S&T vs Capital Markets Long-Term

I was wondering if sales and trading or capital markets is better for someone who is looking to stay in finance for a long time. I am not interested in the traditional exit opps of traditional IB like PE, VC, and HF. I like how S&T faces the markets, but I worry about automation and decreasing headcount. I was thinking about capital markets since it still faces the market. Which one would be better to pursue long-term? If I want a markets-facing role is S&T the best to pursue even with potential automation?

 

Capital Markets is a sales function of investment banking...and isn't really respected as a revenue generator or where the smarter people go. However, its a more stable career.

S&T has opportunity for serious comp and growth...but also risk of a very short career with no transferable skills. S&T is a risk...so you need to determine if its a fit or not

 
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"Isn't really respected as a revenue generator" and "not where the smarter people go"...?

The idea that ECM/DCM groups at BB banks do not contribute a meaningful piece of IB revenue is completely asinine, so your first point is just flat out incorrect.

Have you seen the magnitude of capital markets issuance/activity lately? Or are you on a different planet?

To your second point - who are you to determine that those groups are not "where the smarter people go"?

 

Capital markets (ECM or DCM) mostly just executes the deals that IB sends them, and does a little market research to keep people aware of the state of the investing marketplace interest in buying ...most of the creative work takes place inside IB and ER. The ECM/DCM teams do the roadshow to convince potential investors to buy the loans/bonds/stocks that the IB teams structure...and they run the actual initial sale of securities to the market.

When the IB team works with a company to structure a capital raise (whether equity or debt)...they (IB) get credit for most of the fees. The capital markets desk then executes whatever the IB team sends them (and gives guidance on pricing). Sure, the capital markets desk gets some % credit of the fees...and they get more if they come up with the idea (mezz/lev fin mostly)....but the idea generation tends to originate in IB...not ECM/DCM...which is why IB pays more then CM..and why IB analysts are poached by the buyside at a much higher rate than capital markets people.

This is not to say that capital markets pays nothing or has no exit options...as i said..it pays well for what it is...and a majority of capital markets analysts don't leave for the buyside (sure, some do...but a minority)

 

DCM for the most part falls under a few categories: 1) Corporate DCM (very vanilla) 2) Muni DCM (pretty complex and much more technical) 3) Structured products DCM (ABS/CMBS/RMBS capital markets roles) 4) EM DCM

This list is in order of complexity, from least to most complex, while at the same time it is also ordered from highest headcount to smallest headcount (in my experience).

Can I ask why you're focused on govie DCM and specifically not Muni? Seems like more opportunity on the muni side, especially with everything going on right now. For example, look up Citi DCM Public Finance on Linkedin and you'll see how many analysts are in that group right now..

 

What about automation in S&T? If I really love markets should I stick with S&T? Capital markets sounds great but I as a person love the fast paced environment in S&T and the intensity.

 

It just depends on the desk. Cash equities and Fx are as good as gone. IG credit is being slowly chipped away at. Anything HY, muni, or structured will need people for the foreseeable future. For example, HY issues sold via 144A offering do not need to be registered with the SEC, therefore private companies can have their debt traded OTC, good luck automating that. Munis and structured products trading is very "deal based" meaning traders sometimes underwrite and own part of the deal, while the sales force sells the new issue which is now a "desk specialty". What I mean by that is that usually if your bank underwrote the deal, the buyside will give you more looks to trade with you. Plus, say you spend 5yrs on a desk and you notice that maybe there is a trend toward automation (it doesn't happen overnight), then you're still young enough to pivot to IB with an MBA or internally.

I know someone who went from S&T to IB as an associate, it just depends on 1) how good you are 2) who you know and 3) what BB you work at and how good are they with mobility.

TL;DR: Yes, S&T has faced reductions on some desks. However, if picked intelligently, there are plenty of AWESOME opportunities in S&T.

 

Question I haven't figured out at all: what exactly is an etrader? I mean like a efx or eRates trader. Perspectives about equities would be good too. Are they taking some sort of market view on the electronic book? How much programming and/or math do they do? Just very confused about what their day to day is. I could only figure out what the electronic salespeople and like software engineers do.

Array
 

More prone to automation: Cash Equities, listed derivatives, IG credit, vanilla MBS (TBA / Pass- thru)

Less prone to automation: Anything High Yield, more complex MBS, Munis, OTC derivatives, OTC structured products

Def missing a few, but when in doubt, unless you can code SPRINT the opposite direction of liquidity (in terms of asset class)

If you can code, well, flip a coing and you'll be successful lol

 

I heard from various sources that it is the Best EM (LatAm) DCM team on the street

 

Rates can deal with MBS, Repo, UST, G10 bonds, etc. FX will deal with global currencies. Both provide a macro view to the markets so they're similar in that aspect but their products are different. Some corporates/institutions use their OTC derivatives as hedges, while some riskier institutions like Hedge Funds might want to speculate on an alpha play. Global macro HF is a strong exit opp from here if you're in the right seat.

 

I work in FX & Rates group at BB. Still under Sales & Trading division but work regularly with the Debt Capital Markets Team (on debt issuance focused on reducing interest rate risk exposure through optionality). The reason you did not see a lot of talk on this group is it is pretty niche in most BBs (for the corporate side you need a large balance sheet where the corporate banking group has lend money to clients or the firm has an extremely international presence). Can go into more detail about the group and exit opps if that interests you. Feel free to PM me.

Day to Day on the corporate side on FX is trade execution (across all majors and minor currencies - including vanialla and non-vanialla options). On the corporate side there is quite a bit more advisory working with the client to find the best stratergy for an acqusition or cash injection etc... More hand holding than the institutional side. Other time I spend my day on tailored market updates for the clients and connecting my research team with important strategic desk clients. Lastly, maintaing internal relationships with the corporate bankers to prospect for more business and expand business with current cliente. On the rates side really assisting clients hedging out their debt whether it is foreign or domestic.

 

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