Q&A: I’m a 2nd-year Associate in Corporate Banking with an online MBA

Thanks for the questions.

I think now that I’m out of b-school a couple years, it has definitely enhanced my CV. I came into finance straight from B-School with no relevant experience and within 2 years I was promoted 2x to a role that normally requires ~4-6 Years of industry experience.

I would still go to Kelley, because it is more recognized in my geography, but if I were planning to be in the Southeast, I’d probably bite the bullet and do the more expensive UNC program.

I received a fair tuition reduction, but it was still a big slug. IIRC my reduction was ~15%; enrollment numbers have gone way up though, so I imagine reductions are more competitive now.

We have a bit of an odd-ball credit appetite where some things that are pretty low risk are heavily scrutinized (example would be tech hardware companies - we don’t like them, and there’s a constant struggle to get these deals done; I think it’s because we have a lot of old people running the credit department). On the flip side, we do some deals that are probably higher risk than we are accounting for. Generally speaking, I’d say we tend to fall slightly on the side of conservative.

I’m in a cash flow / EV group. We do secured deals sometimes, but we don’t really rely on collateral much; we have separate groups for ABL, equipment, and real estate notes.

Regarding leverage, if cash flow leverage is > 4.00x we struggle to swallow, unless it’s a collateral reliant deal, or a midstream energy company. I’ve seen as high as 6.00x get done on a cash flow deal (one that we actually ran left on), but we had a hard time selling it in the pro rata market.

If there’s a sizable slug of mezz with PIK or converts, we have a bit more flexibility in doing >4.00x total leverage, as long as senior debt is reasonable and we get paid well on the deal. We also can place TLBs and 2nd lien debt through our fixed income sales desk, so we have a solution for most corporate borrowing needs, but it’s going to cost most if funded leverage is >3.0x.

Edit: almost forgot, I’m in a geographic group in “diversified industrials.” TMT, oil & gas, etc. have industry alignment rather than geographic. Anything that doesn’t fall in a specific sector coverage team is aligned by geography.

Do you know what group within oil & gas? There’s quite a bit of variance between what’s important to know for, say, an exploration and production company vs a midstream. If you don’t know the group, I would say focus on knowing how various segments of oil & gas industry fit together, what acceptable leverage ratios in each sector are, and generally how to make a basic 3 statement financial model.

Hi OverCompensatedTeller,

Middle Market / Commercial is a very broad area. Large middle market lending takes on a lot of similarities to Corporate, with the major difference between borrowers in this sector and corporates being access to capital markets. For someone in this sector, in my view the hardest hurdle to cross will be competition: there’s a lot more employment in middle market lending because the transaction volume is quite a bit larger (dollar volume is comparable on a macro level, but there are so many more smaller deals in commercial, so there is more human resource requirements generally speaking). At some level, fundamental credit analysis is scale agnostic, with the exception that refinance risk is much different between a small borrower and a large one with access to institutional investors and shadow bank markets.

Small commercial lending (often called “business banking” at BB and super-regionals) would probably require a step to larger middle market before transitioning to corporate. Business banking is more closely tied to consumer lending in terms of skill set because its generally score-card based (and usually requires a personal guarantee from the business owner). Given the massive amount of data on default rates of small businesses, it is much more statistics-oriented/computer-automated decisions and requires less fundamental credit knowledge.

Easiest transition to corporate, in my opinion would be a lateral transfer at the same bank from large MM to corporate. Networking and following the markets would both be key o differentiate yourself from all the other MM associates that want to chase the bigger dollars and “sexier” deals.

Hope this helps!

The hard truth from my personal experience is that you will have an exceptionally hard time trying to get into IB at your age unless you have directly related experience and get get an associate role. Pretty much only way I can see would be to network like hell, continue learning everything you can about the industry, use the alumni network and any resources available to you at your current bank. Even with all that, the odds seem slim to me. Crazy things do happen though.

General 3-statement financial projections models. Usually we have a less optimistic view in CB on these than you see in ER or IB because we’re primarily concerned about downside risk (at least, on balance sheet deals—this is because we have no upside, either we get paid back principal + our spread, or we lose money).

We also have internal models for estimating probability of default and loss given default, from which you get expected loss — this helps us decide where to price the spread. We don’t actually create those models in Corporate Banking, but we use them, so a fair understanding of statistics / regression is helpful but not necessary.

Often do some ad-hoc analysis too - equity comps, dcf, high-level market stuff, etc. These things are mostly learned on the job (except, definitely know how to do a dcf; you will probably be asked about it in interviews even though we don’t use that often [at least, not outside of estimating Enterprise Value on private conps] but the interviewer will probably use a proxy to seeing if you know how to model).

Edited for spelling.

I plan to jump over to RM/BD at some point, but my role is kind of a hybrid position now. I’m client facing, but my tasks are primarily credit oriented and primarily around existing clients or new prospects only when there is an active credit request. At my bank, pretty much all Analysts and Associates do PM first, then either become senior loan underwriters, credit officers (at like 7+ years experience), or jump to full business development / RM roles (or leave the bank).

For me, if it came down to being a “lifer” in credit on the corporate banking side or going into BD on the commercial side, I would choose corporate credit. I just don’t have much interest in the small companies. Plus, at least at my bank and a few peers that I’ve looked at, corporate Banking PMs have similar salaries to RM/BD and decent bonus structures. While RM definitely has more bonus potential, I’d still take corporate PM over commercial RM.