Background: I work for one of the largest banks in the world by assets, in credit analysis. My job is basically to analyze the credit risk of large corporates (generally more than $1Bn in revenue). Products are not limited to loans and revolvers, but extends to everything under the sun that is credit related. I have a non-target background but worked at a major firm before this. Ask away!
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Appreciate the post - noticed a pickup in credit posts on this site and i'm glad you posted this.
Can you elaborate on the type of products that you work with (aside from term debt and revolvers) and how does the underwriting differ from the typical bank debt analysis?
Aside from in-house training, what have you done to improve you analysis skills/do you have any rec's?
Products mainly include bank debt, revolvers, capital markets lines, Spot Trading limits, and AR purchase facilities. The last one of those is particularly interesting because the obligor doesn't necessarily know that the receivables have been sold to us (the company they owe money to might sell the receivable without their knowledge). The underwriting is similar but the risks we're concerned with and expectations of loss in a default are different. For example, capital markets lines have a certain amount of market risk, while term loans have much more credit risk. The maturity of these facilities is important too, since maturities can be as low as one day for Spot Trading facilities and 5+ years for loans. In general, we're always looking at traditional leverage and business risk metrics, regardless of the facility. There is some training but not much at my firm, so my role generally requires a little experience. Most people worked elsewhere in banking or at a rating agency, but I imagine any kind of credit risk position (ie leasing or AR analysis) would be decent training.
As far as ways you could self train, I'd say that you should be able to understand the risks involved in a specific business and industry, calculate various leverage metrics such as debt to ebitda and debt to assets, and be able to do financial modeling.
Corporate. 99% of my companies are publicly traded, and most are rated at least BB- on the S&P scale. Basically the difference between commercial and corporate is client size. Commercial is smaller, corporate is larger.
Without giving away too much info about myself, I worked in credit analysis at a ratings agency. I just applied online. There was one phone interview and one in person.
You should be good at identifying business risks and seeing how industry trends affect the companies you cover. Additionally, financial analysis is important so you should know your ratios. You should also know how to model, though the modeling is a bit simpler than on the equity side because we aren't as concerned with firm value, especially in the higher grade credits (this would probably be different if you were dealing with distressed credits). Knowing industry relevant credit metrics is good too (D/Assets isn't very relevant if most of your assets are intangible and therefore may not be worth much in a bankruptcy).
1.) What are 3 long term goals in your career that you are pursuing- would you be looking for a more customer oriented role?
2.)How much did you know about the job before you took it? 2.b.)Would you say that you and/or your peers gain most of their knowledge upon getting the job? ---To clarify, when one pursues investment banking, there is a boat load of information and guides on investment banking, what they do, the different departments etc. along with interview prep guides. There doesn't seem to be much of that on credit analysis, and linkedin doesn't give too many leads. So did you (or your peer group) know about all the different products you would be cross selling, did you have experience with secularization,
3.)When you say spot trades are you referring to interest rate products?
4.) When you started did you particularly like or dislike any of your responsibilities?
5.) Do you work with random industries or do you focus on one?
I like the analytical side, so I wouldn't be switching to sales though some people do. My general goals are to get promoted, maybe go to business school at some point.
I knew a bit about what I'd be doing just from having worked in credit before but I didn't know the variety of products I'd be working with. I thought it was just loans.
B. Most of my peers had work experience beforehand, but I'd say there's a lot of learning on the job, too. The CRAs take a lot of entry level people though, and some of them do formal training programs. My bank does do some entry level training programs too, but not necessarily right when you start.
That and FX
One thing that's annoying is all the admin and regulatory stuff, but that's just life in finance. We have lots of stuff to do in terms of verifying that we stayed within our underwriting guidelines and exposure limits.
I focus on one though we do have product teams for some specialized products. One note is that my team doesn't care about past industry experience. Most of the lower level guys didn't cover our industry before coming to my firm.
To get to the point:
I am a current top 15 MBA student, and was gunning for fixed income groups. Didn't get it but did get a corporate credit research gig over the summer and I loved it.
Since corporate credit does not seem to have any kind of organized MBA associate program that I can find yet, what should I be looking for when I am trying to network with people in those organizations and what keywords should I be using that I get results for corporate credit analysts and not retail credit analysts?
Figured I'd jump in to help as I work for a $200BN+ bank.
If you mean switch from a credit analyst to a traditional IB role (coverage/product groups) - yes. Over half of the typical credit analyst class will move over to a coverage or product role (typically lev fin) by the end of their 2nd year. The most common is moving into a coverage role within the group you covered after 2 years, starting as a 2nd year analyst. It's important to build strong relationships with the bankers you support while you are in credit, so when a spot opens up, you'll be the first candidate on their mind.
After lateraling into a coverage/product role, the next most common exit is moving into a senior financial analyst role with a company you covered while at the bank. Given the strong access to management (especially as a left lead), you'll build a strong relationship with the Treasurer/CFO at these companies. You become a coveted asset to these companies as you have experience from the other side. We'll typically see about 20-25% of our analysts move to these roles by the end of their contracts.
You'll have some analysts move into lower end MM PE shops, typically top performers, as most PE shops would like for you to have at least one year of experience in a coverage role to broaden your skill set. After that, you'll see a few people go into credit/distressed debt funds, however competition is fierce. Equity Research has become a surprisingly common exit lately as well.
Regardless of the type of company analyzed, each bank will typically have a basic format
Transaction overview - what is being approved, structure of proposed credit facilities Company overview - what does the company do/sell, business segments, key drivers, key markets/customers, etc. Key credit risks - key company, industry, and transaction specific risks are identified and mitigated
Financial analysis components -Capital structure (capitalization, leverage, debt maturity profile) -Historical financials (operating performance / key drivers, EBITDA, FCF) -Cash flow analysis (FCF, ability of FCF to cover non-discretionary outlays, debt service) -Projections (operating model to match tenure of bank facilities and projected operating performance, cash flow, leverage, ability to retire 50% total debt or 100% senior debt over forecast) -Sources of repayment (primary / secondary; i.e. free cash flow, refinance in capital markets, asset sales, enterprise value, etc).
Industry analysis Internal risk rating (rating risk profile of company on numerical scale which allow banks to have a firm-wide view of risk on a client basis and sets lending limits, etc)
The above analysis will be tweaked depending on industry. I.e. you will not use EBITDA for FIG / Utilities clients. ABL analysis will include a lot of the above but also be very collateral driven.
I would second this and say you do not need to be a quant whatsoever, just like you don't need to be a quant to run through an operating model, lbo model or whatever else for a coverage role. For the most part, at my firm at least, the credit analyst's work somewhat duplicates to the coverage banker's in terms of any modeling insofar as they tend to view any deal the front office is representing as a strong credit as potentially bullshit so they want to take an unbiased view of it, which makes sense. Then obviously they go through their entire credit writeup process which is entirely separate from the coverage teams business proposal we put together, and talks about industry risks, company-specific risks, how the company compares to its comps, etc.
In terms of modelling, and again this could just be at my firm and based on the products we focus on, the credit analysts really only need to be able to build an operating model (which can get relatively advanced once you start building tax schedules, DTL schedules, etc beyond the 3 statements) and a short-form LBO-type model in order to do a FCF analysis. I have found on a handful of deals where were were looking to underwrite an facility on the back of an acquisition or merger, that I had to explain how a merger model works so the credit analyst could work his way down to the pro forma FCF numbers for his writeup. Not saying any of this to disparage the credit analysts in any way, just trying to give a complete picture of some of what is expected and the skillset gained.
As clarification, my experience is on the coverage side, but credit underwriting is 90% of what we do so I have a very strong working relationship with the credit analysts who cover my team's clients and have also gone through numerous credit trainings myself. Finally as a disclaimer, everything I'm saying is very firm specific, so if it doesn't line up with your experience, that's entirely valid.
As an undergrad student looking for fulltime positions in the banking and trading industry, what would you say are skills that recruiters will jump on? I've been writing trading algorithms on Quantopian, implementing a bit of Machine Learning in them too. I'm also giving the CFA level 1 exam, but I don't have a clue as to how to put stuff like that on my resume so as to catch the eye of recruiters. Maybe some stuff which one picks up on the job, but if someone already knows it, will that help? Thank you!
So my experience is that the skills are significantly different for banking and trading. I can't speak too much about trading since I don't work in that, but I'll say that the type of things that look good to banking recruiting is experience and knowledge in corporate finance. Trading interviews, from my impression, are more about being able to do much more complicated math quickly. Interviews in banking will often include questions about financial ratios, the three statements, etc. Stuff like the CFA look good on a resume, even if it's just too show how serious you are about finance. Personally, I put "Passed CFA Level 2" in the "education" section of my resume. I would only put the CFA on my resume if you've passed one of the levels though. "CFA Level 1 Candidate" just looks pathetic.
I'll offer a couple of thoughts on corporate vs. commercial banking, I think the thread can use more color on this.
General difference between corporate & commercial is client segmentation, depending on the size of your clients (by revenues): -Business banking: $5-50mm in revenues -Commercial banking: $50mm-500mm (can be up to $1bn for the BBs) -Corporate banking: $500mm+
As a general rule of thumb you will find higher compensation, greater concentration of talent, and work more hours as you move up from bus banking to corp banking (with some exceptions, i.e. middle market sponsor finance). -Reasons for this is banks earn more fees on the corporate side. Since upfront and arranger (fee paid to Lead Arrangers for structuring and syndicating a transaction) fees on credit facilities paid to banks are priced in basis points on notional value, the larger the facility the more fees paid (and the more fees paid to banker). Additionally, corporate banking clients have access to the public equity and debt markets, which allow banks to make lucrative capital markets fees on public issuances. -Example 50bps up front fee on $100MM Term Loan and 100bps arranger fee = $1.5mm in fees (note that upfront fees will be split over multiple bank based on pro rata commitment to deal) vs. fees would be 10x higher for a $1.0Bn Term Loan (assuming same assumptions...you would have more JLAs here and fees would be different based on credit profile of company but just go with it for simplicity sake). -Corporate banking allows bank to offer full suite of products (ECM, DCM, Private Placement, M&A, Derivatives, Treasury, etc.) whereas commercial clients have a more limited product set due to not having access to the public markets. -Hence more fee opportunities with large corporates which would attract top talent.
Corporate banking is much more of an "up an out" lifestyle vs commercial banking with greater expectations. Commercial banking is more of a 9-5, 6 role where one can live a very comfortable lifestyle and make ~150k all in with 8 years of experience and relatively stress free. In corporate banking a 1st Year Associate can make a base of 100-120k alone (3 years on the job) but are working longer hours, some weekends, higher stress.
How your role is structured and what the expectations are really depends on the bank -I've seen commercial banking analyst roles where kids are doing annual reviews and internal risk ratings for 2-3 years before getting to underwrite live transactions -I've also seen well structured rotational commercial banking roles that offer great experience and a quick path to a junior relationship manager -Corporate banking is more structured and more predictable. Analysts are the first level resources that are expected to completely create a credit write up for a new deal, annual review, amendment, etc. Then work flows to Associate who will scrub analyst work, provide guidance as needed, manage transaction process and various analysts engaged on multiple transactions, and assist VP/Director with loan docs, etc. VP/Director is considered to be a "Portfolio Manager" that serves as the credit subject matter expert for the ~20 or so clients that they cover.
Depending on the bank (quality of work varies across institutions), the credit role can be a great foundation for any career and leave analysts / associates with a great skill set. -You learn financial statement analysis - this doesn't just mean credit ratios. But you learn how the statements work, flow, how that factors into operating performance of the company, and can identify health of your company. -You get to learn a good deal about the operations and business of your clients as well as the industry you cover from doing repeat deals & annual reviews in addition to due diligence with your client. You learn to spot company specific and industry risks. -You learn financial modeling. Typical model created is a 5 year operating model that projects revenues, EBITDA, FCF, select balance sheet metrics, key performance ratios, etc. For acquisition financing scenarios you'll work with PF financials, etc. -You will learn performance drivers of your companies and create a downside 'stressed scenarios' model where you shock company through key company / industry specific risks and look at operating performance & debt service in a downside scenario -You will work on deal teams across the bank and interface with coverage bankers, investment bankers, syndicated finance, treasury, derivatives, credit risk, etc. -Acquisition / Bridge Financing - provide financing to your client to acquire another company with a capital markets bridge that is used to backstop a capital markets event which will serve as source of funds for acquisition.
With that said, credit / corporate banking is not IBD. There is definitely a lot of overlap and making the jump to IBD within the same bank is not an uncommon move given you work very closely with coverage bankers, capital markets, etc. However your main product is bank debt...you will not be working on equity / bond deals or pitching M&A.
More common exits are into investment banking (coverage group that covers same vertical as you do in corporate banking, DCM/Lev Fin, Syndications). PE is not a common exit. You'd need to do internal transfer to IBD and then look at PE. I've seen people get looks at Mezz funds/BDCs/credit investing at life companies, invesco, etc.