Capital markets face permanent changes to working practices
Lockdowns raised big questions about how capital markets operate. Trading floors — their beating heart — emptied even as the need for the financial blood they pump round the system rocketed. But markets thrived. Now Ralph Sinclair asks how the experience will change the future of work in capital markets.
It would have been unthinkable even a year ago that capital markets could function if no one was in the office or meeting clients even in normal times, much less during a global crisis — it is an industry riddled with the cult of presenteeism.
But since the coronavirus pandemic forced global lockdowns, plenty who work in the markets are questioning the need to go to the office ever again, or submit to brutal, carbon dioxide-belching international travel schedules, even if the virus is eradicated.
At the height of the first lockdowns, companies were shorn of revenue and investors of confidence, while public sector borrowers faced funding epic rescue programmes. Unlike previous crises, that had to be reckoned with remotely as offices closed and travel ceased.
Markets coped well. The speed and effectiveness of the shift to remote working was remarkable.
Now, decisions about how people work and where from promise the most sweeping changes to life in the markets since the invention of the desktop computer.
The core of capital markets business may be the flow of money between institutions but at its heart, it is about people: building relationships and, above all, trust.
That justified, even demanded, face-to-face meetings even as markets internationalised. But recent experience has brought their necessity into question.
Lockdowns forced deal marketing online, with issuers swapping gruelling multi-city roadshows for video conferences to great success.
Take the €2.6bn IPO of JDE Peet’s in May. A deal that in pre-Covid markets would have taken a month was done in under two weeks.
The listing proved that the greater efficiency banks and investors had begged for for years was possible.
Technology allowed the issuer to meet more investors virtually than it could have physically, and in less time — meaning a deal exposed to less market risk but with more possible buyers.
Nice not to meet you
The efficiency of virtual meetings has blossomed across different markets.
“For giving investor updates, we have had good experiences of using virtual platforms,” says Friedrich Luithlen, DZ Bank’s head of capital markets in Frankfurt. “On one occasion, we had nearly 200 investors in a virtual meeting. You cannot do that many in person.”
Many hope traditional deal marketing is dead. “Roadshows asked people to do impossible things,” says Louise Wilson, co-founder and joint managing director of Abundance, an ethical investment company, and formerly head of EMEA equity capital markets at UBS. “It was gruelling.”
There is a feeling that virtual meetings can replace a large amount of other business travel too.
“If you are with a client, there is no doubt it will increase the chance of a closer relationship,” says Wilson. “But do we have to have a beauty parade for something that comes down to a matter of basis points? They should be a thing of the past.”
But who leads that change and how quick and permanent it is remains to be seen.
“There is not going to be an immediate return to pre-Covid levels of travel, nor will there be a permanent change,” says Atul Sodhi, global head of debt capital markets at Crédit Agricole CIB in Paris. “It will be very much client-led, and many clients like physical interaction. It is a high touch business.”
In reality it will be for issuers and investors to insist that their bankers do not keep turning up en masse as before. “Clients need to say they don’t want to see 10 people showing up,” says Wilson.
Luithlen agrees that there will be less globetrotting. “Travel will be more targeted,” he says, but stresses the need for issuers to demand it. “The need for remote meetings will not come from us. We will always want to meet in person.”
‘No more gold card holders’
There seems no desire among the world’s most frequent and sophisticated borrowers to host dealers as often as they might like.
“We haven’t particularly asked banks to come and visit us; it’s up to them,” says Eila Kreivi, head of capital markets at the European Investment Bank in Luxembourg. “But they and we have good virtual meeting facilities. We’ll use them much more.”
“We don’t tell banks they have to come to see us,” agrees Frankfurt-based Petra Wehlert, head of capital markets at Germany’s promotional bank, KfW, “as long as the discussions can be done via phone or video.
“End of year meetings [to review a dealer’s activity] can easily be substituted for virtual meetings.”
But even for these borrowers, some things are best done in person, at least for the time being.
“We have tried for a couple of years to do video calls with investors,” says Kreivi. “Big asset managers have the technical capacity but not all public sector investors, like central banks, have the technology or have felt comfortable with the format. We will have to see if they have grown accustomed to it.”
“Flying is not the first choice,” says Wehlert. “We prefer to communicate in a direct way and investors are getting used to it. However, there are cultural differences we have to be sensitive about.”
But she is optimistic about the future of virtual communication. “Everybody will catch up on communications technology,” she says. “For those we need to contact, we’ll find an appropriate route.”
In fact, KfW has changed the way it markets itself, swapping air miles for calls and social media. “We have more direct phone calls with investors and our online investor relations effort is growing — especially our LinkedIn account,” says Wehlert. “There are no [airline] gold card holders on our staff any more.”
Other gatherings, though, cannot be replicated online. Conferences, for example, are an efficient way to meet many new and existing counterparts in one hit. “Virtual events are not the same; you present and that’s it,” says Kreivi. “There are no informal chats. “We did a conference in Australia and New Zealand remotely last year. It worked in testing but then the video feed died towards the end of the actual panel, and of course we had none of the soft benefits of actually being there.”
There are other reasons to get back on the road too. “When you are a very senior manager, you are far removed from what is going on in the business front line,” says Luithlen. “Sometimes, your best chance to find out is when you are travelling to see a client with your staff. But that has gone now.”
Meanwhile, back in the office, banks are re-opening trading floors.
Social distancing and health are of prime concern, with one senior banker saying that his firm had provided “welcome packs” for staff, which included face masks, and it had fitted hand sanitiser dispensers to walls.
The key to diversity
But for all the hygienic hospitality, that staff could work from home so well during lockdown has raised whether remote working should be a permanent feature rather than a taboo. “No one wanted to be seen as that guy,” says one head of EMEA debt capital markets in London.
Measures adopted in lockdown could encourage more women into the front office.
“One of the perennial issues in the City has always been diversity in the workplace,” says Wilson. “We had all the solutions for flexible and remote working in place and they are two of the keys for unlocking an increase in the number of women working, because you cannot have it all: you cannot play both roles as mother and work in the City in the way that the industry demands.
“It is frustrating that it has taken a pandemic to have that conversation.”
Judging what can be done remotely and what needs to be done in the office on a permanent basis is the key variable. It is a question for staff as well as management.
Offices are set up for doing business and exchanging information — and, for some, they provide a distinction between work and home.
They give structure to the working day that can be absent when working at home, barely moving from bed to laptop and back again.
Indeed, some have found working from home has made it difficult to detach from work and switch off — both mentally and electronically.
Offices also host groups with shared interests and team spirit. “It is the social side of the office that people miss,” says Kreivi. “Doing business has been OK — we have all worked away from the office before when travelling.”
Colleagues with benefits
That social interaction has clear business advantages too. While working at home can mean fewer interruptions, it also means it can be harder to get things done.
“Presenteeism is going to return,” says Luithlen, “especially in debt capital markets and trading. Valuable quick interactions on the spot are so much more efficient when everyone is sitting together.
“The informal networks are harder to maintain [remotely]. They can be gossipy and counterproductive but a lot of work gets done that way as well: either by calling up a mate quickly or going for a coffee to cut through red tape.
“You want to give people the opportunity to engage like that. It is also how you can get promoted, because you get things done.”
Replicating the benefits of those networks is perhaps the biggest obstacle for those who want more flexible working.
“It is easier to keep people in the loop if everyone is out of the office, rather than only half of us being out,” says Kreivi.
“No one works in isolation and it is more efficient to be able to have a quick chat down the corridor than working remotely,” says Sodhi.
Much of the success of recent remote working experience has been because experienced staff have been working on established products in mature markets.
Individuals need to learn to establish and run their informal networks away from the office coffee machine, while institutions need to ensure innovation happens and that new staff are immersed in their employer’s business and culture for remote working to thrive long-term.
“It is a bit more challenging to get new things done over the phone,” says Kreivi. “It is the new, developing ideas that are the ones to suffer.”
Overlooked during the hectic scramble of the pandemic has been how to make remote working a success for those not yet entrenched either in capital markets or their new firms.
Companies have hired during lockdown but not without frustration. Processes slowed, say senior bankers, and video interviews were inferior to physical meetings. “I hate it,” confesses one.
Others have persevered but admit to difficulties during hiring and once new staff start. “We have been hiring in virtual formats,” says KfW’s Wehlert. “We are growing used to it. You can get a good first impression and younger people are used to the format anyway.”
But she adds: “It is more difficult for new colleagues to start working in an institution. You need to be able to build a network; it’s easier if you have a stable network already.”
Hiring experienced staff is one thing, but bringing the next generation through is quite another.
“The whole capital markets team is experienced and knows what to do,” says Kreivi. “Onboarding a new person is tough and having the boss give instructions remotely is not ideal.
“We have hired a couple of recruits at trainee level during lockdown. You can do it but, for instance, one of our investor relations trainees has never met their colleagues in person.”
There is a risk too that neither new employees nor their employer can judge their suitability for the job or the institution until it is too late.
“I find it very irritating that trainees don’t come into the bank,” says Luithlen. “How do you train them? How do they form an emotional attachment to the team?
“I have only seen films of our next candidates. We run assessment centres where we see how people lead in teams. You cannot replicate that online. My hope is that when they arrive physically, the journey starts for them properly — but the danger is it is only then that they will find out that it’s not for them.”
One advantage to more remote working, especially for an industry as international as the capital markets, is the greater pool of candidates from which to hire if proximity to work loses importance — a boon for those that need to live near elderly relatives, for example, or further away from city centres in order to afford a family home.
“If we stay longer in this situation, we will be more open-minded about where candidates are hired from geographically,” says Wehlert. “Distance from the office is not as big a factor as before, therefore diversity might improve.
“From an ecological point of view there are benefits too — especially the traffic in Frankfurt, which has been a dream!”