With the UK economy still under a recession and consumer confidence falling, university students are faced with probably the most competitive financial job market. Getting a job/internship in the lucrative investment banking sector is harder than ever before. At such a time, a team of students at University College London and the UCL Augustus De Morgan Maths Society, decided to hold the inaugural UCL Financial Markets Conference, which was the first financial conference ever to be held at UCL.
"While speaking to students at UCL, we realized that there is a growing interest in the financial markets among them. However, they don't have access to enough resources that give them a comprehensive explanation about the markets. Through this event, the attendees will learn more about its various aspects (such as Equities, Fixed Income and Derivatives) from the current leaders of this industry," says Pavan Daswani, President and Founder of the FMC. With this in mind, the UCL FMC was organised to give attendees an insight into the various products and roles that make up the financial markets along with an idea of where the jobs are in the post credit-crisis period.
Speaking to the organisers, I was told of the planning that was put into organising this conference. Firstly, the Roberts Building - newly renovated and one of the most modern buildings at UCL was booked, which was an astounding building, perfect for the needs of the conference. Secondly, and probably the most essential phase, was inviting prolific speakers that would give attendees the best insights into markets, focussing on the current climate. Finally, marketing and promotional material were drawn up by a professional graphic designer, which obviously paid off as I was told that within 5 days of the registration opening, over 300 students had registered to attend.
The conference was scheduled to be held on December 16th at 2 pm. Due to space constraints, the number of students that could attend the conference was capped to 150 students on a first come first serve basis. When initially walking into the building, a large welcome screen displayed UCL Financial Markets Conference, with posters leading to the registration desks with large projectors displaying the same. Upon registration, I was given a bag of freebies, which included FMC printed pens and pads as well as some freebies from the sponsors and partner firms. The event was very professional and you could clearly see the amount of organisation that went into it.
The first student entered the Roberts Foyer to register at 1:05 pm and within 10-15 minutes, more than 100 students had already registered, and by 1:30 pm, these went up to 170, resulting in several students having to unfortunately be refused admittance and were asked to wait for the next talk.
After the long but insightful day, when asked whether the Financial Markets Conference was a success or not, Nirav Bansal, Vice-president of the FMC committee said, "The attendees emerged with a better idea of what characteristics of the financial markets particularly interest them. The speakers were happy by the insightful questions that were asked and finally, the sponsors were really satisfied by the turnout and the organisation of the conference as a whole. All-in-all, Yes, I would like to think it was a big success."
General State of the Financial Markets: Buy the bubbles, sell the bath
(Speaker: MD, Global Head of Credit Strategy, Citi)
History of the Foam
Looking at the US consumer net worth vs. savings rate and the earning yields over the last few decades up to the crash, we can see that savings had reduced and equities had rallied resulting in everyone leveraging up. Adding onto this, the growing role of credit, in particular, to the housing markets, simply added more soap to the bubble.
Picking the next bubble
What is the recipe for a great bubble? Add sequentially and then stir: A secular story, a new investor base and finally a large amount of debt-financing, then leave to ferment for around 5 years. This has shown true in previous bubbles such as Japan 87-89, Dot-com 98-00 and the housing market 03-07 (and also shown in Emerging Markets 09-?; the soap is in place but the bath time is barely beginning).
When the soap runs out
There is a need for fiscal tightening. There are also signs to hint to the return of capital controls (such as Taiwan's ban on foreign holdings of fixed-term deposits in 2009, Brazil's 2% tax on short-term capital inflows in 2009, Colombia's minimum investment period of 1 year for foreigners in 2002) - but this is still far-off as yet. In conclusion, will the US & UK devalue and the EU be the next Japan? Bubble after bubble, deflation or inflation, the soap opera will run a long time yet.
(Speaker: MD, Head of US Equity Sales, Credit Suisse)
Ian's one hour presentation started with a landscape view of Credit Suisse global organization identifying how the equity business fits into the group organization. Next we examined what are funding opportunities for CS clients, and how does access to deep investor base facilitate those borrowing needs within the capital structure. Next we looked at the current state of the markets and CS forecasts for 2010 in Europe, Americas & developing markets followed by current recommended forward looking asset allocations.
Opportunities in Equities
Institutional Sales - Relay recommendations from research analysts to buy-side portfolio managers and cater to client needs.
Sales Traders - Speak directly with buy-side trading desk and offer shorter term trading ideas. They also negotiate pricing on behalf of buy-side clients while protecting the firm's capital.
Traders - Execute the best prices for buy-side clients offering insights into marketplace and potential short-term trading ideas. They also take proprietary positions using the bank's capital to provide liquidity for buy-side order flow.
Origination - Pitch to the company looking to raise capital through an issuing an IPO (Initial Public Offering) which is the first time a company offers shares of its equity to the investing public and communicate with potential institutional investors.
The recovery from the Credit Crisis is forecast to be much muted compared to the decline. The Fed is unlikely to hike rates before the second half of 2010 - or to announce a change in the direction of monetary police over the next three to six months. The underperformance of equities relative to credit has been marked - when credit was last at current levels, equities were 25%-30% higher than now.
(Speaker: MD, Head of FX Quant, Morgan Stanley)
The main asset classes in finance are Equities, Interest rates, FX, Commodities and Credit. A derivative is any product whose value is dependent on one or more underlying assets (Interest rates being the largest). Two common types of derivatives are forwards and options.
A forward allows you to buy or sell an underlying asset at a future date at a level determined today. Futures are similar to forwards except that they are traded on exchanges (forwards are traded over the counter) and an investor needs to post margins regularly.
An option is the right to buy/sell the underlying asset at a fixed strike on a given future date. An option to buy the underlying is called a call option and the option to sell the underlying is called a put option. As the option is a right and not an obligation, it is only exercised if it has positive value (we say it is in-the-money).
Introduction to trading strategies using derivatives
Hedging: This is a strategy in which by use of derivatives a party can reduce its risk. An investor engages in transactions that are opposite to the one he currently holds thus either ensuring a certain profit or minimizing losses.
Speculation: Derivatives, unlike in hedging, can also be used to increase one's risk. An investor can buy or sell various derivative products depending upon what he speculates the future price of an asset to be. Such strategies have gained a lot of popularity as possible profits are greater and losses more minimal compared to what an investor would make if he was holding the asset itself.
Arbitrage: An arbitrage opportunity exists if an investor stands the opportunity to make a profit but is guaranteed not to make a loss due to the discrepancy that might exist in the present value of an asset and its true value. If a market has a significant number of players (highly liquid market), then such opportunities cease to exist as the present value is pushed towards the true value of the asset.
Derivatives have come under increased scrutiny during the current credit crisis, but one must realize that the motives of the various institutions involved are to be blamed more than the inherent nature of derivatives.
Fixed Income, Foreign Exchange and Credit
(Speaker: VP, Global Market Analytics, Deutsche Bank)
Fixed Income has moved on from traditionally being centred around government and corporate debt and (US) mortgages to any products that depend upon interest rates. Under Fixed Income we primarily have either pure fixed income desks such as government debt, money market, exchange traded derivatives, over the counter products and flow and exotic options or FX related Fixed Income desks such as Cross-Currency products and Exchange forwards with longer maturity periods.
Credit has evolved from historically comprising of bonds from companies with weaker credit ratings to anything that has a significant probability of defaulting. Under Credit, we have products such as High Yield Corporate bonds, Credit Default Swaps, Collateralised Debt Obligations Asset backed securities.
FX conventionally comprised of simply spot trading (Futures trading had blossomed with the advent of the Chicago Mercantile Exchange). However, currently FX includes any products that mainly depend upon the exchange rate between two countries. Typical products are spot FX, FX Forward and FX options (usually under 10 years). FX options with higher maturity fall under Fixed Income.
Contribution to business from Emerging Markets has seen significant growth in the last two decades. The Emerging Markets desks are divided geographically. Products from these groups are normally considered by credit as these markets pose a higher probability of defaulting than the developed economies (Sovereign debt often isn't rated as AAA).
(Speaker: MD, Head of Lending Operations & Financing Technology, RBS MD, Head of Exotic Rates Trading M.O., RBS)
Modern technology is considered extremely important in meeting the demands of today's dynamic financial markets. The technology team is primarily responsible for creating all the software for the investment bank along with providing the required technical support.
The importance and integration of technology in the financial world can be seen in the increasing use of electronic trading by trading desks along with the growth of algorithmic trading (especially in the US).
Operations increase the value of the business assets and secure the income and value of the business. Often referred to as the "engine room" of an investment bank, its main function is to support traders and make sure business activities are carried out efficiently
Operations function has the following desks:
"¢ Confirmations and Settlements (typically with Sales and Traders over deals)
"¢ Acting as a liaison between the different divisions of a bank, e.g. liaising with traders, ensuring all issues are resolved effectively
"¢ Client Valuations/Collateral Management
"¢ Client Relationship Management and
"¢ In general Business Management and Control.
Markets: Sales & Trading
Chris Yoshida gave a presentation covering Sales and Trading. The 1 hour talk was lively, fun and conversational with the audience. Still in his 30's, his speech left many students in awe at not only for his insights and what he has achieved, but his ambition and drive. After the talk was over, he was surrounded by about 20 students, some with several questions and some just wanting to hear more about his experiences working in New York and London.
Classic economists over the past 18 months would not have done very well as investment bankers compared to an economist growing "out of the Bronx" and seeing the heavy bag carrying shoppers at Bloomingdales. My team and I look at macro spectacles through at the world in order to make profitable deals regardless of what financial instrument is used. The economy of late is just on a "sugar-high" after the resuscitation and life support provided by Governments around the world.
A day in the life
I wake up as early as 4am, and drive to work while on a hands free conference call with the US and Asia to catch up on daily progress, since this is the best time of the day for all to be in a live conference. Until 7am things are quiet. By 9am the rush starts and I am in high concentration until 6 to 7pm. The hours are flexible however, and I leave early on days the economy is slow, such as 3pm. But when the economy is really developing such as during the period of Lehman's crash of '09, I worked in the office for 4 days in a straight.
How does working in London compare to New York?
Working in London truly does provide a global perceptive that doesn't quite exist in New York.
Is the media accurate especially given the fibre-optical speed which information travels today?
In my experience of flying a million miles a year and seeing things first hand, the information published in the media compared to reality can still be distorted enough to affect the macro view on the world. Such differences are big enough to affect the decisions my team makes over competitors, which can lead to finishing work for the day in satisfaction that I have made money for Morgan Stanley.
Investment Banking Division
What is M&A?
In a typical bank, M&A advisory services include M&A, Leveraged/Management Buy-outs, Restructuring, Strategic alliances, etc.
Three stages to an M&A deal:
Assessment of the impact of the transaction on the core business of the company; Transaction execution which involves risk management, devising a finance strategy and raising funds for short and middle term and; bridging the gap to assess the strategy in terms of long term capital structure objectives.
What do ECM Bankers actually do?
"¢ Find a target transaction either with existing clients or potential new clients.
"¢ Structure the deal considering the needs of the clients and the best ways to attract possible investors.
"¢ Market to the client by providing free advice on all aspects of the deal.
"¢ Sell the deal by determining the key investors and marketing the company (involves the processes of Bookbuilding, pricing and allocation)
What would an ECM banker do on a typical day?
"¢ Talk to traders and analysts about markets
"¢ Internal or client meetings regarding execution or origination of deals
"¢ Market update from syndicate desk at the close of trading
"¢ Have dinner with clients.