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Career Planner: Financial Industry


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Job Profiles – Underwriting Department
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UNDERWRITING DEPARTMENT

Underwriting, a broad term that can be simply known as financing, is a process where the issuer (client companies and governments) needs to raise debt or equity capital either publicly or privately.  The larger the firm is, the more diversified and different forms of underwriting that its underwriting division provides.  This functional area of the investment bank often represents the business model that the firm operates on in most cases.  They are in charge of negotiating with their clients on the type of financing that suits them the best.  A close working relationship with the trading department is a common practice as the traders would be responsible for executing the trades of new issues of securities or secondary offering of securities on stock exchanges or OTC markets.

Many investment banks offer underwriting for new issues of securities that can take the form of private offering or public offering.  Security, price, interest or valuation multiple, special features and protective provisions are negotiated in order to market the new issues successfully.  The final decision will be made on whether to assume the risk of temporarily possessing the ownership of the new securities of the issuing companies, dependent on the type of prospectus offering.

Large-scale firms would employ financial engineers in this department to design and build complex structured risk management products for their clients to help mitigate their foreign exchange, equity, credit and general market risk.  In addition, analysts and associates in this division are also in charge of services, such as providing advice on re-organization and restructuring of firms, taking companies public, buying public shares back, as well as assistance in the management of mergers and acquisitions.  Due to the variety of different forms of underwriting/financing that the investment-banking field presents, the following comprehensive illustration of this department is necessary.


COMMON TITLES

Corporate Financing

Corporate Finance Analyst, Corporate Finance Associate, Corporate Investment Analyst

Capital Markets

Equity Capital Market Analyst, Debt Capital Market Analyst

Merger & Acquisitions

M&A analyst/consultant

Project Finance

Project Finance Analyst, Project Finance Associate

Structured Finance

Derivatives Financial Engineer, Financial Analyst (Structured Finance)

Public Finance

Public Finance Analyst

GENERAL ACCOUNTABILITIES & DUTIES

Corporate Financing:

*Managing directors, VPs, associates and analysts are assigned to their designated industry coverage group

*A client team is usually established for specific client deals with assistance from the equity and debt capital market specialists within the same division

*Engage with institutions to establish deals on raising capital through the securities market by providing them with an understanding of their issuer’s valuation, institutional investor targeting efforts and anticipating the reaction to a major corporate action, such as a merger, acquisition, spin*off, dividend policy change or IPO.

*Help the institutional investors understand how their stock is viewed as an investment vehicle and how current market trends, changes in valuation and major corporate actions will impact their shareholder base and share price.

*Extensive financial modeling including sensitivity analysis to support potential investment opportunities

*Determine the amount and structure of fund needs of a client through equity, debt, convertibles, preferred, asset*backs, or derivative securities.

*Prepare registration statements, quarterly financial report, and annual corporate appraisal for investor relation purposes

Capital Markets:

*Receive orders from the corporate financing client teams who have clients who are interested in new issues of debt or equity

*Examine market conditions and tracking swap spreads across the interest rate curve using a Bloomberg terminal and advise as to the right time and form of issuance.

*Development and maintenance of sophisticated corporate projection models highlighting critical financial performance metrics including return on capital, projected leverage, cost of capital and income growth

*Interact with the syndicate desk, which is the hub of a new issue.

*The syndicate manages which investors get what portion of a new issue and builds up a “book” of orders.

*The debt capital markets functional area is often broken down into high yield bonds and investment grade bonds segments.

Mergers & Acquisitions:

*Acts as advisors to clients to value transactions, creatively structure deals and negotiates favourable terms.

*Prepare analyses on client capital structure, debt capacity and credit profile to determine the appropriate form of participation.

*Evaluate the due diligence process, debt documents, financial statements and negotiate an Operating Partnership Agreement through extensive financial modeling

*Balance the objectives and needs between the internal stakeholders (investor due diligence, risk management, and loan administration) and the external stakeholders (legal counsel, developer clients, various third party professionals)

Project Finance:

*Provide initial investment review and screening of prospective investment opportunities for the firm

*Work as a business partner with operational leaders to evaluate/improve business processes and arrive at mutual, cost*effective solutions to fund infrastructure and capital projects

*Participate in negotiations on behalf of the firm for new investments dealing with partnership arrangements, financing arrangements and other project contacts which impact the project return

*Evaluate and analyze ownership and governance structures including framework agreements, joint ventures, partnerships and acquisitions.

*Execute project financing structures using a variety of non-recourse project finance structures including term debt, subordinated debt, equity and contributed asset transactions.

*Coordinate directly with business partners, banks, institutional investors, and government agencies, including underwriting and legal teams to manage the timely funding of project transactions.

*Develop and maintain financial models required to analyze IRR, income statement, balance sheet, cash flow, debt service, equity returns and key financial ratios of the client

Structured Finance:

*Creation of financing vehicles such as asset-backed securities:  credit card receivables, auto loan receivables, collateralized mortgage obligations (CMOs), collateralized bond obligations (CBOs); to redirect cash flows to investors

*Be involved with Cash Flow Modeling and Analysis, Data Management and Portfolio Analytics of structural risks associated with these derivatives transactions and to help both internal and external clients understand the underlying risks.

*Assess the credit quality of the underlying assets, the adequacy of cash flow generated by the underlying assets, and the legal framework of the transaction by analyzing the operative documents and collateral data necessary for ratings.

*Execute transactions including managing the underwriting risk, coordinating the marketing, book*building, pricing, and allocation process of these derivatives

Public Finance:

*Provide underwriting, advisory services, ongoing credit assessment of portfolios of governmental enterprises that issue debt for public infrastructure purposes, including state and local government agencies, higher education institutions, healthcare providers, housing and real estate issuers and other non-profit organizations.

*Creating, managing and evaluating output of economic models to build tax advantaged vehicles in the form of debt securities

*Evaluate market trends for consumer financial products, government programs and regulation

*Development of financial models to analyze and execute government based financial transactions, writing business proposals, conducting research and financial analysis.

KEY SKILL REQUIREMENTS:

General

*An ability to write clearly about complex business issues over a variety of industries and communicating accurately under tight deadlines.  Writing assignments that range from strategy reports, board reports, press releases, and corporate profiles.

*Adept at communication, particularly communication of complex information, and able to manage a complex and shifting environment.

*Able to display a professional demeanour in fast-paced environment, have strong phone presence, and disciplined time management.

*Must be able to combine strong research and analytical abilities to display a solid understanding of financial statements and securities analysis

*Superior skills in financial modeling within Excel; strong skills in PowerPoint

*Able to build and maintain strong business relationships with an array of financial market participants, including infrastructure and project finance debt issuers

*Understanding and experience in securitization and commercial bank lending transactions, markets and practices is an asset

Additional required expertise and knowledge for these specific areas of underwriting:

Merger & Acquisitions:

*Understanding of the dynamics of corporate merger and acquisitions transactions and strategies is highly desirable

Project Finance:

*Knowledge and expertise in project finance, tax equity, sale*leaseback, ownership flip, term debt, and sub debt structures

*Knowledge of tax accounting and tax law

*Knowledge of Percentage of Completion accounting and Revenue Recognition procedures

Public Finance:

*Understanding of the basic provincial and municipal bond structures to develop and analyze long*term new money and refunding financing.

*Practical knowledge of fixed income securities markets and derivatives markets is a plus.

*Understanding of the various structures and legal requirements of credits facilities for municipal and provincial entities

*Familiarity and experience with public agency procedures and processes is a strong positive.

*Ability to review, understand and analyze government fund accounting.

Interest in Public Policy is preferred.

Structured Finance:

*Strong understanding of derivatives models including market conventions, exotic options and market practices regarding bespoke valuation and hedging.

*Experience performing quantitative analysis with a research team or in cash flow structuring group.

*A passion for analyzing complex derivative transactions, such as CDOs and CMBSs

*Portfolio risk analysis is imperative.

*Experience using Bloomberg, Numerix and other derivative pricing platforms is a plus.

*Experience in securitization or commercial, consumer or real estate lending is preferred

*The desire to read & understand high volume legal documents is required

*Knowledge of bankruptcy is preferred

ESTIMATED RANGE OF SALARY:

An extremely diversified range of salary levels for this functional area of investment banks.  A range of $50,000 to almost $1 million or more in some cases, including bonuses and commissions.

*Experience and qualifications dictates salary levels and rises in the following ascending order: analyst, associate, manager or managing director

*Expert financial modeling skills and quantitative analyzing skills with a strong mathematics educational background will generally be paid more.  This is especially true for those who work in the capital markets and structured finance.

EDUCATION, CERTIFICATION & LICENSES:

*A Bachelors degree in Finance, Accounting, and Business Administration is essential.

*Individuals with a Bachelors degree in Mathematics, Statistics, Computer Science, and even Actuary Science, are favoured in structured finance and capital market underwriting

*Masters degree in Business Administration, Finance, Economics, and Mathematics are required for senior positions

*Public Finance: Bachelors degree in public administration is preferred.

*Derivatives Fundamentals Course and Options Licensing Course with a Derivatives Market Specialist designation (DMS) in structured finance, and capital market underwriting in some cases

*Accounting Designations: Certified General Accountant (CGA), Certified Management Accountant (CMA), Certified Public Accountant (CPA), Chartered Accountant (CA) are recommended

*Finance Designations: Chartered Market Technician (CMT), Certified Investment Management Analyst (CIMA), Chartered Financial Analyst (CFA), are recommended or required by many investment banking firms

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