Coverage Groups within DCM?

I was reading an article about DCM on the Sell Side Handbook, and according to the article, DCM coverage is usually split into 3 groups:

1. Financial Institutions

2. Corporates

3. Governments/SSAs

I can understand why corporates are split from governments, but why is their a separate group for financial institutions? For example, if a bank or insurance company wanted to issue a bond, how would that be any different from a regular corporate bond issuance?

Any experienced DCM bankers have any knowledge?

12 Comments
 

Ex FIG DCM banker here...the way financials (banks and insurance companies) use debt on their b/s is completely different than how a regular way corporate uses debt. As such, financials are generally much more frequent issuers in the DCM markets (think quarterly issuance programs to manage liquidity/capital ratios and fund loans above and beyond just their deposits). In any given year, financials represent roughly 50% of total DCM issuance. Given the breadth of issuers in the financials sector and frequency with which they come market, FIG is generally its own group separate from corporates.

 
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I'd say the skillset is more or less the same in regards to being heavily markets focused and in the way you would think about how to price an issuance or look at trading comps. That being said, there are certainly nuances. In FIG you'll spend more time learning about and keeping up to date on the regulatory landscape as this has a direct impact on how your clients will approach their funding needs. You'll also likely be exposed to a wider range of financing products (everything from vanilla unsecured debt to things like subordinated debt, preferred stock and contingent capital notes) given the strict liquidity/capital requirements financials need to operate within.

In corporates, especially for infrequent issuers, any financing event tends to be much more of a bigger deal with Management of the company and you'll likely have more C-level exposure and more strategic discussions around why the issuer is raising debt in the first place (funding M&A, facilitating a buyback program, geographic expansion, etc.).

I'd say traditional exit opps (PE/HF) are limited within a capital markets seat (regardless of corporates or FIG). Most people in my analyst class did 2-years in capital markets + a third year in a traditional IBD coverage seat then were able to recruit to PE/HF type of stuff after that.

 

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