Corporate and Investment Banking

Preparing for a Career in Sales, Trading, and Research in Global Markets

Fidelio Tata

• Publisher: Palgrave Macmillan
• Year: 2020
• ISBN:
  9783030443412
• Topic: Betriebswirtschaft
• Subtopic: Finanzdienstleistungen

This book provides unique information to prepare graduates and newly hired corporate and investment banking professionals for a career in the global markets environment of large universal and international investment banks. It shows the interrelationship between the three specific business functions of sales, trading, and research, as well as the interaction with corporate and institutional clients. The book fills a gap in the available literature by linking financial market theory to the practical aspects of day-to-day operations on a trading floor and offers a taxonomy of the current banking business, providing an in-depth analysis of the main market participants in the global markets ecosystem. Engaging the reader with case studies, anecdotes, and industry color, the book addresses the risks and opportunities of the global markets business in today's global financial markets both from a theoretical and from a practitioner's perspective and focuses on the most important fixed-income financial instruments from a pricing, risk-management, and client-marketing perspective.

© The Author(s) 2020

F. TataCorporate and Investment Bankinghttps://doi.org/10.1007/978-3-030-44341-2_1

Begin Abstract

1. Introduction

Fidelio Tata¹  

(1)

Berlin School of Economics and Law, Berlin, Germany

 

 

Fidelio Tata

Email: [email protected]

End Abstract

The Global Market business is huge in almost every dimension. It intermediates an estimated $250 trillion in global funds.¹ An approximate one-quarter of a million employees work on trading floors (some populated by around 5000 traders) in financial centers around the world.² Bonus payments, the variable part of employees’ compensation, on Wall Street alone are in excess of $30 billion in 2017,³ of which Global Markets accounts for a significant part. Earnings (or net income), globally, are probably to the tune of $50–60 billion, exceeding that of the (as of 2019) most-valued (i.e., capitalized) publicly traded company in the world, Microsoft.

Global Markets units of major universal banks service large corporations and financial institutions with respect to traded assets, derivatives and structured products. Financial institutions are institutional investors that include governments, asset managers, pension funds and hedge funds. Traded assets are pretty much anything that can be bought and sold in the financial markets, including stocks, bonds, currencies, credit products and commodities. Derivatives and structured products are contractual agreements that synthetically create financial claims. To better serve financial institution, Global Markets is divided into sales, trading and research. Sales has the client-facing function of identifying and serving institutional clients’ needs, trading creates a marketplace for assets by standing ready to buy and sell, and research aims at providing analysis and insight that facilitates the clients’ investment process.⁴

Starting a career in Global Markets can be challenging because of the breadth and depth of knowledge required. Ironically, it is often easier to get away with a gap of knowledge when you are already a seasoned, highly specialized market participant than when you are about to start your career. It is perfectly acceptable for a senior bond trader to know near to nothing about options. But when a job candidate does not know the difference between a call option and a put option in an entry-level interview, it looks bad.

Expertise in the context of Global Market business is often a combination of market knowledge, understanding of market participants, product knowledge and financial market theories or techniques. For example, a client conversation with a hedge fund about swaption-implied distribution assumptions requires some knowledge about the over the counter (OTC) swap and swaption market,⁵ about how hedge funds use derivatives, about options and about option theory (see Fig. 1.1).

Fig. 1.1

Combination of Global Market knowledge areas

The Global Markets business is very transaction oriented. Motivating examples, anecdotes, case studies and exercises will be used extensively throughout the book. They help applying conceptional knowledge to specific trades and client interactions.

Financial theory not only allows to better understand the interaction of market participants in financial markets but can also be a useful tool when conducting business in Global Markets. A few key concepts of financial theory will be introduced and applied to specific job-related situations in sales, trading and research throughout the book.

Notes

1. 1.
   Source: McKinsey & Company (2018).
    
2. 2.
   Estimating the total number of employees in Global Markets is not easy because banks typically do not provide an employee breakdown for individual business areas. The one-quarter of a million estimate is established as follows: JPMorgan reports in its 2018 annual report a CIB headcount of 54,480. CIB includes investment banking, and it is assumed that the Global Markets area accounts for roughly 30,000 employees. According to Dealogic (as of January 1, 2019), JPMorgan has a market share of 11.6% in Global Markets. Thus, the total number of Markets employees of all banks is roughly 30,000/0.116, or 258,620.
    
3. 3.
   Source: Office of the New York State Comptroller (2018).
    
4. 4.
   Not part of Global Markets is investment banking, which is mostly advisory with respect to mergers and acquisitions (M&A), capital-raising activities (such as initial public offerings, or IPOs) and corporate finance risk solutions. Not part of Global Markets either is anything targeted to non-institutional investors, such as retail customers or ultra-high net worth individuals.
    
5. 5.
   Swaps are derivative products in which two parties exchange cash flows based on some variables. Swaptions are derivative products that give the holder the right, but not the obligation, to enter into an agreed-upon swap transaction.
    

References

1. McKinsey & Company. 2018. Banks in the Changing World of Financial Intermediation. November 2018 Report. https://​www.​mckinsey.​com/​industries/​financial-services/​our-insights/​banks-in-the-changing-world-of-financial-intermediation. Accessed on January 20, 2020.
2. Office of the New York State Comptroller. 2018. NYS Comptroller DiNapoli: Wall Street Profits and Bonuses Up Sharply in 2017. News from the office of the New York State Comptroller, March 26, 2017. https://​www.​osc.​state.​ny.​us/​press/​releases/​mar18/​032618.​htm. Accessed on January 20, 2020.

© The Author(s) 2020

F. TataCorporate and Investment Bankinghttps://doi.org/10.1007/978-3-030-44341-2_2

Begin Abstract

2. A Taxonomy of the Banking Business

Fidelio Tata¹

(1)

Berlin School of Economics and Law, Berlin, Germany

Fidelio Tata

Email: [email protected]

End Abstract

Before starting a career in Global Markets, it is advisable to look left and right to see what else is going on in a universal bank. Maybe you find something more interesting, such as mergers and acquisitions, in which case you may as well put down this book now. But even if you end up sticking with sales, trading and research, you’ll find that similar functions are also provided in other areas of the bank, e.g., in wealth management. This is important to know because not only do those areas create potential career transition opportunities in the future but knowing your “counterparts” in other areas of the bank will help you to network and to exchange ideas.

Universal banks do offer a wide spectrum of services, and their organizational setup reflects that. We will see later that the catalyst for today’s banking giants is the repeal of the Glass-Steagall legislation in the USA. Between 1933 and 1999, commercial and investment banks were artificial separated by law, but afterward banks were no longer restricted from offering their clients any type of banking service. In banking, like in most other industries, it is important to “follow your customer” and to become a one-stop shop for all services required.

There are a number of reasons why formally specialized banks eventually turned into giant flow monsters that are engaged...