Together with M&A, jobs in equity capital markets (ECM) and debt capital markets (DCM) are grouped together under the banner of the investment banking division (IBD).
If you’re a junior preparing to attend a capital markets interview you can expect some standard questions common across IBD. You’ll also need to be ready to answer questions which are equity or debt specific.
In ECM interviews, you need to tell a good story
ECM bankers help companies raise money via the stock markets. If you’re interviewing for an ECM role, you’ll need to ready to talk about a particular company that recently went to the market and about what made that company’s stock appealing. So says Stephane Rambosson, the former head of French industrials ECM at Citigroup, and current managing partner of search firm DHR International.
“If you’re going to work in ECM you need to be passionate about the story,” says Rambosson. “You need to show a company’s shareholders and management that their baby is something you care about as well. You should show that you have the passion to shift their stock in an IPO, or a rights issue, or a block sale.”
How do banks elicit this in ECM interviews? Rambosson says interviewers will ask what you know about recent big initial public offerings (IPOs). They will want to see that you can talk through what made that company appealing, how you would have marketed it to investors, and what you would have done differently to the banks that were involved.
In other words, don’t step into an ECM interview without knowing everything there is to know about two recent large IPOs, at least.
In DCM interviews, you need to have an opinion on the markets
DCM issuance is far higher than ECM. Every year, the amount of debt issued globally is typically four or five times higher than the amount of equity issued. In practical terms, this means that the role of ECM and DCM bankers is quite different.
“In DCM, there’s a lot more repeat business,” says Rambosson. “It’s much more about staying in touch with company treasurers on a daily basis and keeping them informed about what’s going on in the market and how challenging (or not) it will be for them to issue debt now or later, at which terms, and in which structure.”
Maryam Khosrowshahi is an MD and head of public sector debt coverage for Central Europe, the Middle East and Africa (CEEMEA) at Deutsche Bank. She told us she speaks to clients on a daily basis: “I talk a lot about the status of clients’ deals and what’s going on in the markets,” she said, adding that people skills are very important if you want to work in DCM.
For this reason, DCM interviewers will want to see that you can talk engagingly about current market conditions. Do you have an opinion about the direction of interest rates? You’ll need to before you step into any interview in DCM.
In ECM interviews, you’ll need to know about valuation methods
If you’re interviewing for an ECM job at a junior level, you’ll need to know a lot about the three different methods of valuing a company and their advantages and disadvantages. ECM interviews are similar to M&A interviews in this way, says Mark Hatz, a former Goldman Sachs and Perella Weinberg banker.
In DCM interviews, you’ll need to know about balance sheets, bond valuations and seniority
If you’re interviewing for a junior DCM job, you’ll need to be wholly comfortable with the concepts of duration, valuation, convexity, spreads, the interest coverage ratio and the leverage coverage ratio. Hatz says you’ll need to know how to read a company’s balance sheet and to have an understanding of how its current capital structure might impact its cash flow and ability to issue further debt (or equity) in future.
One former debt banker says you’ll also need to be familiar with the concept of debt seniority (or ‘waterfall’). – If a company goes bankrupt and is unable to repay its debts, who will get paid first?
In both ECM and DCM interviews, you’ll need to ask about distribution
Finally, Rambossen points out that both ECM and DCM bankers don’t operate in a vacuum. – Once they’ve found clients and issued debt or equity for them, they need to sell it on. For this reason, the strength of the bank’s sales and distribution teams are crucial to success in capital markets. “In both ECM and DCM, you need to sell client securities. You should understand exactly how the bank you’re interviewing with structures its sales and marketing capabilities and how strong it is in your field,” says Rambosson. If you don’t ask about this in the interview, you may live to regret it.
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