Credit Analyst AMA

N0DuckingWay's picture
N0DuckingWay - Certified Professional
Rank: Neanderthal | banana points 2,112

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!

Investment Banking Interview Course

  • 7,548 questions across 469 investment banks. Crowdsourced from over 500,000 members.
  • Technical, behavioral, networking, case videos, templates. All included.
  • Most comprehensive IB interview course in the world.

Comments (124)

Oct 7, 2016

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?

    • 2
Oct 7, 2016

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.

    • 4
Oct 7, 2016

I should add that there are some differences in underwriting in terms of what approvals you need, what our exposure limits are, etc. Currency registered facilities can be particularly difficult because you may be dealing with foreign regulations and practices too.

    • 1
Oct 7, 2016

Thanks -- what do you mean by a "survivors business/industry"?

"I did it for me...I liked it...I was good at it. And I was really... I was alive."

Oct 7, 2016

I meant to say "specific". Fucking autocorrect.

    • 2
Learn More

7,548 questions across 469 investment banks. The WSO Investment Banking Interview Prep Course has everything you'll ever need to start your career on Wall Street. Technical, Behavioral and Networking Courses + 2 Bonus Modules. Learn more.

Oct 7, 2016

With regards to the AR purchase facilities - are these factoring lines or do you securitize?

    • 1
Oct 7, 2016

Factoring. We do some securitization but not as much.

Oct 7, 2016

Hey Ted.

I saw N0Ducking's response below and was wondering what type of products you work with. Maybe @dr_mantistoboggan_MD can pitch in too.

How is my grammar? Drop me a note with any errors you see!

Oct 7, 2016

Thanks for posting. I'm interested in your answers to the above questions as well.

Oct 7, 2016

Do you work in commercial or corporate, also it may be helpful for younger monkeys if you discuss the difference.

Oct 7, 2016

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.

    • 3
Oct 7, 2016

Thanks. Also it's my understanding that CAs in corporate banking have exposure to much sexier products transactions, but I'm not 100% to what extend.

For example Commercial banks do low risk, unsubordinateddebt, whereas Corporate banking does this, but may also help on publicly traded High Yield Offerings, or help to structure some sort of subordinated/convertible debt?

What are some of the more exotic products or deals you have worked with, and how "exotic" are they really in terms of workflow?

Oct 7, 2016

I can't speak too much for other banks, but we don't do bonds or convertibles through my department. As far as "most exotic", I'd say the AR purchase facilities that I mentioned above. The fact that your client isn't the "borrower" can make things interesting.

    • 1
Oct 7, 2016

I agree the AR purchase's can make for a different thought process.

How long have you been working in this role? Do you plan on sticking around?

Oct 7, 2016

I've been working here less than 6 months, and love it so far. I could definitely stick around for a while.

Oct 7, 2016

commercial banks typically stick to first lien, secured (by collateral) credit facilities - typically some sort of term structure or revolving line of credit... the larger banks where N0DuckingWay may work willdo similar structures, but sometimes venture into unsecured and maybe some 2nd lien term debt..

probably the biggest difference between the Corporate vs commercial roles not explained here is the ancillary bank products that are cross-sold

Lets assume a bank in each spectrum has an existing lending relationship
- Corporate bank would try to cross-sell debt/equity issuance thru their IB (typically these call into "CIB" blanket group" derivative trading capabilities etc...Call all this Treasury mgmt to clients for simplicity
- Commercial banks would cross sell TM products like cash management (Automated Clearing House "ACH" facility) and separately private banking to the C level execs of MM companies, deposit relationships..

    • 3
Oct 7, 2016

Agreed on cross sell. Often banks will get involved in low profitability items like revolvers just to build relationships. We'll sometimes turn down relationships with large companies if we think it's going to only be a revolver, for example.

Oct 7, 2016
  1. What did you do prior to this role and how did you break in?
  2. What are some important skill sets one should have to be a good fit for this role?
Oct 7, 2016
  1. 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.
  2. 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).
    • 2
Oct 7, 2016

So you work at JP Morgan

    • 3
Oct 7, 2016

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?

How is my grammar? Drop me a note with any errors you see!

Oct 7, 2016
  1. 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.
  2. 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.

  1. That and FX
  2. 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.
  3. 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.
    • 3
Oct 7, 2016
N0DuckingWay:

1. 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.

Nice.

  • Thanks for the AMA.

How is my grammar? Drop me a note with any errors you see!

    • 1
Oct 7, 2016

You're welcome!

    • 2
Oct 7, 2016

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?

    • 3
Oct 7, 2016

As far as job keywords to look for, credit risk or credit portfolio management come to mind. Corporate credit analysis jobs might look for experience in IB or a CRA. Since banks do have credit training but recruiting at my bank is very piecemeal. Pm me if you want more info on my bank 's recruiting.

    • 1
Oct 7, 2016

Would a Municipals CA be happy medium between FI and CA?

saw this here:
https://www.glassdoor.com/job-listing/municipal-cr...
Though from N0's reponse below it seems like its a position unique to this bank.

How is my grammar? Drop me a note with any errors you see!

Oct 7, 2016

You mean analyzing muni issuers? If you want to be in munis, yes, but it's specialized and you may find yourself siloed. It may be hard move out of munis if that's what you want.

    • 1
Oct 7, 2016

Didn't totally understand what you were asking when I first responded. See my edit.

Oct 7, 2016

3rd year credit analyst here. Couple questions and happy to add-value to this thread if anyone has any questions for me.

  1. Does your bank have a separate division within its underwriting/credit department for higher leveraged transactions or sponsor-backed deals?
  2. Do you feel that you are getting enough experience dealing only with (largely) investment-grade clients? It seems that the underwriting is fairly straightforward and cookie cutter for large public, IG names.
  3. Do you have an aspirations for moving into a workout group or a credit/mezz/distressed debt fund in the future? Or are you looking to remain in IG credit?
  4. What has been the toughest hurdle in your first couple of years within the role and what skills would you like to sharpen before finishing your analyst role?
    • 2
Oct 7, 2016
  1. My company basically stays out of those, so no.
  2. The underwriting is fairly straightforward for some of these, but i don't feel like I'm missing out on experience. These are the clients that tend to do large M&A, etc, so there's plenty going on.

3&4. I've been here for less than a year, so I haven't had time to think about that, but i think that distressed debt could be interesting. I'll let you know about the answer to 4 when I figure it out lol.

    • 1
Oct 7, 2016

1) Looking to make the jump from a MM commercial credit shop to the corporate world, any advice/thoughts on how to accelerate the process outside of the standard cold email/coffee chat/indeed black hole?

2) What made you jump from the ratings agency role (aside from salary bump)?

3) Since you're looking at IG stuff, are your approvals/write-ups more focused on interest rate risk/return rather than strictly default risk?

4) do you guys have input as to terms/rates? or do the relationships kindof dictate the terms? i.e. would you take a hit on rate to keep a competitor (BOA, JPM, etc.) from taking the operating/treasury/retirement accounts and other cross-sold (probably shouldn't use that word around you haha) products?

    • 1
Oct 7, 2016
  1. I've only been here less than a year so I can't really answer that for you.
  2. Salary and wanting to cover a better industry. I can't overstate how much CRA salary sucks.
  3. No, that stuff is looked at after we determine credit risk, and involves multiple teams including ours.
  4. We could do that if we're left lead, but we don't do that otherwise.
Oct 7, 2016

regarding 1) are you attempting to switch markets or jump up in same city?

Oct 11, 2016

same market.

Oct 7, 2016

What is your base salary?

    • 1
Oct 7, 2016

About the same as I'd make at a MM IB, but with lower bonus. All in, I might make 85-90k this year pro-rata. The hours aren't bad though. I usually work 50 hrs a week.

    • 2
Oct 8, 2016
N0DuckingWay:

About the same as I'd make at a MM IB, but with lower bonus. All in, I might make 85-90k this year pro-rata. The hours aren't bad though. I usually work 50 hrs a week.

Nice. How much do bonuses vary for credit analysts in the commercial vs corporate bank?

Also, where does ABL fit in at your bank? Commercial or corporate? I'm curious because I always thought ABL was a product group but I never knew where it actually fell under.

Oct 10, 2016

I haven't been here long enough to answer the first question.

ABL has its own product team, In corporate banking. As is mentioned above, commercial vs. corporate is more a difference in clients.

Oct 11, 2016

Speaking of ABL, is there an ABL group on the commercial banking side and another one on the corporate banking side?

Learn More

7,548 questions across 469 investment banks. The WSO Investment Banking Interview Prep Course has everything you'll ever need to start your career on Wall Street. Technical, Behavioral and Networking Courses + 2 Bonus Modules. Learn more.

Oct 8, 2016

Can you give an overview of the underwriting process from beginning to end for a new client? What is done on an annual basis for existing clients? A yearly credit review?

What level are you at? Are you a senior analyst so next would be an associate / junior portfolio manager or how is that structured?

How many companies do you cover? What sector?

What city are you in if you don't mind?

Oct 10, 2016

I'm on the west coast. Basically underwriting starts with a quantitative and qualitative look at the company's risk (leverage metrics, management quality, acquisition strategy, etc). We'd also take into account industry risk, trends, etc. We would then look at our exposure and estimate our loss of the company defaults. We then write up our proposal (20+ pages including attachments), and send it out for approval. Assuming it's approved, we then have a large amount of adminstrative work to do, in terms of making sure that every facility is booked correctly, and making sure that we get the correct fees, legal documents are filled out, etc. The major difference between that and an annual review is that we don't have to book new facilities in a review. Depending on the quality of the credit, we might also do quarterly reviews, which are super simple unless we decide to change the risk rating (generally 1 page).

I'm an analyst. The structure is pretty much the same as IB. I don't specifically cover any companies since I'm an analyst, but our team has 100+.

    • 2
Oct 12, 2016

How long does the entire process take from the time you get the company to the time the proposal is written and approved? Is this a standard procedure at commercial banks as well or something done at corporate banks?

How did your interview go btw, obliviously good since you got the job- but where there any questions you felt unprepared for?

How is my grammar? Drop me a note with any errors you see!

Oct 10, 2016

Thank you for the AMA. I really appreciate this. Couple of questions from my side:

  1. How do exit opportunities differ between staying within a firm and switching industries? Some roles that come to mind when you are trying to make a lateral move is becoming a senior credit officer and a senior credit executive (if you stay within the role for a long time), relationship manager, or other groups (LevFin, workout, or other roles that are corporate credit-related). But what about when you want to switch industries, say, to Asset Management or a sell-side credit research role? Are these possible? Also, I have a feeling that switching industries when you are relatively at junior level can be easy, but is it possible to move to another industry when you are, say, at a VP level?
  2. When doing the modelling, does your bank use a built-in proprietary model that is developed by your bank or use an excel model?
  3. How many companies do you cover under your portfolio?
  4. As you move up, how does the salary between credit analysts and relationship managers evolve? Do they move in tandem or do credit analysts' salaries trail off at some point?
  5. How is your bonus determined and how is your performance assessed? Is it output based ($ of underwriting, number of credit memos, $ of revenue in the form of interest income and fees, etc.) or quality based (return on RWA) or a mix between the two? Or is it somehow directly linked to the performance of the business side?
  6. I think someone has already mentioned that IG corporate credit is somewhat cookie cutter, but nevertheless, how do you stand out from the rest of the herd? Is it ultimately based on how quickly and at the same time accurately write reports?
  7. How do you familiarise yourself with various products? It seems that most of the banks do not have dedicated guidelines about specific products that teach you the ABCs and the only way is gaining direct experience of it.

Once gain, thank for doing this.

Oct 10, 2016
  1. I haven't been around long enough to know, but I will say that most directors at my firm have worked for multiple banks and have MBAs from top 10 schools.
  2. Proprietary. It's nice because so much is automated so there's no need to worry about balance sheets not balancing, etc, but excel is much more customizable.
  3. The whole team has over 100
  4. I don't know the RMs enough to have asked that yet, but I will say they work way fewer hours than we do. Some of them do get in earlier though.
  5. It's performance based, based on quality of work.
  6. It's basically based on accuracy. Obviously we want things done quickly so that we can adjust course if necessary, but this isn't ER, there's no need to write about something the minute it happens.
  7. Basically what you said: Direct experience. I'm lucky to have a director working with me that is very helpful in terms of understanding products. Even then, understanding the risk behind some products is hard. You just have to keep learning.
    • 2
Oct 10, 2016

Thanks, this was very helpful!

Oct 10, 2016

No problem! I will say that even though we don't have to write about something the moment it happens, we may be asked to send an email to explain how certain events affected (or didn't affect) our credits.

Oct 10, 2016

Didn't you only start like a month ago?

Oct 10, 2016

Sounds like you work for Wells.

Oct 10, 2016

Thanks for doing this. I'm a credit analyst at a 1B bank and am looking to possibly make the jump up.

  1. Can you comment a little more on the pay scale and what bonuses are like for the industry?
  2. How do salaries and bonuses differ between a $20B bank and a $200B bank? (Maybe too situation dependent?)
  3. I have experience underwriting companies with revenues $50mm and less and have been an analyst for 2.5 years. Any idea what position I could potentially start in? 2nd year analyst?
  4. How many analysts do you work with?
  5. How often do you work weekends?
  6. What is the worst/best part of your job?

Thanks again for doing this, very informative.

Oct 11, 2016

Figured I'd jump in to help as I work for a $200BN+ bank.

  1. Comp for a first year is 12k sign on / 75k base / 20-40% bonus based on performance.
  2. Overall comp is generally higher once you hit the $150BN or so threshold. Not familiar with comp at smaller firms.
  3. You would probably come in as a 1st year analyst, but be on an expedited track to associate (2 years vs. 3 years) if you perform well. The type of analysis you do will most likely change a good deal.
  4. My group covers ~80 names and we have 3-4 analysts. 1st years typically cover the easy/low touch names while 2nd/3rd years cover the riskier names that we touch multiple times a year.
  5. Worked weekends probably 30% of the time in my first year as I was trying to learn as much as I could. As a 3rd year, probably only 10% of the time, I'd rather stay until 2 am for a couple nights during the week than work a weekend personally. Average hours are 55 hours/week. 40-45/week when things are slow in 1Q16 and 70+ hour weeks when there is a lot of deal flow.
  6. Best is the underwriting process as this is where you get a lot of access to the management team and are able to really hone in your skills. Worst is the the admin work you have to do as a credit analyst that includes annual reviews, as well as regulatory data dumps for fed reviews.
    • 4
Oct 11, 2016

Much appreciated gator

Oct 11, 2016

Thanks for doing an AMA. I'm looking to get into corporate/commercial banking and was wondering if you knew of any publicly available credit reviews or proposals that I could look at or if you could provide some insight into the most important sections that are included in a proposal for a new term loan or revolver. (i.e. business overview, competitive position, geographic/business segment diversification, credit ratios, business risk etc.) Would be really helpful if you had an example or could give a quick summary.

Oct 11, 2016

Unfortunately I can't think of any public sources of that information, as S&P and Moody's both have paywalls. To give you some detail though, I'll say that our business risk section focuses a lot on variability of profitability and risks related to strategy (will the company do lots of acquisitions, and how good are they at integrating them? Are they executing their strategy well?). The business risk section tends to be, in my experience, slightly relative, while financial risk tends to be measured much more quantitatively.

    • 1
Oct 11, 2016

Is it possible to switch to IB within the same bank after 1 year of Corp. Banking?

Oct 11, 2016

Possible. Very hard to do though.

Oct 11, 2016

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.

    • 2
Oct 11, 2016

Hi, could you elaborate more on how you scored your rating agency job? Were there anything you did in particular that help you secure the job? Thanks man!

Oct 11, 2016

There wasn't really anything special that I did. I basically just applied online. It obviously helps to know someone, get a recommendation, but the CRAs seem in general much more willing to accept non-targets and look at online applications than the banks. I'd say half of my team went to non-targets (and I mean nowhere close to target schools).

Oct 11, 2016

how many years did you spend in CRA and why did you ultimately decide to leave? Also, how did that experience help with your corporate banking role?

Oct 11, 2016

1+ year. I left because I wanted to switch industry coverages and get a higher salary, and this role checked both boxes. My salary at the CRA was $50-60k

Oct 11, 2016

was the CRA role based in NY?

Oct 11, 2016

No. It would've been slightly higher there.

Oct 12, 2016

To all dem CA's:
How do you perform the credit analysis, do you still use combinations of ratios? Do you value companies the same way IB's do etc.

ie. Net worth:Debt;; Surplus: NW;; Current Debt: Total Debt;; Net worth : Funded Debt;; and credit ratios of turnover etc?

Just wondering , I was reading an article by Alexander Wall from the Federal Reserve Bulletin (linked below) about his movement beyond the 'cookie cutter' current-ratio analysis. It seems like the current ratio was a trending idea during the time the article was written in 1919.

https://fraser.stlouisfed.org/docs/publications/FR... If anyone is interested it starts on page 229 and is titled "A Study of Credit Barometrics."

How is my grammar? Drop me a note with any errors you see!

Oct 12, 2016

Depends on the credit product for me, and assuming the same is true for most analysts. If a commercial borrower is only asking for a LOC I will typically look at the net cash cycle, A/R turn days, Inventory turn days, A/P turn days etc.. We get quite a few borrower's who like to use their LOC for commercial investments so it is important to understand a strong repayment source for the line, which is typically global cash flow, and underwrite towards that.

The biggest thing that has helped me is to take a look at the credit at a 10,000 ft. view. Ask yourself what are the main drivers that will help your bank get re-paid. If you are working with a service company maybe the level of wages to revenues needs to be concentrated on. If you are dealing with a value adding bean processing company, maybe you need to underwrite to their COGS.

I usually stick to profitability drivers of the business when I underwrite deals.

    • 2
Oct 12, 2016
OverCompensatedTeller:

Depends on the credit product for me, and assuming the same is true for most analysts. If a commercial borrower is only asking for a LOC I will typically look at the net cash cycle, A/R turn days, Inventory turn days, A/P turn days etc..

The biggest thing that has helped me is to take a look at the credit at a 10,000 ft. view.

I usually stick to profitability drivers of the business when I underwrite deals.

So you have free reign in the methods you use? Do your supervisors not provide guidelines or a structure for you to follow depending on your industry or business?

How is my grammar? Drop me a note with any errors you see!

Oct 13, 2016

Yeah for the most part. They will review presentation and have some additions to it, but for the most part we underwrite to what we believe are the main points of the credit. About a year ago we made a change to underwriting this way, and it has done quite a bit for my professional growth.

Nov 11, 2016
Papa Harambe:

To all dem CA's:How do you perform the credit analysis, do you still use combinations of ratios? Do you value companies the same way IB's do etc.

ie. Net worth:Debt;; Surplus: NW;; Current Debt: Total Debt;; Net worth : Funded Debt;; and credit ratios of turnover etc?

Just wondering , I was reading an article by Alexander Wall from the Federal Reserve Bulletin (linked below) about his movement beyond the 'cookie cutter' current-ratio analysis. It seems like the current ratio was a trending idea during the time the article was written in 1919.

https://fraser.stlouisfed.org/docs/publications/FR... If anyone is interested it starts on page 229 and is titled "A Study of Credit Barometrics."

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.

    • 3
Nov 11, 2016

Thanks for the info

How is my grammar? Drop me a note with any errors you see!

Oct 13, 2016

How much of a quant are you?

I am looking to get into corporate banking, but I don't know how the skillset differ from IB, and if you have to be top GPA student with the resume full of IB internships. What kind of student were you before you got this job?

Oct 14, 2016

Not really a "quant". I had decent grades from a non-target. You definitely don't need to have gone to Harvard. Having never done banking, I'd imagine that the skill sets necessary are similar. It's a lot of modeling and analyzing financials.

Oct 14, 2016

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.

    • 4
Nov 15, 2016

I read a guy post something about a modeling thing kind of like the CFA. I can't think of it off the top of my head, but would getting deep into models be beneficial or is that something that is bank-specific and learned on the job?

Also, tax schedules. I never heard of the concept in school as an entry level guy am I supposed to be well versed in them? I only recently added them to my to-do list.

How is my grammar? Drop me a note with any errors you see!

Nov 18, 2016

You definitely don't need to know tax schedules at my firm, and didn't need to at the CRA I worked at either. Modeling experience is also useful. We use modeling software, but if the bank you work for uses excel models then it could be useful to take a modelling training course.

    • 1
Oct 14, 2016

For the Wells Fargo Financial Analyst Program (FAP), do corporate banking and commercial banking analysts start out with the same base and bonus? Or are corporate banking analysts paid more? Just curious as they are technically in the same program.

Nov 11, 2016
WallStreetJunkie123:

For the Wells Fargo Financial Analyst Program (FAP), do corporate banking and commercial banking analysts start out with the same base and bonus? Or are corporate banking analysts paid more? Just curious as they are technically in the same program.

From what I have heard corporate banking analysts are paid more. I believe FAP salary is 65k but corporate is 70k. This is based on speaking from 2 people from Wells a few years ago.

    • 1
Nov 11, 2016

Can confirm that this not usually the case, most FAP corporate banking analysts start at the same level as commercial unless you negotiate your offer. Which is BS BC corporate is a more stressful job

Oct 15, 2016

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!

    • 1
Oct 15, 2016

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.

    • 4
Oct 21, 2016

you dont do shit

    • 2
Nov 10, 2016

I'm also on the credit side having done both commercial & corporate, happy to chime in as well.

Most awesome thing about this thread is I can tell where OP, gatorfinance, and snakeplissken work from just reading their replies.

Nov 12, 2016

Ha where do you think I work? (Pm me the response, not making it public).

Best Response
Nov 11, 2016

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.

    • 5
Nov 11, 2016

Can you elaborate on this comment - 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)***.

I specifically would like to know more about the part in parenthesis. Thanks.

Nov 12, 2016

Companies that are bought/owned by MM PE firms are often too small for the corporate banking team. Basically our team tries to ensure our clients can provide a certain level of profit for the bank and at a maximum level of credit risk. The bar for our clients is somewhere around $1bn in rev and an equivalent rating of B+/BB-. Most PE investments won't clear those bars. The corporate issuers are also in the markets much more often and for a larger variety of facilities, so there's definitely some product related expertise required. However, PE firms have the benefit of being repeat issuers even though the firms they own might not be, so there's money to be made there.

Nov 13, 2016
biggsy:

Can you elaborate on this comment - 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)***.

I specifically would like to know more about the part in parenthesis. Thanks.

Most banks have a financial sponsors group that provide acquisition financing to sponsor-backed companies. These are very complex, high leverage enterprise value cash flow deals and require a lot of scrutiny. Hence, the teams working on such transactions are typically very high caliber as compared to your typical commercial bankers and are well paid. My old BB had a corporate financial sponsors group in addition to a middle market group.

    • 1
Nov 15, 2016

Hello, could you talk a bit about exit opportunities? I have had an internship at a major bank in Corporate Banking (and I loved it!) and they have offered me a full time position. I could definitely see myself work there for a couple of years but do not want to get blocked into Corporate Banking. Do you see any exit opp to PE, or a mezzanine / high-yield fund? What about transfers to other divisions (i.e. investment banking)? Cheers

Array
Dec 20, 2016

Not OP, but I have read instances of people doing exactly those things through networking and on the forums. How common it is, that I do not know.

How is my grammar? Drop me a note with any errors you see!

    • 1
Dec 20, 2016
dadanish1:

Hello, could you talk a bit about exit opportunities? I have had an internship at a major bank in Corporate Banking (and I loved it!) and they have offered me a full time position. I could definitely see myself work there for a couple of years but do not want to get blocked into Corporate Banking. Do you see any exit opp to PE, or a mezzanine / high-yield fund? What about transfers to other divisions (i.e. investment banking)? Cheers

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.

    • 4
Dec 21, 2016

Thanks for the replies. SB to both of you !

Array
Dec 20, 2016

Regarding your time at a rating agency: Was there any relationship between you and the data research/analyst guys? How was it?

How is my grammar? Drop me a note with any errors you see!

Dec 20, 2016

Everyone in ratings where I worked did their own data mining for reports (it wasn't hard to get centralized, industry or country wide data). Theoretically, any analyst could decide to write an industry report and do their own data mining. Is that what you meant?

Dec 21, 2016

My mistake, my mind melded two things together. I was referring to data analyst type data research position. I guess I really don't know what I am talking about- its more quality assurance/ customer service. Through LinkedIn i found that most of these people do their job from India, so I guess most rating agencies outsource this.

How is my grammar? Drop me a note with any errors you see!

Dec 21, 2016
The_Regulator:

I guess most rating agencies outsource this.

Yup. At least, mine did. They actually outsourced a surprising amount of work to India.

    • 1
Jan 18, 2017

iiiiiiinnnnnnnnnn

Jan 18, 2017

I think all financing needs to be considered in light of what asset they are acquiring. I think if you're willing to go into debt for it, it should be something that the individual really needs to achieve the goals they have for themselves. It should not be something that the individual just thinks would be 'fun' to have. In my mind, if you're purchasing something for 'fun', you should feel comfortable paying for it outright. Examples of things an individual 'needs' might be a modest vehicle for transportation to the new job they just landed, or maybe a home if they are having kids and need living space, etc.
For more information visit the website of Investonomix

    • 2
Jan 18, 2017

How do corporate banking products differ according to coverage group (if at all)? For example, would a corporate banking analyst in a TMT coverage group have a noticeably different analyst experience compared to that of an analyst in a healthcare group? Aside from the difference in industry knowledge, would an corporate banking analyst in a specific coverage group have a drastically different analyst experience compared to another corporate banking analyst in a different coverage group?

    • 1
Feb 7, 2017

I can't comment too much on non-tech groups, but within tech you can have securitizations and inventory financing, which tend to mainly be used by manufacturers, whereas the big software companies may only have a revolver or term loans. For some industries, you may have fairly niche products (entertainment has loans for specific movies).

Jan 28, 2017

Does anyone have insight into pay/hours at each level in Middle Market Commercial or MM Corporate Banking?

Feb 7, 2017

Hours for me: 45-55 per week
Pay: $70-$80+bonus (not large)

Aug 3, 2017

Not there anymore but as a second yr MM Corp. Bank analyst I was at 75-80 with a pretty small bonus. Bonuses at the analyst level at my bank were capped- I got the largest analyst bonus but it still wasn't crap (IMO).

Jan 28, 2017

Is it hard to move from commercial or corporate?

Feb 7, 2017

I haven't done it but some of my co-workers have, so I don't know whether it's hard, but it's definitely possible.

Feb 4, 2017

How important are modeling skills in Corporate Banking? I have heard some people say little no none, and have seen hiring ads ask for "strong financial modeling" skills Any good free places to practice modeling that you would recommend?

Thanks,

Feb 7, 2017

Can't speak too much to other banks, but at mine: not important. Writing and analysis skills are much more important.

Feb 7, 2017

I will be interviewing for a job with JP Morgan as a commercial banker and one of the individuals I will be interviewing with is the credit manager. What types of questions can I expect in the interview.

Feb 7, 2017

Just a reminder: corporate banking <> commercial banking. Commercial banking = smaller clients. I don't really know what a commercial banking interview is like, but I can't imagine that it would hurt to memorize your financial ratios.

Aug 3, 2017

One question we always ask is how net income/distributions effect retained earnings. Maddening how new analysts don't get this basic idea. Also- how certain items (ie depreciation) effect the 3 financial statements. And to the other point- commercial banking at my shop could be either Middle Market ($50MM-1Bil) or Corp (1Bil +)

May 29, 2017

Thanks for this AMA buddy, it's pretty useful!

I'm currently under a rec process for an associate position at ING Corporate and Financial Institutions Lending (Europe based). Would this team be the equivalent to the one you're currently at? I'm a senior analyst at the valuations and business modelling team at a B4 (5y of experience) and was wondering whether this change would make sense. I see the following:

Upsides> considerable better pay, career with progression, acceptable lifestyle, participation in big deals within my geography, potential opp to lateral within other bank teams (structured finance, acq finance, etc.)
Downsides> many of the things i've learnt so far won't be useful in this gig (equity valuations - DCF modelling, etc.), already have 5y of exp within B4 and do not know how different is gonna be to work at a bank and get used to it.

At the same time i'm in a process for an in-house corp finance at a multinational in the TMT industry. I think here I will basically lack the career progression and pay that corp banking has, but on the other hand would be doing more related work to the one i'm used to (and probably be more specialized/focused industry wise, but not "product" wise)

Would you have any input on this?
Cheers buddy

    • 2
Jun 9, 2017

He's not your buddy, pal

    • 1
    • 2
Jun 25, 2017

I know I'm a bit late responding. 1: I work with someone who came from Big 4, and they're doing fine at a very conservative bank. 2: were actually do some modeling, but it's really not significant. It's more just to show that the value of the company > the principal of the loan. 3: do what you want to do, boot what you know how to do. You can always figure out the second one.

Jun 9, 2017

I'm sure someone already touched on this but Commercial Banking differs by bank. At a bank like JPM, a CB client might have as little as $100mm in revenue or as much as $3Bn. I have a buddy in the NYC office and CB is split between Middle Market Banking (typically $100-500mm) and Corporate Client Banking ($500mm-$2Bn). Product groups under the Commercial Banking umbrella (ABL, Equipment Financing, etc.) will work with the full spectrum of clients.

My bank is pretty similar but the revenue ranges are a bit different.

    • 1
Jun 25, 2017

Agreed, though granted I've seen this mix much more with JPM more than other banks.

Jun 9, 2017

Thanks for the AMA. I just got an interview from Banc of California. The role is called "credit analyst trainee." I was just random-clicking and I didn't expect an interview at all since I have been building my resume for IBD/ER. Suppose someone is transforming from IB ---> credit analysis, do you have any advice for him/her? (I am just curious, it's okay if you don't want to answer) Thanks a lot.

Jun 25, 2017

Sorry for the late response. I'd say 1:

Be wary of "Banc of California". Firstly because companies call themselves "Banc" to avoid being regulated like a bank. They also just went through a major scandal. Also, Banc of California is definitely regional, which means any business credit analysis will be for small businesses (ie $1m in revenue) not large corporations.

As far as advice goes, I'd say be wary of the above. If you have IB experience and are interested in credit analysis, many recruiters (the bad ones) will try to sell you on small business banking. They might call it the same things that major corporate banks call it, but the clients are all small businesses. Some smaller banks do lend to large corporations (I've seen Capital One on at least one deal), but they won't be leading the deal or playing any active role, they'll basically just be the lowest tier on a term loan or rcf.

    • 1
Aug 3, 2017

How does the typical credit analysis/commercial banking role compare to credit risk? Specifically special assets. From what I understand, its not underwriting, but more so analyzing distressed debt and working on a restructure. Is this a good space to be in? Where does it rank in pay and prestige compared to the typical credit underwriting path? Also, what are the exit opps for a role like this?

Aug 3, 2017

Commercial banking/analyst role has more opportunity to be FO. I went from analyst to associate to PM. Am now interacting with clients more frequently. credit risk is more quantitative and BO where I come from. I think they are equally prestigious at my shop- but analysts are part of the Deal Team.

Aug 10, 2017
Apr 29, 2018
Apr 29, 2018
Nov 27, 2018