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Opinion

Capital markets: The human factor

ECM bankers look safer from automation than their DCM colleagues, whatever Spotify might be up to.

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Last December, Euromoney wrote of the threat posed by automation to those who make their livelihood from the primary debt capital markets. An industry drive for lower cost and greater efficiency is coupling with regulatory pressure for transparent allocations to make change inevitable.

Innovative mechanisms are now popping up that threaten the traditional methods of borrowing money. Disintermediation is suddenly all around, whether it is Uber’s no-banks loan or Verbund using a new online platform in March for its latest Schuldschein.

So what of ECM? Surely Spotify’s move to forego a traditional IPO and choose a direct listing demonstrates the direction of travel, even if the destination remains some way off?

Not so fast. Bonds are frequently issued, often highly technical in pricing and often easily interchangeable. If I have a series of bonds outstanding with three-, five- and seven-year maturities, I do not need to be a rocket scientist to price a six-year. If an investor wants to switch out of the five-year and into the six-year, he can do that without breaking a sweat.

There is clearly a distintermediation play possible here. For most conventional credits and structures, you don’t need an investment bank to structure and price a deal.


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