Why corporate banking instead of investment banking?
Updated:
December 14, 2020What Do Corporate Bankers Do? - Corporate Banking Definition
It is the corporate banker’s job to get secure financing for clients.
You're generally working with a syndicate of lenders arranging revolvers and first lien term loans for large-cap companies. (This can be for M+A deals, new capital raises, or refinancings.) It's pure credit/capital structure analysis.
As an analyst, you won’t be the one engaging in securing these funds.
I'm a first year analyst in CB. I'm not sure how Citi structures their CB department, but as a first year analyst, you'd be focusing more on underwriting transactions and monitoring the debt portfolio rather than schmoozing clients. A first year analyst would have no idea how to approach a client and present a cross-sell idea.
Why Corporate Banking?
This question comes up at every interview. One thing not to do is say you want something similar to investment banking but with a better lifestyle. The two are similar but different, so it demonstrates a lack of knowledge. There are many different ways to go about answering this question. What you want to do is focus on the functions of the job.
Here are two aspects of CB you can incorporate into your answer.
- Underwriting/portfolio management aspect: Transaction-based while being unique relative to IB in that your firm is assuming the risk. You are interested in lending and actually taking a position rather than just advising companies or syndicating shares with no skin in the game
- Credit mindset: You like to focus more on reducing risk and preventing downside rather than valuing companies based on a wide variety of variables and being upside focused (as IB involves valuation work). You are interested in the wide variety of different loan financing products that are used ranging from revolvers, term loans, etc., and how businesses use them. In many corporate/commercial banks, there is a credit training program that analysts go through so you can emphasize the training, too.
- Scope for a longer term career (less turnover/ no "2 and O" culture).
- Developing an ability to understand businesses fundamentally to foster long-term relationships (not so much transaction focused as IB).
- The ability to have "skin in the game". (Typically, you'll be underwriting loans/credit, so you'll need to be responsible and accountable as it's the bank's money you're committing - maybe speaking to having more responsibility at a young age, etc.)
Ultimately, we believe in avoiding the comparisons to investment banking on this one. Keep the focus on CB, and tie it into one or two of the specific functions of the job mentioned above.
Salary and Hours in Corp Banking
There is no definite compensation range like there is for investment banking. For base pay, analysts earn around what investment banking analysts earn. The variance comes at the bonus, which depends on firm, location, and group performance. The range for analysts is $65-90k all in. Expect those numbers to increase at least 10k per year, and even more than that after a few years due to increased bonuses at the associate level.
Expect to put in 50 to 65 hours most weeks. During deal weeks, expect more.
Retail vs. Corporate Banking - What’s the Difference?
Many get retail banking and CB confused. Retail banking is what you see when you stop by your local bank to make a deposit. It deals with people. CB deals with corporate clientele. Retail banking offer services including mortgages, credit, and checking. It offers services including business loans, commercial real estate, and cash management.
CB Internship Experience
CB is great as an internship. If you’re looking to do pursue a career in the field, then this is exactly the internship you need.
If you’re looking to do investment banking, then CB is still a good option - as long as it’s before your junior year since that’s when you need to secure an investment banking summer analyst position. The only internship that beats a CB internship after sophomore year is an investment banking internship, and the only realistic way you’re getting that is if you’re a diversity candidate or land a position at a boutique.
So how do you go about securing an internship? Most are secured through networking, but you might find some firms recruiting on campus so keep your eyes peeled.
Interview Prep for Corporate Banking
Interview prep for CB is similar to investment banking, but there are differences to study for. Here are a couple of things to know from @TNA".
I'd know credit basics, know how ABL [asset-based lending] revolvers work, try and find out the space the bank you are interviewing for operates in. Stuff like that.
I was in your shoes a while back and the IB prep was pretty useful. As IBBD mentioned, you take on a buy-side mindset. With that in mind, you should know your typical sources of repayment (refinance on a unsecured/secured basis, sale borrowing base assets, cash flow from ops, etc) and key credit risks.
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Interested in Investment Banking - Breaking In
The fact of the matter is you won't improve unless you practice. To have any chance at the technical questions, you need to prepare yourself with legitimate questions. The WallStreetOasis investment banking interview course is designed by countless professionals with real world experience, tailored to help you break into investment banking by acing the technical questions.
Correct me if I'm wrong, but I believe that corporate banking focuses a lot more on the relationship aspect. ie. the company you're covering wants to raise X amount to finance a new building -> go to corporate banker -> corporate banker connects them with appropriate team. Think it might be a good idea to talk about how you like making relationships and helping clients achieve their goals as well as working with various business groups within the bank.
That's really high level..but hope it helps.
I'm a first year analyst in corporate banking. I'm not sure how Citi structures their CB department but as a first year analyst, you'd be focusing more on underwriting transactions and monitoring the debt portfolio rather than schmoozing clients. A first year analyst would have no idea how to approach a client and present a cross-sell idea.
With that being said, the one aspect that may make CB more appealing than IB is that you kind of take on a buy-side mindset when you underwrite transactions. Your underwriting credit memo will act as sort of an investment thesis as to why the bank should (or should not) give this company money. And the risk is real. If the company goes under then the bank loses millions of dollars. But, of course, it's not as risky as private equity since you're usually taking on a senior position in the capital structure and you normally deal with investment grade rated companies. It's just one interesting argument you can make in your interview. Before the monkey shit comes, I have to say that I'm not saying or endorsing that CB is better than IB; this is just something that's different from IB and could be enticing for someone.
Corp banking over IBD: 1. Long term career potential - not much of an "up and out" culture like in IBD. As long as you are competent you can move into an associate role after your 3rd year in most places, you won't need to go back for an MBA to advance. Also to get from associate to VP in the credit path you won't need to be able to generate business to move up as you would in IBD
Better hours / work life balance
You manage risk if that is something you are interested in, the spread on senior bank debt is low so you need to be careful when making a decision as you will have to originate a huge multiple of your loss in new money just to be able to cover it
You develop a solid foundation in cash flow analysis & learn about collateral (depending if it is ABL group or middle market lending vs. large corporate)
Corp banking is very relationship focused
Ability to move from client management/credit/risk so you can have a very varied career depending on how you position yourself and what your interests are
Can be a generalist or cover industry vertical depending on what group you are in
Really depends on the shop.
If you're at a firm that has a Corporate Investment Bank, like JPM that houses IB and CB under the same umbrella, you will be doing mostly lev fin/syndication/DCM, but you will also get a taste of some more exotic IB activities (M&A, ECM, and if you're lucky, one of your companies IPOs). Think of it this way, instead of having a product or industry coverage group, you have a geographic coverage area and target companies slightly smaller than traditional IB (F1000 - F500
there were a few posts on this around the forum. a few things re-iterated are:
1) scope for a longer term career (less turnover/ no "2 and O" culture) 2) developing an ability to understand businesses fundamentally to foster long-term relationships (not so much transaction focused as IB) 3) the ability to have "skin in the game" (typically you'll be underwriting loans/credit so you'll need to be responsible and accountable as it's the bank's money you're committing - maybe speaking to having more responsibility at a young age, etc)
good luck!
Got a corporate banking offer, I would NOT try to sell CB as IB with a slight paycut but better hours. Don't do this as it makes it seem like you just want ibanking lite when they are pretty different.
Some ways to go about it: 1. Underwriting/portfolio management aspect: Transaction-based while being unique relative to IB in that your firm is assuming the risk. You are interested in lending and actually taking a position rather than just advising companies or syndicating shares with no skin in the game 2. Credit Mindset: Like to focus more on reducing risk and preventing downside rather than valuing companies based on a wide variety of variables and being upside focused (as IB involves valuation work). You are interested in the wide variety of different loan financing products that are used ranging from revolvers, term loans, etc. and how businesses use them. In many corporate/commercial banks, there is a credit training program that analysts go through so you can emphasize the training too.
There are many different ways to go about this
I have worked in both so i will opine.
In my opinion, what i did in IB was much more interesting. You truly modeled a company's financials out and understood a lot more. In CB, they usually break out into two tracks: credit analysis and relationship management. The credit analysts all want to move into an RM role and are often interchangeable with little career growth. Credit analysis is not like at a FI fund. Often you use some proprietary bank system and update boilerplate memos. I actually think I met only one credit analyst who was able to do a 3 statement linked financial projection and that was after he did a CFA. On the RM side you make a lot of pitchbooks where you incorporate work from other product groups. You feel as if there is little in terms of true finance. There was a Director I hated who made seven figures one year and he came over to me after I finished the CFA to tell me you don't need to know finance to be a "banker". If you are an associate you will attend client pitches and see just how sales focused it is. You need to work hand in hand with the loan groups mainly (syndications, lev fin, loan capital markets, etc.) as well as other product groups like DCM or ECM or whomever to present their ideas but they are the ones who do the analysis and often feed you slides for your pitchbook. Over time you start to understand the game....you know when revolvers and term loans or big bonds are due and start pitching 1.5 years in advance to get a piece of the book or to lead it. Bigger banks use their balance sheets to get investment banking and ancillary product business (i.e. Bonds). The revolvers and term loans are either bilateral and on the bank's books or syndicated out. When you are a senior associate RM you start to have more client interaction and by the time you are a VP you will be getting smaller names for your "portfolio" to call on and pitch to. And my experience stops at the VP level.
Your schedule is much much better than in IB and you have more of a voice with quicker progression, but it isnt about finance in my opinion as much as it is about sales. It also attracts people who care about having families that they actually get to see and there were more women in CB than IB. If you are in a good group, you will travel frequently though.