Companies, financial institutions, governments, and groups of countries (known as supranationals) that want to issue debt to expand their business or invest in current capacity are all served by DCM teams. Unlike other areas of investment banking, DCM teams can both issue debt (typically bonds) and assist in the syndication process that gets the bonds to market. Syndication teams are responsible for ensuring that the transaction proceeds smoothly to the secondary markets, where investors can trade the debt instruments.
According to Zuberi, there’s a lot more to working in DCM than most people realize, and there are compelling reasons to choose it over M&A.
What does the debt capital markets team of an investment bank really do?
DCM can refer to a number of things. It includes both debt transaction origination and syndication, which serves as a link between those who bring in the deals and the secondary market. Originators consult with clients about potential issuances. This might be a company that is entering the market for the first time, or one that is looking to take advantage of a concurrent deal that includes both origination and loan syndication. Corporates, financial institutions, sovereigns, and supranationals are among our clients.
DCM isn’t just about bonds anymore. Yes, bond originators are working on fresh issuances, but there’s a lot more going on these days.
How has the sector moved on then?
It’s more about finding a solution to a client’s problem than simply encouraging them to take out a loan. So, while a bond may be the solution to their problem, you should give them with a menu of options, including bonds, loans, hedging options, and refunding existing debt products. We should be assisting them in making the best decision possible.
So, what does that mean for career options?
You used to be able to find dedicated bond originators, but now days they’re hard to come by. Finally, you must be able to originate various items in order to thrive in DCM. Rather than becoming an expert, developing a range of experience is crucial and also what we know our graduates seek in their professions.
People tend to specialize in one customer segment you might be a financial institutions group (FIG) originator or specialize in sovereigns, for example but they do move around.
Why should graduates want to work in debt capital markets over other front office investment banking jobs?
DCM is fascinating because it allows you to communicate with clients right away. When it comes to M&A, it may take some time until you meet the CFOs or CEOs of the firms you work with. Client contact is possible at the VP level, but it’s more common when you’re a senior VP or director.
Working with customers’ risk and treasury units puts you in the spotlight from day one at DCM. They don’t care about your rank; all they worry about is finding a solution to their difficulties. These challenges are frequently one-of-a-kind and peculiar, necessitating a great deal of initiative and knowledge hence the steep learning curve in DCM.
The structure of the underlying products can differ greatly from other investment banking advising responsibilities, but you must develop solutions for customers during typically stressful circumstances. DCM, I believe, is more intriguing than other divisions of the company because of the consultation process.
What’s the workload like?
Working hours at the junior level in M&A have gotten a lot of bad attention. While the senior guys are out on the road, juniors are learning the ins and outs of valuing firms. In terms of organization, DCM appears to be similar, but are people working on pitch books at midnight? Certainly not. Our graduates usually arrive by 8.30 a.m., and if they stay till 7 p.m., it’s been a hard day.
What three characteristics make you good at your job?
Curiosity. In DCM, you are given a problem to solve, and you must break it down into its essential elements, compartmentalize them, and come up with a solution. You’ll have to go through a lot of data to figure out what the most important problem is. The first step in fixing a problem is to define it, which requires curiosity.
The ability to work as part of a team is the second requirement. Yes, it’s a cliche, but your job entails a large number of people and requires open communication, which necessitates the need of cooperation.
The ability to communicate in clear and accurate phrases is the ultimate requirement. Clients have a complex problem and want to know the simplest answer that will cost them the least amount of money.
What’s the best part of the job?
Working with a client that believes they have a world-ending problem and being able to address it is the finest part. It’s the equivalent of achieving straight A’s in school.
If you could give some advice to your 20-year-old self, what would it be?
I’ve always considered my career as an opportunity, which is why I’ve always jumped at opportunities that have presented themselves around the organization. So, if I had to provide advise to my 20-year-old self, it would be to be open and not box yourself in.
In investment banking, longevity is determined by your ability to reinvent yourself when the opportunity arises. I’ve been at Deutsche Bank since 1996, where I established an insurance and pensions department, persuaded the firm to invest in the Abbey Life assurance business, served as COO of the capital markets business, and am now back in a client-facing division at CIB.
Personally, I’d be bored if I didn’t switch roles frequently, but I’d argue that any experience increases your value, so don’t specialize right away.
What interview question do you always ask?
It’s a simple question: how would you invest a million dollars if I gave you one? Most people who enter investment banking have a good understanding of the stock market but limited understanding of bonds, so it’s a test. It’s uncommon that I get a satisfactory response. But I want individuals to be concise and not waffle this is a test of their ability to communicate and reason through a problem. If I’m going to be with them for 12 hours a day, I want to know they can communicate well.
What do people do in debt capital markets?
Debt Capital Markets (DCM) is in charge of the origination, structuring, execution, and syndication of a wide range of debt-related products, including as bonds and asset-backed securities, issued by SEB’s clients, including corporate entities, financial institutions, and local governments. DCM is also in charge of syndication and loan agency services for all syndicated loan products originated by the LC&FI division’s lending units.
Why would you like to work within the Capital Markets team?
You develop a diverse set of abilities, which I believe is crucial early in your career. The wide range of items you cover as part of the team gives you a lot of career choices. You’ll be given the opportunity to build a solid blend of technical (modeling, bond pricing, financial analysis), creative, and communication abilities, as well as a very supportive environment among the analysts.
Is DCM a good career?
DCM is regarded as a viable long-term career opportunity. Take a look at the sheer size of the global debt market: there are chances in every country, both public and private, as well as every economic sector. This means that, depending on your preferences, you’ll have plenty of options to switch from one bank to another or from one country to another.
As a graduate, you begin as an analyst and work hard to get to associate as rapidly as feasible. If you have a Master’s degree, such as an MBA, you would begin as an associate and work your way up to associate director, director, and finally managing director.
The hours in DCM are sufficient to allow you to maintain a reasonable work-life balance, and the salary is competitive with comparable investment banking options. When you attain the position of managing director, you will likely spend more time with clients and will most likely be in charge of the geography. That’s when you can truly make an impression and manage things your way. It’ll surely be a long road to the top, but isn’t that the point of a career?
Are Debt Capital markets Competitive?
Working in Debt Capital Markets is a rewarding experience. It pays well, is demanding, and is pleasurable.
You’ll be up against a lot of competition from well-qualified, bright people if you want to break into the sector.
Reading these posts (and asking questions in the helpful comments section) will assist you in the following ways:
- enhancing your industry knowledge, allowing you to be more confident and concise during the application process (no one appreciates a bluff);
It may eventually assist you in breaking into an industry that pays $100,000 or more in the first year alone (and multiples thereafter).
Why are capital markets interesting?
1. Capital markets play a critical function in connecting capital sources with capital users. They help corporations, investors, and people minimize risk by channeling money into profitable investments. Capital markets are a key source of capital for the UK economy and are a strategic asset.
What do you understand by debt market?
Debt Market is a market area where debt market financial items are bought and sold. These financial instruments are fixed-income securities, which provide investors with predictable returns. Regular interest payments at a fixed rate are made on these securities, and the principal is repaid at maturity. Local governments, municipalities, state governments, federal governments, corporations, and other entities can issue these securities. Bonds, Government Bonds, Debentures, Treasury Bills, Certificates of Deposits, Commercial Papers, and other debt market instruments are among the most common.
What is interesting about debt capital markets?
Within Investment Banking, there are a number of product and sector groups on which one can concentrate. Some summer internships provide generalist analyst programs, which allow participants to learn about many departments inside the bank. Other programs, on the other hand, require analysts to specialize in a certain product or industry. As a result, it is critical to conduct study on the various groups. Product groups include Equity Capital Markets and Debt Capital Markets, for example. Both organizations assist their clients in raising finances, but in different ways. Bankers in the Equity Capital Markets department focus on raising equity for clients, as the name implies. Client debt is raised by the Debt Capital Markets group. “Equity Raising”? “Is it possible to “Raise Debt”? In the following paragraphs, I’ll explain what those terms signify and what distinguishes these product categories.
Equity Capital Markets is a hybrid of sales and trading and investment banking. Being a member of this group entails spending the majority of one’s time advising customers on how to raise equity money. Raising equity refers to a corporation selling a portion of its ownership in exchange for money.
– Equity Origination: This division helps corporations raise funds and finance projects such as initial public offerings (IPOs).
– Syndicate: This group collaborates with other banks to complete the transaction. This is required because the majority of stock transactions involve numerous banks.
– Convertible Bonds: Convertible bonds are debt securities that convert to equity when the stock price of a firm reaches a specified level. As a result, this group works with businesses to help them generate financing using convertible bonds.
As an analyst in the Equity Capital Markets group, you will be able to work on a variety of projects. One of my responsibilities is to create market presentations for an industry group pitching a client’s business. Furthermore, an analyst will prepare presentations based on former clients who used the bank to raise funds. These slides can be shown to potential clients as a means for an analyst to demonstrate how their bank assisted a former client in raising needed money without giving up too much ownership. In addition, one can perform shareholder analysis, which comprises examining a company’s present owners and the percentages of the company’s stock they own. Equity Capital Markets requires some financial modeling, such as comparing potential clients to similar companies or examining how a company’s ownership evolves following an offering.
Finally, an analyst who works for Equity Capital Markets makes deals such as initial public offerings (IPO). In addition, when a firm is already public and wishes to obtain additional equity capital, it does a follow-on offering. A secondary offering is a deal in which investors sell their shares to other investors rather than the company raising further funds.
Debt Capital Markets is a hybrid of sales and trade and investment banking, similar to Equity Capital Markets. That is, however, the sole resemblance between the two. Debt Capital Markets are a form of market where businesses raise money by trading debt securities. Corporate and government bonds are examples of these securities. When a business raises debt, it means it borrows money and pays interest on it. Because there is no decline in ownership, this is not the same as equity.
The majority of the labor for the first assignment consists of writing memoranda for the sales teams. These memoranda give the team the necessary computations and analysis to pitch the offerings to investors. Potential clients will come to a bank and ask for guidance on interest rates and the benefits of accepting new debt when proposing debt issuances. For example, a corporation may state that it has $400 million in debt that is due to mature in 5 years. Because interest rates have declined, the company feels it can refinance by raising debt at a cheaper rate and using the proceeds to repay the previous debt. Is this a sound strategy? What interest rate do they need to make a profit? A Debt Capital Markets analyst must be able to respond to inquiries like these. An analyst must spend time updating market slides and generating case studies in order to fulfill requests from different industry and product groups.
Financial modeling effort in Debt Capital Markets is substantially less than in Equity Capital Markets. Because global credit markets are larger than global equity markets, it is a higher volume business than equity capital markets. As a result, the Debt Capital Markets division operates in a quicker-paced environment, with transactions occurring at a faster rate. Furthermore, the Debt Capital Markets team is less risky than the Equity Capital Markets group. As a result, Equity Capital Markets and Debt Capital Markets are two distinct product groups in which an analyst can work.
How do you answer why do you want to work in capital markets?
In an interview, this is the most commonly asked question. Respond honestly to why you are interested in capital markets and want to pursue a career in this industry.
“After studying finance in college and passing the CFA exam, I’m considering a job in the financial markets.” This job appeals to me because of my qualifications, field of study, and personal interests. I’ve always been fascinated by stock market trading, and having a job that involves analyzing and forecasting stock movement has always been a goal of mine.”
What is debt capital market?
A fixed income market, sometimes known as a debt capital market, is a market for trading debt assets such as bonds and loans. Debt capital markets, like stock markets, allow firms and governments to raise long-term cash for expansion or upkeep.
Is ECM or DCM better?
ECM bankers assist companies in raising funds through the stock market. If you’re interviewing for an ECM position, you’ll need to be prepared to talk about a specific firm that recently went public and what made its stock enticing. Stephane Rambosson, former head of Citigroup’s French industrials ECM and current managing partner of search agency DHR International, agrees.
“You have to be passionate about the story if you’re going to work in ECM,” adds Rambosson. “You must demonstrate to a company’s stockholders and management that their baby is also important to you. You should demonstrate that you have the drive to sell their stock in an initial public offering (IPO), a rights issue, or a block sale.”
In ECM interviews, how do banks elicit this? Interviewers, according to Rambosson, will inquire about recent large initial public offerings (IPOs). They’ll want to see that you can explain what attracted you to that firm, how you would have sold it to investors, and what you would have done differently with the banks involved.
To put it another way, don’t go into an ECM interview until you know everything there is to know about two recent major IPOs.
In DCM interviews, you need to have an opinion on the markets
DCM issuance is significantly higher than ECM issuance. Every year, the amount of debt issued in the world exceeds the amount of equity issued by four to five times. In practice, this implies that ECM and DCM bankers play very distinct roles.
“There’s a lot more recurring business in DCM,” Rambosson says. “It’s far more about maintaining in touch with firm treasurers on a daily basis and keeping them updated about what’s going on in the market and how difficult (or not) it will be for them to issue debt now or later, at what terms, and in what structure,” says the author.
Maryam Khosrowshahi is a managing director at Deutsche Bank and the head of public sector debt coverage for Central Europe, the Middle East, and Africa (CEEMEA). “I communicate a lot about the status of customers’ projects and what’s going on in the markets,” she said, adding that people skills are crucial if you want to work in DCM.
As a result, DCM interviewers will want to see that you can talk about current market situations in a compelling manner. Do you have an opinion on where interest rates are headed? Before you go into any DCM interview, you’ll need to.
In ECM interviews, you’ll need to know about valuation methods
If you’re interviewing for a junior ECM position, you’ll need to be well-versed with the three primary techniques of valuing a firm, as well as their benefits and drawbacks. According to Mark Hatz, a former Goldman Sachs and Perella Weinberg banker, ECM interviews are similar to M&A interviews in this regard.
In DCM interviews, you’ll need to know about balance sheets, bond valuations and seniority
You’ll need to be completely conversant with the principles of duration, valuation, convexity, spreads, the interest coverage ratio, and the leverage coverage ratio if you’re applying for a junior DCM position. According to Hatz, you’ll need to know how to read a balance sheet and comprehend how a company’s present capital structure affects its cash flow and potential to issue further debt (or equity) in the future.
You’ll also need to be familiar with the idea of debt seniority (or ‘waterfall,’ according to one former debt banker). – Who gets paid first if a corporation goes bankrupt and is unable to repay its debts?
In both ECM and DCM interviews, you’ll need to ask about distribution
Finally, Rambossen emphasizes that ECM and DCM bankers do not work in a vacuum. – They need to sell it once they’ve located clients and provided debt or equity for them. As a result, the strength of the bank’s sales and distribution teams is critical to capital market success. “You must sell client securities in both ECM and DCM. You should know how the bank you’re interviewing structures its sales and marketing capabilities, as well as how strong it is in your industry “Rambosson expresses his opinion. You may live to regret not inquiring about this during the interview.
