Discover what it takes to embark on a career path of an ECM banker
An ECM banker works in an investment bank on the sell-side and is the product expert that advises stock issuers and potential stock issuers on the best way to raise new equity and manage their outstanding equity.
In most cases, an investment banker would be the first to identify the opportunity for their client to raise capital in the equity markets and would then call in someone who specializes in stocks, the ECM banker, to help close the deal with the client and earn fees for the bank.
Since the ECM banker must be an expert in equity origination, most Wall Street banks operate their ECM departments as joint venture (JV) between the equity capital markets and investment banking divisions (IBD).
Investment banks employ ECM teams that are responsible for the origination, structuring, execution, and syndication of various equity-related products.
ECM bankers are specialists brought in by the IBD coverage banker to help assist with issuers on three main tasks:
On the investors’ side, ECM bankers must gauge several factors, including:
On the other side of the deal, the equity capital issuer’s needs must be assessed, including:
ECM bankers must also have their fingers on the pulse of the equity markets. This means a lot of competitive research and study about similar companies that have raised equity recently, called comparables or “comps” for short.
In addition to IPOs, ECM bankers may also work on other types of deals, such as:
The first thing to understand about a ECM banker is that they have access to and deal with material non-public information. As such, ECM bankers are required to work in a separate area from their sales and trading colleagues on the equity trading floor. These areas tend to be enclosed in glass walls, so sometimes are affectionately referred to as a “glass bowl.”
There are also strict internal controls, called Chinese Walls, that govern the interactions between ECM bankers with private information and S&T colleagues that should only have access to public information. These may take the form of email and chat restrictions, sometimes even restricting the use of cell phones so that all conversations are recorded on work phone lines to ensure that MNPI doesn’t get into the open.
In terms of structure, ECM bankers at some firms are lightly structured by industry group to provide some measure of specialization and accountability but more often are aligned by job function.
A coverage banker in the IBD team will call on the client together with an ECM banker when there is a potential equity transaction to discuss. Colleagues in this area of ECM belong in what is generally called the equity origination team.
There are also colleagues in ECM who straddle the Chinese Wall and handle the actual book running with the salespeople and traders to decide on the final pricing, deal size and timing to ensure a successful transaction for both the borrower and investors. These people are called equity syndicate managers. Syndicate managers are also responsible for working together with syndicate managers in other investment banks who are involved in the deal.
Convertible bond (CB) or other equity-linked bond issuance are technically bond issuances but have provisions to convert the debt under certain circumstances. These instruments fall into the remit of ECM.
Another subgroup might be private placement teams within ECM who deal specifically with targeted deals where equity capital is sold to a small group of investors, such as VCs, PE firms, and hedge funds. This group may also work on secondary offerings and block trades.
ECM bankers make fees, called origination fees, for successful equity capital raises. In most cases, it is unlikely that one single investment bank will lead an IPO as an issuer is likely to appoint (or mandate) more than one firm for relationship and diversification purposes. The fees earned depend on the level of involvement of that bank, ranging from the highest fees paid to bookrunners to lower fees paid to co-managers.
In private placements, block trades, and secondary offerings, fees are often higher but these deals are not as common as pure origination deals.
For CB and rights offering deals, there are also very lucrative interest rate swaps and other derivatives that help hedge risks for the issuer or help to reduce the funding cost of the bond part of the transaction.
Regardless of how the revenues are earned, the fees are split according to the terms of the JV between IBD and the equities division, most commonly 50/50.
The more equity capital raising transactions that an investment bank is involved in, the higher they rank in league tables, which ranks banks by the amount of business they do in certain markets. A higher ranking on these ECM league tables indicates to potential clients the prowess of an investment bank’s ECM team, which leads to more business and even higher league table rankings.
As is the case with most jobs working in an investment bank on the sell-side, success is determined by how much revenue you bring in to the firm. Unsurprisingly, this means that roles within ECM tend to be pressure-packed and intense.
Firstly, an individual needs to be very well-versed in accounting, equity value and enterprise value, valuation approaches, DCF analysis, and transaction modeling. While the models might be lighter than say, an investment banker might use day-to-day, they tend to be quite sophisticated.
Secondly, they must have a keen attention to detail. Not only is the ECM individual’s own reputation at stake, but any mistakes will also look bad for the IBD banker and the entire firm as a whole. As many IPO transactions require registration with securities and market regulators, such as the US SEC, ECM bankers must make sure (with the help of legal) that documents are perfect. So whether it comes to models, pitchbooks, equity commitment memorandums, sales memos, or registration documents, mistakes are not tolerated.
On a typical day, ECM bankers start their day early, but not necessarily as early as sales and trading. The first thing to do is to review overnight news and trades, then begin to start their daily work.
This daily work involves updating market slides, case studies, and sales memos, analyzing the shareholders of prospective clients, as well as working with syndicate to update market comps, trade flows, and investor sentiment. A large part of their role is also spent on arranging deal and non-deal roadshows to parade potential issuers to potential investors in order to educate and update them on the company.
If they have a live deal on the go, days can be filled with intense discussions with other bookrunners, investors, and sales and traders, which sometimes stretch very late into the night to coordinate with other time zones. ECM bankers also have stressful and difficult negotiations with issuers, oftentimes dealing with other cutthroat bookrunners and competitors trying to undermine them with the client.
When there are no live deals on the go, ECM bankers may get a bit of downtime, so their day might end at 6 or 7 p.m. But overall, work/life balance is not easy for ECM bankers as the hours demanded tend to fluctuate.
While IBD bankers tend to work on M&A primarily, ECM bankers are more specialized and will work only on equity deals. In this regard, they are much closer to the equity markets than their colleagues in IBD.
Also, IBD bankers tend to be laser-focused on one specific industry, where ECM bankers might only loosely be aligned in that fashion, working across multiple industries.
Lastly, ECM bankers work on deals that happen much more commonly than, say, a merger deal for IBD.
With this extremely intense work, it is perhaps no surprise that compensation for equity capital markets bankers is very lucrative. The compensation is based on performance, so ECM bankers have a “eat what you kill” mindset.
Compensation is broken down into a base salary and a year-end bonus. As is the case with most jobs in the financial industry, experience is typically associated with higher pay. Year-end bonuses can be many multiples of the annual base pay.
Competition between banks for good ECM bankers is also quite high, with bankers being actively poached and moving between firms a common sight.
Roles in ECM bankers are highly sought-after by those who have the right skills. To become an equity capital markets banker, there are specific licensing courses and regulatory exams one must pass. For example, in the United States, you need to pass the Series 7 and Series 63 exams.
New ECM associates are frequently recruited from highly sought-after undergraduate programs across the globe. If a new analyst (undergraduate degree) or associate (graduate degree) performs well during the year, they can expect to be promoted and continue their career path toward vice president, executive director, and, ultimately, managing director.
ECM is very much a “learning through doing” type of career, and those who do well can achieve incredible successes. Career mobility is often determined by one’s ability to generate fees or based on the strength of relationship with borrowers/investors.