Capital Markets vs IBD: Fees and compensation
Hey everyone, I was prepping for a SA interview and was looking through the banks earnings this year from their IBD. It was clear the ECM/DCM generated significantly more revenue for the firm. I looked up the league tables and the earnings of most investment banks and the capital markets fees tend to be higher than the M&A fees.
With that, why are capital markets bankers paid less in overall comp when they bring in more fees? Was hoping someone could help me understand - many thanks!
They won't be paid less this year...
Yeah I get it for this year, I meant generally
ECM is doing really well right now because of low interest rates and investors being enamored with tech startups due to everything being remote. DCM is doing really well because of low interest rates/fed support and corporates looking to issue before market turbulence potentially starts back up with the election or something else. A period of such uncertainty is really not good however for M&A. It's really just the various underlying factors of the present period leading to this rather than a trend over the last 10 years (look at quarterly results over the last few years for the BBs). Debt and equity underwriting seem to be pretty volatile businesses that can really swing IB fee revenue up or down quarter by quarter. Also, I'm not sure, but couldn't M&A bankers claim a lot more ownership for the fees they bring in because they are purely advisory fees rather than underwriting fees?
underwriting debt/equity also puts a lot of capital at risk at the banks. Advisory pulls in smaller fees, but lacks the capital at risk so they are able to be compensated higher as well. Good example is look at an EB (they pay higher in general)
I heard it’s because the money in ECM/DCM gets split more ways. Take it with a grain of salt though.
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