In the previous article, we skimmed the surface of what the coverage side of the bank does and what coverage investment bankers do. In this episode, I’m hoping to give you a short overview of what product-side investment bankers do.
As I delve into this coverage / product structure – you must remember that not every investment bank follows this structure to the ‘T’. Large investment banks (fondly called the ‘Bulge Bracket’ due to their ‘Bulging’-sized deal reputation) follow this structure but even they differ in the manner in which groups handle work.
Even though there is disparity in the group structure across firms and geographies, I think that the coverage / product structure is an essential model to understand if you’re looking to better understand investment banking or recruit for this line.
I tend to think of investment banking products as those services which bring a company closer to the capital markets. When I mention capital markets, I am talking about forums where the buying and selling of equities and debt happens. This encompasses primary (origination) markets as well as secondary (trading) markets. For the uninitiated, an IPO is one of the most classic and well-known examples of primary market activity. An example of secondary market activity would be the trading of shares.
While coverage bankers ‘cover’ firms and industries, their activities on a standalone basis do not give the client access to the capital markets. By this ‘access’, I am talking about allowing the client to access public money in the form of debt or equity. This is where the product bankers come in. Broadly, the product groups in a bank may be split into:
(a) Equity Capital Markets
– IPO issues: book-building, underwriting
– Equity private placements
(b) Debt Capital Markets
– Investment-grade Debt issues for loans & bonds
– Sub-investment-grade debt issues for loans & bonds
– Leveraged Finance
Hopefully, at this point, you’re beginning to see how coverage and product bankers work together on their assignments. From a 20,000 foot view, this is how the groups seem to work together: coverage bankers pitch to prospective clients and when a client agrees to a proposed deal, the coverage bankers then bring in the product bankers who understand how the transaction should be priced and structured for the most acceptability by the market while bringing the client the best value.
Read the other articles in the series: Introduction to Investment Banking