM banker who originates deals, banks will expect you to come armed with a natural charm. “As we are working with very senior company executives, we look for charisma and confidence (but not over-confidence) so that a team member can engage well with clients,” says Ben Canning, managing director, UK ECM at BNP Paribas. “We try to envisage what a person will be like in five to 10 years’ time, to see if they can manage client relationships.”
revenue 58.6 54.6 52.4 51.6 46.1
market share
8.9% 8.3% 7.9% 7.8% 7.0%
How hot? Money Kudos Opportunities
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