Smaller banks, lending analyst
Can anyone chime in what its like working for smaller banks in the CRE lending? I am talking about the non-JPM/WF/Citi banks
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This thread is both topical and timely.
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Its hard to frame the question as an outsider, but more specifically: - Is the analysis of an analyst in their first 1-3 years at these smaller shops less complex/rigorous? When compared to bulge-bracket banks with, Im assuming, dedicated training or rotational programs? For some reason I;m worried I wont learn as much because of the less defined training program or less deal flow, or some combo of both. -Have smaller banks been losing market share over the past few years? I keep seeing all this talk about private lenders, and how banks wont offer high enough LTV loans. This is all speculation on my part since I am an outsider to the industry.
First - yes, I understand it's hard to frame the question from the outside looking in but you gotta give us something to work with.
Second - after seeing your other post below, please note that JPM/WF/Citi are all money center banks with trillions in assets. Excluding those banks still leaves an enormous swath of the market ranging from credit unions all the way up to super regionals with hundreds of billions in assets. There is as much difference between those as there is between a panda and a hyena.
Third - OK - now we're talking. Responding to your questions in order:
Thank you for the detailed and thoughtful reply - I appreciate you @MidasMulligan. Your hypothetical about underwriting a $100m office building with publicly traded tenants vs. $10m office building with smaller business made a lot of sense to me - it just never explicitly occurred to me in that way, thank you for this insight.
Summarizing below for my own edification:
Non-bank lending (like private credit funds) is on the rise because they offer looser terms than traditional banks. The number of banks in the U.S. has been shrinking since fewer, larger banks are less risky to the system than tons of tiny banks all chasing the same risky deal. Smaller community banking is naturally "churny" since new smaller banks win deals by offering better terms than big banks, until they can't, and the borrowers move onto the next new small bank that's less regulated. There is money to be made in the lower end of the spectrum if you are savvy.
Just because a large bank has the sophistication/knowledge/man-power to wrap their head around a deal, they still may not be interested because of (1) scaling the business, (2) managing a portfolio asymmetric assets is difficult, and (3) bank risk appetite.
Thank you - I have found your perspective highly informative. One last question - would it be naive of me to turn down a rotational credit program just because I do not want to waste time rotating through other departments if I am only interested in CRE? The other departments involved in the rotation could be SBA, ABL, Agriculture, C&I, Energy, etc. For greater context, I am 5 years out of undergrad.
Note that when we talk about size of banks (or non-bank lenders for that matter), it is assets; not deposits. Deposits are liabilities and, like John Lennon as a dreamer, they aren't the only one.
Whether it would be naive or not depends on what you want to do. If all you want to do is CRE lending and you know in your soul you are just here to be a real estate gun slinger and you don't give a damn about ever being anything else in this world... then yeah, the rotational thing may be a waste of your time. I would submit that is a very myopic approach but that's just me. I enjoy the business of banking; not just slinging one type of loan. Having knowledge of all those other types of lending makes me a better lender and that makes me a better banker. In CRE-world, you're never gonna self-fund your portfolio by gathering deposits and selling treasury and all that other jazz. So if you just roll your eyes at the rest; meh, you could skip it.
Only qualifier is that the rotational programs usually have some kind of internal prestige baked into them. Going through them may give you preferential treatment and fast-track you to go wherever you want above other off-the-street candidates. But if your initial job out of the program is not in CRE; you could be wasting a couple years there before getting a chance to move into real estate.
How small of a bank? I know people at credit unions and regional banks and can compare it to my big bank.
Overall, they sound a lot less organized and much more go with the flow. Their credit box is also wider seemingly.
Credit Unions and Regional Banks were exactly what I had in mind. It's interesting you say their credit box is wider because I would have guessed the opposite, with big banks having a wider credit box due to their higher headcount (and thus their ability to wrap their head around deals). One more question - if you were to work for a credit union/region bank with a 25% pay-bump in your total comp, would you move?
I'll respond to these points, too.
4. Your thought about their credit box is intuitive but not correct. When you are a big bank with a huge balance sheet - the name of the game is scale. You cannot scale trying to do every weird deal that comes across your desk even if you are smart enough to understand it. You simply don't have the resources to manage a portfolio of asymmetric assets. You need a portfolio that looks the same, behaves the same, and performs the same. You achieve that by being consistent in what gets put in the portfolio at the outset and how you manage it once it is in your portfolio. Obviously, there's some room to maneuver on the margin and around the edges but you are going to be much more limited by your policy and that is intentional. It is not uncommon for big banks to turn away business that they all know darn well is a good deal because it is just not within the risk appetite of the bank. Better to look at 12 deals and win 10 than to look at 100 and win 15. Savvy?
5. You need to be clearer when you say "credit union". There ARE credit unions with billions of dollars in assets but the overwhelming majority are much much smaller. Conflating them with "regional bank" is highly confusing to mine eyes because regional banks are going to be $50B+ in assets. We need to know how big we are talking before anyone (i think) could say if they'd jump ship for 25% more in total comp. If I was at a $100B big bank making $100k all-in, I would NOT move to a $250MM credit union for $125k all-in. The amount of exposure you would lose to things is huge and you would have a REALLY hard time going back from a credit union to that bigger bank in the future if you hit the ceiling of what that credit union could pay. Which you probably would because getting paid $125k at a $250MM institution is difficult outside of senior management. But if I was making $200k at a big bank and was offered $250k to go be a senior manager at a small credit union... that's perhaps a different answer.
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