Investment Banking vs. Capital Markets - How different are they? (2024)

"the illegitimate bastard child between a banker and a trader".

kinda makes you wonder if ECM guys do trader hours but earn banker dough innit.

Well obviously IBD analysts VERY RARELY work 140 hours...it's just an extremely high end of the range just like 80 is a low end of the range.

Auschwitz Securities LLC. LOL

You guys ever heard of the "Chinese Wall?"

ECM is the Chinese Wall (insofar as equity offerings are concerned--just to use that as an example). ECM is the liason between the industry group (whomever within Corp Fin) and the sales/trading desk. When you are pitching equity to a client, ECM will often accompany the industry group bankers, and their role is to comment on the state of the markets, how receptive investors will be to the company's story, likely pricing (although 95% of the valuation is done by the industry group), etc.

It is "investment banking," but not in the sense that most people understand IB. ECM guys aren't doing valuation work, models, huge pitch books, etc. They may contribute a few generic pages to a larger pitch done by somebody else.

So essentially, the Monkey Business idea is correct...

Well, leveraged finance falls within DCM/FICM in some banks and that's a great area to be in (very interesting work, great exit opps). But otherwise, I'd stay away from DCM/ECM.

One thing to note, though, is that project finance generally falls within DCM, and that is interesting/challenging work.

You think that the OP would listen to a college kid who poses as an investment banker on an online message board? Yeah, you've got a real lot of credibility. You're a joke and are far worse than aspiringmonkey.

Also, i never said or implied that the OP would want to listen to me, because like you, i'm still in uni (though i am interning at Goldman this summer).

There is a world outside the US, genius.

Why would i lie? I'd have to be a complete loser to pretend i'm something that i'm not on an internet forum...

I can't believe a perfectly good and informative thread got de-railed to this extent...

Moving on...Capital Markets does tend to pay the same or 10% less than corporate finance with DCM usually having slightly better pay over ECM.

Is there a link to rankings (2000-20006) on the web that state which are the best firms regarding sales, trading and which are the best in IBD?

Just heard that MS is not that "good" reagarding S&T, is that true?

The GS for Lazard is not all that bad an idea. Lazard is focused solely on M&A and restructuring so in essence, they are EXTREMELY prestigious in the M&A side since its their bread and butter business. Not to mention the fact that they are EXTREMELY selective.

I'm not familiar with structured credit but I know someone who's in the industry and said that DB is strong in Europe but its still not a full force in North America.

Obviously its strengths are supposed to lie in German and European industries.

is almost staggering.

at its most basic level, the difference between capital markets and "investment banking" is this:

capital markets is focused on PRODUCT knowledge

investment banking is focused on INDUSTRY knowledge

in general, it's pretty damn difficult for any banker to know everything about everything. thus, to make things simpler and to really provide good insight regarding industries and products that most people won't have, investment banks utilize the services of different types of "experts." some of these "experts" will focus on learning and covering the healthcare or software or whatever industry, while others will focus on learning and covering the convertibles market, the equities market, or the high yield bond market.

thus, just as you have "specialists" for different industries, you have "specialists" for different products.

how this all ties together is a function of individual banks. at some banks, product experts merely contribute pages regarding the market for the product, potential pricing for the product/product comps, and the capital raising process/procedure as pertains to that product in order to assist the invesment banker/relationship manager with execution. at other banks, the relationship manager will simply hand off the execution process entirely to the dcm/ecm guy since that guy is the "expert" on the process and the product.

at the end of the day, this is really no different from how things are set up at consulting firms, accounting firms, or even in medicine. you need people who can manage the relationship (what most industry bankers do) and you need people that know about particular products/services (i.e. what product bankers do).

take medicine for instance--you have a general practioner or family doctor that serves as your "relationship manager" w/ regard to medicine. however, does this family doctor know everything there is to know about medicine? no, he doesn't. thus, should more specialized needs evolve, your family doctor would pull in the approproate specialists--maybe a cardiologist to evaluate heart conditions, an oncologist to evalute/treat cancer, surgeons to perform more technical procedures, etc. however, at the end of the days, all of these people are doctors just as ALL ECM/DCM people are bankers.

the difference as i've mentioned earlier is industry focused banking as opposed to product focused banking.

and by the way, dan bush, you're dead wrong regarding your "jack you off middle office" comment, as you've either a) never been in banking, or b) are a such a low ranked analyst that no senior banker will give you any real responsibility.

any analyst who's ever been to a pitch where different products are being put on the table or where different capital raising ideas are being presented will realize that ecm/dcm is front-office advisory position. you may not being advising on pure m&a, but you are providing advice on financing alternatives.

and before you say something else that's dumb, there's no way you can challenge my credentials on this issue. i've not only been a bb industry analyst, but i've also been a corporate development guy at a top f50. when "industry bankers" come to make pitches regarding acquisitions, guess who come along?

that's right--the ecm/dcm guys. in the dream world of college ib-wannabes, m&a advisory is separate and off its own bubble. however, in the real world, most companies can't finance acquisitions with 100% cash on hand. thus, in order to do an acquisition, someone's got to finance it and with various ways of doing this (loans, bonds, converts, equity, etc.) you need people who know the individual products and product markets to give you the best advice on which product is best for your financing needs.

thus, in case of a product such as loans or bonds, industry guys would work with dcm to structure the appropriate loan/bond package, which would then be parceled off to the trading floor where institutional sales guys would find suitable investors. traders would then come in to play by managing liquidity on the secondary market on behalf of clients who wanted to either a) get some of their purchased securities off their books or b) buy in or buy more.

Yes, Monkeyisland's post is much more exhaustive than mine and largely correct. Briefly though, in my own defense, what I meant by putting "investment banking" in quotes above to refer to the Capital Markets guys is this:

The industry groups are by and large the relationship managers and focused on general corporate advisory, because, obviously, those bankers are specialists (for lack of a better term) in whatever their clients do. The guy with the relationship is virtually always an industry group banker. The industry groups are the ones who are constantly going out and pitching different products depending on market environment, a company's needs, and every other consideration you can think of (products being equity and debt...and every permutation thereof--I'm putting M&A in a different bucket, though it's technically still a "product"), and while the product guys certainly attend these meetings sometimes, they're not the day-to-day, year-to-year client contacts.

Product groups don't do valuation, they don't understand a client's business inside and out, and they may not know a single thing about the other products at the bank. They know their product first and foremost, and they execute.

That is what I meant. It is still investment banking, but not in the "traditional" corporate advisory sense. Which is what most people understand investment banking to be.

I've heard that a work in CM related to research or structuring is about being concentrated on a particular product while a work in IB consists of a broader range of tasks and analytical stuff. So it makes people more universal. Moreover, some people say that you're likely to play minor role in comparison to traders or sales. But on the other hand, there is an opinion that junior positions in IB imply a lot of grind.

Does anyone have any ideas about it? What job is more interesting in terms of brainwork and career development?

The extent to which equity/debt execution tasks are split between the product groups and sector groups varies by bank and by group. I think that the posts above are seeking answers to two questions:

1. What tasks are associated with capital markets transactions and which group is expected to perform each of these tasks?
2. How is this relevant to a typical analyst in one of these groups?

I'll try to move this discussion along by breaking down an IPO into sample tasks and listing the group most likely to handle it. These tasks aren't in order, nor are they comprehensive, but maybe some will find this useful.

• Source the deal (sector): Find client. Convince client that an IPO (by your bank) is a good idea. Involves pitchbooks, golf, and booze.

• Take the deal to committee (sector): Make sure your bank is willing to take the risk (underwriting is risky).

• Negotiate fees (sector): Set an underwriting/bookrunning fee (~7%). Set the "economics" (the fraction of fees paid to each bank on the deal), haggle over how expenses will be shared, and set provisions such as the Green Shoe (an over-allotment option that helps the underwriter to stabilize the stock price following the IPO).

• Set a target valuation and range (sector): Come up with a valuation using dcf, benchmarking, and public peers. The client wants a high range, the bank wants a low range.

• Refine roadshow presentation (sector and ECM): Help management put forth the best possible pitch to institutional investors. Involves re-tooling powerpoint presentations and coaching management.

• Create prospectus (sector and lawyers): Write up a huge document about the business, its management, its market, the risks involved, and a million other things.

• Due diligence (sector and lawyers): Make sure the company is legit. Make sure those "factories in Taiwan" actually exist.

• Create internal offering memoranda (sector or ECM): Turn the information in the prospectus (if there's extra, don't let the SEC find out) into the banking equivalent of Cliff Notes for the sales/salestraders in S&T so that they can stabilize the offering when it finally hits the market (days/weeks later).

• Roadshow (sector and ECM): Fly around for two weeks with the client, making the same presentation 3 times per day to various institutional investors. Sector bankers prep the client for tough questions and occasionally answer the really ridiculous ones. Sector bankers schmooze the investors and introduce the client. ECM (someone at the VP+ level) provides frequent market updates. ECM "builds the book" -- they take orders from the investors.

• Pricing (ECM): The team in syndicate (a cap markets function) arrives at a final price for the IPO shares based on the order book.

KEY TAKEAWAYS:For the sector analyst --"Desirable" work includes the initial valuation, the potential to spend quite a bit of time with the client (e.g. on the road show), and printing the prospectus (the printing offices sometimes have plasma screens, drinks, billiards, and potentially a place to nap).
"Undesirable" work includes writing internal memoranda (time-consuming, last-minute busy work) and revising the prospectus (ditto). An IPO is extremely stressful, and clients justifiably demand some of the most ridiculous services given the enormous fees they pay.Hours are typically longer than ECM (best guess is ~10/wk).
Exit opportunities vary but are generally perceived to be broader than ECM, but this could just be due to confounding by interests.

For the ECM analyst --"Desirable" work includes being constantly aware of the equity markets (if that's your thing), the lack of pitching."Undesirable" work includes being called upon frequently to create detailed trading-related reports for sector bankers (e.g. detailed ownership breakdowns and calculations of major shareholders' cost basis).
Hours are typically shorter than in sector groups but days usually begin earlier (~8am in ECM vs. ~9-9:30 in sector).

Really good thread, thank you everyone.

I am curious about where does lev fin fit in all of this?

And what are the hours like?

How does Equity Capital Markets compare to M&A -the hours, pay, etc. (Originally Posted: 08/16/2006)

How does Equity Capital Markets compare to M&A -the hours, pay, etc.

Difference between i-banking and Capital Markets Structuring & Origination (Originally Posted: 12/11/2006)

I am little confused about the differences between Investment Banking and Capital Markets Structuring & Origination. Would someone please explain the differences between the two.

capital markets and IBD (Originally Posted: 09/08/2007)

could someone speak to the merits of working in Global Capital Markets as opposed IBD proper? what are the differences in terms of prestige and exit opportunities?

is a position in GCM at say Morgan Stanley equal to or better than IBD at BoA or CS? thanks.

Difference between IBD and Capital Markets? (Originally Posted: 07/04/2008)

I was wondering what the difference between IBD and a Capital Markets Group was. Seems the same to me. I'm sure I am wrong though.Thanks!

Capital Markets vs IBD (Originally Posted: 03/14/2009)

What makes someone chose to do work in capital markets over investment banking? I understand that the work is somewhat different, and that capital markets faces the "Banking Lite" derision from their IBD counter-parts, but I was curious if those in the industry had any insight to offer into what differentiates the two types of positions.

BB Capital Markets vs Mid-Market bank (Originally Posted: 11/26/2009)

I was fortunate enough to be extended offers for a Capital Markets Group at a large BB (BAML, UBS, CS) and for a corporate finance IBD position at a top mid-market bank (Jefferies, Piper Jaffray).

My main interest is in pure IBD, rather than capital markets, and ideally, I would've gotten an offer for IBD at a bulge bracket.

How hard is it to transition from Capital Markets to IBD? Would it be better to start off at a strong Mid-Market, and try to break into the BB?

IBD vs. Capital Markets (Originally Posted: 02/01/2010)

Which one would you choose?

is Global Capital Markets easier than ibd/s&t? (Originally Posted: 12/24/2010)

For SA positions, is it easier to get a position in gcm as opposed to s&t and ibd? Or are there less spots in gcm and so the difficulty balances out?

Between IBD and S&T: Capital Markets?! (Originally Posted: 06/30/2011)

I am currently work at a top tier bb as a sophom*ore and have the opportunity to transfer to either S&T or IBD for next year. I would not consider myself very quantitatively inclined, but am familiar with the markets and am more then capable of the requisite mental math work (or accounting for finance). I enjoy learning about the markets and staying up on the news/discussing it, but understand that Sales in S&T may be relatively limiting for exit opps

In the same way, I don't know if I want to sacrifice my life for classic IBD and modeling experience does not really appeal to me as it seems to mean you are in excel all day every day playing with numbers. Whether its as an analyst in IBD or an associate in PE, I imagine that would get old.

How do people feel about Capital Markets in that case as sort of a middle ground? I have read many posts on this forum so far, but I am curios how people feel about Lev Fin (non-modeling group), ECM, DCM in terms of pay, exit opps and how interesting the work would be in contrast to more classic IBD or S&T.

Thanks!

Got FT for capital markets position at BB but want to switch over to IBD (Originally Posted: 04/28/2014)

My school is not a target school, and I was able to land a FT offer in a capital markets division at a BB. However, I am highly interested in pursuing IBD. I have an MSF (or will be graduating with one soon), and did an IBD SA internship at a boutique, and a couple other finance internships. My UG major was also finance/accounting. Mentioning this because I feel like I do have a pretty good understanding of valuation, modeling, etc. but I am aware that it does not compare to experience in IBD.

Do I make my intentions known early on to my team? I don't want to give my team the wrong impression that IDGAF about the work were doing and just trying to switch to IBD ASAP.

Also, I actually had two senior alums in the IBD division for the firm that I applied for actually refer me for the position, which is how I landed interviews. When exactly should I reach out to them again and pretty much say I am interested in IBD? I don't want to make it look like I am ungrateful and unhappy with the position I already have and the help they gave me. Hope you understand my points.

I am assuming lateraling after 1-2~ years is the most feasible possibility, but I want to position myself as best as I can. I also would not mind lateraling to a diff BB as well.