Working in FIG (Financial Institutions Group) - An Overview.

This is a long winded post and is tailored to people looking to get a good look into FIG. We're unsure if there is demand for content like this but... 1) if you guys are interested in FIG take a look before you start your IBD internship and 2) if there is a specific sector you're interested in, please drop a line in the comments.

The tone is more educational and formal than most, hope you guys learn something new!

Introduction

First up is the Financial Institutions Group, or "FIG", which includes: Banks, Insurance Companies, Asset Managers, Diversified Financial Companies (Credit card companies and the like), Intermediaries / Securities Firms / Other Financial Companies (Custodial Banks, Exchanges, Brokers, Financial Technology, etc.)

This post will lay out a framework for understand FIG companies, starting with banks. It will do so by exploring the business model and typical operating and valuation metrics important for each major FIG subsector, in particular how they are different from other companies.

Like Energy and Real Estate, FIG is a slightly different beast from your typical EBITDA / cash flow driven companies ("Widget" companies) because the balance sheet drives the income statement, and not the other way around. The assets of FIG companies (loans, investments, cash and securities, etc.) are what generates revenue for them, in the form of interest and investment income.

Basically, FIG companies "borrow money" (i.e., source capital) cheaply and then "lend money" (invest that capital) expensively. Much (though not all) of their income is generated by the spread between those two rates of return.

Additionally, because of the sources of some of their capital (largely individual consumers), there is strict regulation surrounding what kind of assets FIG companies can and cannot hold on their balance sheet, and in what quantities.

There are a multitude of additional complexities involved with FIG companies which will not be covered here, but this should help to provide a basic understanding of how FIG companies operate and function and how people think about them.

Lets go ahead and start with banks

1) Banks

How Do Banks Make Money?

Net Interest Income (50-75% of revenues). The interest they receive on their interest-earning assets (loans), less the cost of: The interest they pay on their interest-bearing liabilities (deposits) The cost of bad loans (mortgages they foreclose on)

Banks hold deposits, for which they pay little interest, and use them to make loans, for which they earn as much interest as they can. They also have to eat the cost of loans that default, how much of which is dependent on the quality of said loans and what collateral (if any) is associated with them.

Besides just deposits, banks can also fund their lending activities using wholesale funding from other financial institutions, the government (i.e., the Fed), and the capital markets. Together, these comprise a bank's interest-bearing liabilities. Equity contributions are also a source of capital, though it is usually fairly limited because of how banks deliver value to shareholders and the capital requirements associated with how they maintain their balance sheets.

The investments banks "interest-earning assets" are primarily composed of loans (mortgages, commercial financings, construction loans, etc.), but can also include investments in other sources (securities, proprietary PE-type investments, stocks and bonds, etc.) depending on a bank's capital position.

The reason that interest expense is included "above" the top line (in net revenues) is because interest expense for a bank is analogous to COGS for a widget company. The uses of the liabilities drive bank interest expenses are fungible between being operational and being a traditional source of financing since again, their assets are their capital.

Non-interest income (25-50% of revenues)

Mostly composed of fees, but can include other fun stuff as well.

Banks charge fees for pretty much anything they can get away with - likely the best know examples are investment banks charging advisory fees and commercial banks charging lending and deposit fees (think ATM fees and the like).

Besides fees, other common sources of non-interest income include:
* Principal Transactions- for certain sources of their capital, banks are not limited solely to fixed income able to make principal investments which are slightly more risky - merchant banking, for example.
* Asset Management - Detailed further below, but also a fee - on the assets being managed
* Credit cards - Besides the loans associated with the card, banks also use them to generate interchange fees (essentially a transaction fee - the reason so many delis in the city don't take AmEx is because their interchange fees are much higher than other issuers)
* Some investment income not included in interest income (typically from principal transactions)
* Anything else that doesn't involve interest income.

Income Statement and Profitability Ratios

Income Statement

Now, taking the above and walking through the rest of the Income Statement, we have the following (explanations below):

Interest Income
Less: Interest Expense
= Net Interest Income
Add: Non-interest Income
= Total Revenues
Less: Non-interest Expense
= Pre-Tax, Pre-Provision Earnings
Less: Credit Loss Provisions
= EBT
Less: Taxes
= Net Income

Definitions

Non-interest Expense - Essentially SG&A. Includes compensation expense, technology and equipment, marketing and sales, etc.

Credit Loss Provisions - Banks have to assume that some portion of their loans are going to default. In anticipation of that, they set aside a certain amount of capital each period to match what they estimate the losses will be for the loans they originated.

This is charged against the I/S in the period during which the loan is originated - i.e., not when the loans actually default (if they default).

The capital they set aside and charge against their revenues goes to a reserve fund (a contra asset) on the B/S called Loan Loss Reserves - discussed below.

Key Profitability Ratios

Net Interest Margin (NIM) - Net Interest Income / Average Earning Assets
* Higher is better
* How effectively bank is using assets to generate income

Efficiency Ratio = Non-Interest Expense / Net Revenues
* Lower is better
* Measure of operational efficiency

Return on Average Assets (ROAA) = Net Income / Avg. Assets
* Higher is better
* How effectively bank is using assets to generate income

Return on Average Common Equity (ROAE) = Net Income / Avg. Common Equity
* Higher is better
* Ability to generate returns to investors in its common stock

Loan Loss Reserves and Asset Quality

Loan Loss Reserves

As mentioned above, banks set aside a provision each period based on the loans they originated in that period. This goes to a contra asset called Loan Loss Reserves, which is basically an "emergency fund" for when loans go bad and the bank has to cover the cost of default.

Where it gets tricky is that a loan can be behind on payments and not be considered a default. The process of disposing of bad loans therefore involves the following steps:

1. Loan is made
2. Borrower stops repaying loan
3. Up until 90 days past due, the bank accrues the interest on the loan as if it will eventually be paid back.
4. After 90 days past due, the loan goes to nonaccrual (they stop assuming they will get paid back any interest) and is considered a Non-performing Loan (NPL)
5. The NPL is appraised (based on the value of the collateral and any money the borrower can repay) and the expected loss from the loan is charged against the reserves (the Net Charge-offs, or NCO)
6. After the loan is foreclosed, any collateral is sold, and any recaptured principal is added back to the reserve as Recoveries. In the case of mortgages or real-estate loans, the collateral is called Other Real Estate Owned (OREO) - basically all the houses the bank has repossessed that they haven't been able to sell yet.

Each period, the reserve calculation is as follows:

Loan Loss Reserve, BOP
- NCO
+ Recoveries
+ Credit Loss Provision Expense (from I/S)
= Loan Loss Reserves, EOP

Asset Quality Ratios

A banks asset quality is determined by what portion of their earning assets are not performing - i.e., not paying up. A bank with a lower portion of NPLs and Non-performing Assets (NPAs) (any earning asset that isn't earning, whether due to default or non-payment) is going to perform better, so banks want to minimize these kinds of loans while also making sure they have enough reserves to cover the loss potentially associate with them.

NPLs / Loans and NPAs / (Loans + OREO)
* Lower is better
* Reflect the portion of assets not earning money

NCOs / Avg. Loans
* Lower is Better
* Amount of loan losses caused by customers default and lack of collateral

Loan Loss Reserves / Total Loans
* Higher is better, but too high means a bank could have money used for reserves that could be put to better use
* Indicates adequacy of size of reserves

Capital Adequacy and Regulation

To reiterate, a bank wants as many interest earning assets as possible... and it wants to earn as much interest on those assets as possible.

The problem is that, generally, loans with higher interest rates are also loans with higher risk profiles. Since the deposit base utilized by banks is one of the foundations of the financial system, there are all sorts of capital requirements regarding what a bank can and cannot use different types of capital for. Taken to an extreme, if a bank took everyone's deposits and lost them all betting on red, then a lot of people would be SOL (the FDIC only covers up to $250k). Regulators don't want that to happen, so they put in rules saying "You can't bet people's money on red, because that's too risky, but you can invest this money in treasuries or something we think is safe".

To determine if a bank has enough capital to handle a "worst-case scenario" (think stress tests), banks use a variety of capital ratios to determine how solvent they really are and how big the risk that they lose everybody's money is. The numerator of these ratios is some definition of what a bank's "safe" capital (sources of funding) is, which is divided into tiers of decreasing safety thusly:

Tier I
* Tangible Common Equity (TCE) - Equity less goodwill and intangibles
* Preferred Stock
* Trust Preferred Securities (TRUPS) - A hybrid security primarily used by banks

Tier II
* Loan Loss Reserves
* Subordinated Debt

While the denominator is some representation of a banks total assets (i.e., loans and other investments):

Tangible Assets (TA) - Total assets less goodwill and intangibles (i.e., assets that could be reasonably recovered in bankruptcy)

Average Tangible Assets (ATA) - Average TA over a given period

Risk-Weighted Assets (RWA) - Total assets, where each asset class is weighted based on it's level of risk. The risk-weightings for cash, for example, is 0%, since cash is "risk free". Most government securities are weighted at 20% ,since they are "kind of safe", while commercial loans and ABS / MBS are weighted 100% of their value, and can be rated higher than 100% if they are below investment grade (BB).

Capital Adequacy Ratios

Tangible Capital - Simple, conservative approach to evaluating bank solvency

Tangible Equity Ratio = (a+b) / TA

Tangible Common Equity Ratio (TCE) = a / TA, essentially tells you the amount of losses a bank can take before shareholders equity goes to zero

Regulatory Ratios

Used by bank regulators to capture the difference in risk between asset classes

Tier 1 Common Capital = a / RWA

Tier 1 Risk-Based Capital = (a + b + c) / RWA

Tier 1 Leverage = (a + b + c) / ATA

Total Risk-Based Capital = (a + b + c + d + e) / RWA

Valuation

As opposed to industrial companies and due to the nature of their business, banks are valued based on cash flows
to shareholders only (in contrast to cash flows to shareholders and debt holders), as debt funding is directly correlated to the bank's assets and its profitability.

Banks tend to trade primarily based on Tangible Book Value (book value that would be available to shareholders in bankruptcy) and Earnings (P/TBV and P/E).

1. P/E - Because of the capital adequacy concerns mentioned above, banks are only able to dividend a limited amount of their earnings each period to equity holders, since they may have to retain some portion of their earnings in order to improve and/or maintain their capital position. Higher multiples are driven by higher quality (i.e., consistent) earnings

2. P/TBV - A representation of how many income producing assets a bank has. Higher multiples are driven by higher ROTCE ratios.

3. DCFs - While DCFs are rarely used to value banks, they can be applied to an estimation of future dividends (assuming a constant capital ratio) though this method is heavily dependent on cash flow and growth assumptions.

2) Insurance Companies

How Insurers Make Money?

This can be broken down into two ways again:

1) Underwriting Income

The premium payments they receive, less:
The claims payouts they make
The operational costs associated with generating the policies that pay those claims

2) Investment Income

Money they make by investing the cash they receive from premiums before they have to pay out claims

Most of their income typically comes from investments. Insurers can and do make money from their insurance operations, but they usually price their products competitively so that they receive as many premiums as possible. Sometimes this means that they break even (or even come out negative) on a given insurance product because if they price it any more expensively then a competitor will capture that premium.

Premiums are analogous to a bank's deposit base - they represent cash with almost no cost-of-capital (or even negative cost of capital if an insurer is able to turn an operating profit) that insurers can invest for themselves (hence why Warren Buffet loves insurance so much). They want the investment income they can make on the cash they have lying around while it's waiting to be paid out for policies.

Life vs. P&C

The insurance industry is broadly divided into two categories: Life Insurance, and Property & Casualty (P&C) Insurance (i.e. car / house / medical insurance - anything that isn't life insurance).

The reason for the distinction is because of the nature of the payout periods for life insurance vs. other kinds - life policies, by definition, last longer than any other type of insurance a consumer may purchase. Therefore, once they sell a policy, they know with reasonable certainty that they have the capital they get from those premiums for a fairly long amount of time, allowing them to make conservative, long-term investments that will generate more investment income than ones with lower time horizons.

P&C insurers, on the other hand, have much shorter policies and payout periods. As such, in addition to investment income, they tend to rely slightly more on the income they can generate from their actual underwriting operations because they're churning through policies.

Accounting Quirks

The total value of a given insurance policy is not static. The revenue and expenses associated with a policy (both historical and projected) can change over multiple periods. As such, there are a lot of accounting quirks associated with how insurers report their financials, mostly to do with how to reconcile the timing mismatch and estimates informing their underwriting profit. There are a boatload of variables that can affect how a policy is valued.

Example to demonstrate:

Let's say you have a 3 year renters insurance policy, which you paid entirely up front. The insurer now has your cash in its hand, which it can use to invest, but it doesn't actually "earn" the money for years 2 and 3 until years 2 and 3 happen, so what's the fairest way to recognize it? And what about the associated investment income?

Then, let's say halfway through year 2, you get robbed and they have to pay out the full value of your claim. The recognized claim expenses associated with the policy to that point had actually been nil, but the reported expenses had been estimated (based on actuarial statistics). Now the insurer has to take this actual expense amount (the claim payout) and spread it out over the 3 years, including retroactively updating the recognized year 1 expense amount.

Then on top of that it turns out the salesman who sold the claim had a clause in his contract that he would lose his unvested bonus if a certain amount of his policy sales resulted in claims, so now the commission expense associated with the policy also has to retroactively change for year 1 and the estimate for commission expense may have to be lowered for year 3.

You also have the investment income / losses, which include both realized and unrealized interest income, dividends, capital gains and losses, etc, and all the fun accounting rules that get associated with them.

Add to all this the fact that most insurers also take out their own insurance policies (called re-insurance) in order to hedge / manage their overall risk, so if your policy was reinsured it was likely ceded, or "given" to another insurer, who is actually the one now responsible for paying you (though indirectly).

Oh, and don't forget the taxes associated with all of the above.

As a result of these complexities, a lot of understanding insurers comes down to understanding the accounting rules associated with them.

To oversimplify, there are basically three kinds of accounting insurers use:

1. GAAP / IFRS - Traditional accounting required by the SEC. This focuses on trying to what an insurer "earned" in a given period so that shareholders can see that the business is healthy

2. Statutory - Accounting required by state insurance regulators (insurers are primarily regulated at the state level). This focuses on the cash insurers actually receive from premiums and pay out as claims so that regulators know that an insurer will have enough cash to cover their required payouts in the future. It also informs the rules surrounding when insurers are allowed to issue dividends to their shareholders (similar to bank capital regulation)

Associated with Statutory accounting is what is called Statutory Capital & Surplus (C&S) - similar to shareholder's equity, but with some adjustments. C&S is used by regulators to determine the maximum amount of dividends that an insurer can pay out to shareholders. The differences are basically that the income or earnings added to C&S each period are closer to actual cash earnings than in GAAP. Examples of specific differences include:

a. Bonds are generally recorded at amortized cost (vs. as securities)
b. Acquisition costs (cost of new and renewal policies) are charged as incurred and not "as earned"
c. Realized capital gains/losses resulting from changes in interest rates are deferred and amortized over the life of the associated security

3. Embedded Value (EV) - While not required disclosure, EV accounting is used by life insurers as a way of determining the intrinsic value of all the policies on their books. If XYZ insurance company suddenly decides to stop doing business , then their existing policies they have would still generate premium revenue and have claims to pay for many years into the future. EV tries to estimate what the implied value of these policies would be.

Income Statement and Profitability Ratios

Basic Income Statement

Direct Premiums
Add: Assumed Premiums
= Gross Premiums
Less: Ceded Premiums
= Net Premiums

Insurers will report both Gross and Earned premiums for each of the above, the difference being that Gross Premiums represent the premiums expected to be received over the full life of a given policy, while Earned Premiums represent, predictably, the value of the premiums from a policy that an insurer actually earned over a given period based on the contracted length of the policy.

Net Premiums Earned
Add: Interest & Investment Income
= Total Revenue
Less: Losses and Loss Adjustment Expenses (LAE) Incurred
Less: Commissions
Less: Underwriting Expenses
Less: Other SG&A Expenses
= Operating Income
Less: Interest
= Pretax Income
Less: Taxes
= Net Income

For statutory accounting purposes, net income is slightly different:

Pretax Income
Less: Increases (Decreases) in Deferred Acquisition Costs (DAC)
= Statutory Pretax Income
Less: Taxes
= Statutory Net Income

Definitions

Direct Premiums = Policies the insurance company wrote themselves

Assumed Premiums = Blocks of policies the insurer took from another insurance company (in order to provide reinsurance)

Ceded Premiums = Blocks of policies the insurer gave to another insurance company (in order to get them reinsured)

Interest & Investment Income - Similar to interest income for banks, though there is no associated interest expense in the top line

Losses and LAE = The claims the insurer actually had to pay out in a period, along with any associated adjustments to previously paid out claims

Commissions = Commissions paid for the policies generated in the period

Underwriting Expenses = Expenses associated with actually implementing the policies they have - office

Deferred Acquisition Costs (DAC) = DAC is an asset on the balance sheet that represents the expenses associated with acquiring (generating or purchasing) new policies that have been paid but not yet been incurred (since per GAAP rules they must be spread over the life of the policy). Change in DAC represents a non-cash item on the income statement, so Statutory Net Income adjusts for it in order to get a picture of what actual cash earnings are

Unearned Premium Reserve (B/S Item): Similar to a bank's loan loss reserves (though not a contra asset), insurers create a reserve for premiums insurers they up front on multi-year policies. They create a liability called an that increases when they receive upfront premium payments and decreases when over time as they actually earn the said premiums.

Ratios

Retention Ratio = NWP / GWP
* Tells how much reinsurance an insurer relies on to balance their risks

Weighted Investment Returns = Interest and Investment Income / Total Value of All Cash and Investments
* Higher is better
* Tells if an insurer is putting its money to good use

Loss & LAE Ratio = Losses & LAE Expense / NEP
* Lower is better
* Ranges between 50 and 75% for P&C

Expense Ratio = Total Expenses (Commissions + Underwriting Expense) / NEP
* Lower is better
* Typically around 25%

Combined Ratio = Loss Ratio + Expense Ratio
* Lower is better
* Typically 90-110%. Under 90 is unusual
* Underwriting margin is 1 - Combined Ratio

Reserves Ratio = (GWP or NWP) / Reserves
* Lower is safer
* Typically around 150%

Solvency Ratio = C&S / NWP
* Higher is safer
* Usually around 70%, minimum of 10-20% depending on regulator

Risk Based Capital (RBC) Ratio = Total Adjusted Capital (TAC) / RBC
* NAIC regulatory ratio, similar to bank solvency ratios
* TAC = Statutory surplus
*RBC is calculated in a similar way to RWA for banks, with different weightings given for their various investments and other assets
* Above 200% is good, anything below 150% is bad. Under 70% requires state regulators to take control unless is corrected in 90 days.

Valuation

Valuing insurers is slightly different for Life vs. P&C insurers. Both generate investing income, so valuation based on balance sheet (including ROE and ROA) is important in the same way it is for banks. Because P&C insurers generate more of their income from underwriting, their valuation is also informed more by their operational performance.

Ratios Both:
* P/BV or P/ TBV - Higher for higher ROE
* P / GWP or P/ NWP - Higher for higher premiums growth

For P&C:
* P/E - Higher for higher quality earnings

For Life:
* P/Embedded Value - Higher for higher ROEV

DCFs are also possible for insurers in a similar way to banks - they can be valued based on their expected future dividends assuming constant capital requirements.

Other FIG Subsectors (Yes we likely missed more than a few here)

Diversified or Specialty Finance

These include FinCos (payday lenders, etc.), "Non-Bank" Credit Card Companies (Visa / AmEx / MC), Mortgage REITS, Business Development Companies (BDCs), and agency (GSEs)

The main source of revenue for both banks and specialty finance companies is net interest spread earned on loans and leases, with the funding model as the primary differentiator

Whereas banks primarily extend loans by expanding credit through fractional reserve banking, i.e. "deposit funding", specialty finance companies must secure its loanable funds in the capital markets

Deposit funding is a unique legal privilege granted to banks, but comes with significant regulatory strings attached limiting the potential scope of banks' lending activities Hence, there is a need for specialty finance companies to deliver credit products that do not fit well within a bank regulatory construct Specialty finance companies also compete directly with banks in certain areas.

Diversified financials are valued in the same way that banks are.

Asset Management

Asset managers include both traditional long-only firms, like Franklin or Fidelity, and alternative asset managers like KKR or Fortress. Working on Wall Street, you should be familiar with the asset management business model. They invest (and hopefully make) money for people (or endowments, insurance companies, etc.) in return for a fee. Broadly, there are two kinds of fees asset managers can take:

1. Management Fees - This is a % of the total AUM, and is paid regardless of performance

2. Performance Fees - this is a % of the returns generated by the asset manager, with fees usually assessed on any performance above a given benchmark or high water mark

Because of this, one of the most important metrics for asset managers is their AUM, and how quickly it is growing (or shrinking). AUM can grow (shrink) in 3 ways:

1. Investment gains or losses

2. Organic Flows = Money given to or taken out of an asset manager by their clients

3. Acquired Flows = AUM acquired from another asset manager

The net organic flows of an asset manager or highly predictive of it's market value, with higher flows obviously being better.

Besides AUM and flows, however, asset managers are valued and treated similarly to other EBITDA companies, so we won't go into more depth here.

Securities

Finally, there is "all the rest" - other financial firms that don't fall into the categories outlined above. These are primarily in the securities industry, and are valued and analyzed in the same way as Widget companies. Examples of securities companies include:

* Brokers (online and retail)
* Boutique investment banks or advisory firms
* Exchanges
* Execution Services Firms
* Financial Technology / Software Companies
* Market Data Providers
* Financial Processors

Mod Note: Best of WSO, this was originally posted June 2014.

Comments (79)

Jun 10, 2014

Great post! Been interested in FIG stuff for a while and this was definitely very informative.

Jun 10, 2014

This post is incredibly informative. It'd be great if you could do one for TMT.

Jun 10, 2014

Best post in a while, sb for you!

Jun 10, 2014

Incredibly detailed, thank you

Jun 10, 2014

Bookmarked, thanks a lot. Interesting read for someone like me who has absolutely no knowledge of FIG. +1

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Jun 10, 2014

Great post. SB for you.

It would be interesting to see a post on an Energy or Industrials group.

Jun 10, 2014

Finally a substantiative post. Well done. Thanks.

Jun 10, 2014

Been covering banks for the past year and couldn't have written the bank section better myself; sb.

Dec 21, 2014

delete

    • 1
Jun 10, 2014

.

Jun 10, 2014

Incredible stuff. Would love to hear your thoughts on the Industrials sector

Dec 21, 2014

delete

Jun 10, 2014

Great post! Considering that many emerging markets lack specialized groups to serve financial institutions, does FIG work a lot on foreign projects?

Jun 10, 2014

I tried to give you 5 sb's but it will only let me give you one.

Jun 10, 2014

Exactly what I was looking for! This is gold!

Jun 10, 2014

I'm assuming that you work in a FIG group. Would you mind posting on what exit ops there are for FIG analysts? Especially if you're not at a top bank, ie.GS FIG?

Array

Jun 10, 2014

This is excellent, thanks! Could you do one of these for gaming?

Jun 10, 2014

Dang this was great. Question though: is Trust Preferred still counted in bank's Tier 1? Idk why I thought there was commentary on that saying how it shouldn't be included?

Best Response
Jun 11, 2014

Yes there are many arguments about TRUPS, the post simplified a lot of the complexities as many TRUPS no longer qualify as tier 1 after Wall Street reform. Not going to go into the nitty gritty there

---

@explosions not sure how to answer this as the recruiting process is generally the same. 1) the more name brand the more opportunities, 2) also a better name brand means a better spin where you can switch sectors if you didn't enjoy fig and 3) if you're at a smaller firm or middle sized firm it would be easier to spin your experience in FIG into a buyside role that is FIG related (such as the FIG book of a hedge fund)

Not trying to be rude, it's simply the same as practically any other sector group. If you worked in FIG your spin is just more specific to that sector.

Exit opportunities generally boil down to much of the same.

1) move the PE/HF
2) move up within your bank
3) enter industry at a firm related to your sector (ie: working for a large insurance company as an example)

    • 2
Jun 10, 2014

Great post!

Dec 21, 2014

delete

Jun 10, 2014

Thanks! That's a really helpful post.

Jun 11, 2014

Great job.

Jun 11, 2014

Wish this had been posted before my superday.

Jun 11, 2014

whoa 37 sb's and counting, #instantclassic

WSO's COO (Chief Operating Orangutan) | My Linkedin

Jun 11, 2014

Amazing post. +1 (tried more - didn't work)

Jun 11, 2014

I'd love to see one of these for Sponsors... great stuff.

Jun 11, 2014

good content. if it is replicable for TMT/Healthcare/RetailConsumer would LOVE it!

Jun 11, 2014

thanks for your great insight

It's all about bucks, kid. The rest is conversation. -Gordon Gekko

Jun 12, 2014

Brilliant post. SB to you.

Jun 12, 2014

Really great post. It's been ages since I saw one with loaded with info.
Thanks for sharing.

Death is certain; Life aint.

Jun 13, 2014

As someone who is currently interning at a MM with a very active FIG group, this is a fantastic post. Badass.

Jun 13, 2014

+1 SB! I work in the reinsurance sector and would love to transition to a FIG group. Any advice? Much appreciated.

Jun 13, 2014

Since you already graduated you need the following.

1) network with insurance specific bankers to have a shot at interviews
2) show you have finance experience/knowledge, ie: if you did not major in finance you may have to pass CFA level 1 to prove you know the basic material
3) try to spin your reinsurance expertise and target smaller To medium sized FIG groups

If you are much older, 24+ for an analyst role, you're better off getting an MBA from a top 10 school to restart the process and get a job as an associate.

Good luck!

    • 1
Jun 13, 2014
WallStreetPlayboys:

Since you already graduated you need the following.

1) network with insurance specific bankers to have a shot at interviews

2) show you have finance experience/knowledge, ie: if you did not major in finance you may have to pass CFA level 1 to prove you know the basic material

3) try to spin your reinsurance expertise and target smaller To medium sized FIG groups

If you are much older, 24+ for an analyst role, you're better off getting an MBA from a top 10 school to restart the process and get a job as an associate.

Good luck!

Are you saying 24 is too old to get an analyst role?

Jun 13, 2014

this is an excellent write up thanks for taking the time to do this. +1

Jun 15, 2014

Awesome post. I would add the LLR/NPL ratio to the bank asset quality section too. And of course there's the liquidity measures too.

But awesome post overall.

Jun 16, 2014

Nicely done @"Wallstreetplayboys"

Jun 16, 2014

Great Post!

Jun 16, 2014

awesome post, would love to see something on Healthcare

Jun 16, 2014

Great post. Healthcare or O&G would be two interesting industries to cover since they are different valuation-wise compared to many other industries

Jun 17, 2014

Thanks for the post

Jun 18, 2014

awesome, thanks man!

Jul 19, 2014

Go WS Playboys. Silver banana for you.

Jul 24, 2014

Excellent post! Hope you can cover something on healthcare & properties too! Cheers

Jul 26, 2014

In the Bank section, where you have Total Risk-Based Capital = (a + b + c + d + e) / RWA
what do a + b + c + d + e stand for? Thanks!

Aug 9, 2014
clerville:

In the Bank section, where you have Total Risk-Based Capital = (a + b + c + d + e) / RWA

what do a + b + c + d + e stand for? Thanks!

Good question. I'm assuming he means the three bullets listed under tier I capital and the two bullets listed under tier II capital since together the tier I and tier II capital combine to make the total capital ratio.

Aug 10, 2014

Anyone have thoughts on best FIG platforms on the street?

Aug 17, 2014

Great post. Hope to see more on other sectors

Sep 1, 2014

Great overview. I currently work in FIG at global bank and value the article's analysis-focused content, as it is relevant to pretty much what anyone does in a FIG.

Sep 1, 2014

For a FIG interview/superday, what would be the top 3-5 things about the coverage group that an interviewee should know?

Sep 10, 2014

For the FIG bankers out there, what are some recent trends in the industry? Which sub-sector within the FIG industry has the most potential going forward?

Dec 20, 2014
joeychestnut:

For the FIG bankers out there, what are some recent trends in the industry? Which sub-sector within the FIG industry has the most potential going forward?

P2P and Consumer Lending (LendingClub, OnDeck) within Specialty Finance and Payment processors within Financial Technology

Nothing is true; everything is permitted.

Dec 23, 2014

Like Energy and Real Estate, FIG is a slightly different beast from your typical EBITDA / cash flow driven companies ("Widget" companies) because the balance sheet drives the income statement, and not the other way around. The assets of FIG companies (loans, investments, cash and securities, etc.) are what generates revenue for them, in the form of interest and investment income.

Basically, FIG companies "borrow money" (i.e., source capital) cheaply and then "lend money" (invest that capital) expensively. Much (though not all) of their income is generated by the spread between those two rates of return.

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This is a very misinformed statement. For any type of company, FIGs or not, balance sheet and income statement drive each other, it's not a one-way street. but for what it's worth the starting point for any company is always the balance sheet - companies need assets to generate cash flow and they borrow or raise equity to build those assets. For financial companies, it's just a little confusing for some people because a lot of their assets are called "debts" and a lot of their "debts" are called deposits.

Dec 27, 2014

Please make an overview of the Industrials sector.

Jul 13, 2016
GKShopov:

Please make an overview of the Industrials sector.

This would be awesome.

Dec 27, 2014

Please make an overview of the Industrials sector.

Dec 31, 2014

Nice, informative post!

Jan 2, 2015

excellent post

Progress is impossible without change...

Feb 22, 2015

the post is a good general overview but not everything is correct. A few examples: the definition for tier 1 capital is wrong, not all loans shift to non accrual at 90 days.

The post is still incredibly helpful, just adding that it should be used with a bit of caution.

Mar 3, 2015

excellent post

Nov 25, 2015

Thanks for posting, super helpful!

Jan 3, 2016

Great, post thank you so much! I am looking forward to utilizing this for future reference.

Mar 30, 2016

great post! I have a question and wait urgently for your reply! Could you please tell me whether there are something different in terms of normalization within fig?( compared to the normalization within normal industry in fdd) . I'm looking forward to your reply! If you could explain me in a little more detail, I really appreciate your help!

Apr 13, 2016

Blood awesome, thank you!

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May 10, 2016

Excellent post. As one who desires to know as much as possible about areas like this, this post was so very helpful.

"Let me issue and control a nation's money and I care not who writes the laws." Mayer Amschel Rothschild

Don't be afraid to give up the good to go for the great.-John D. Rockefeller

Jul 13, 2016

Thanks for the overview.

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Jul 13, 2016

Dude, I love you!!! I got started on reading a banking primer and this was a great summary! +1

-XSX

Jul 13, 2016

As someone who has no interest whatsoever in FIG, this highly informative and well written post is having me seriously reconsider that interest. +1 SB for you good sir!

Jul 31, 2016

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Aug 1, 2016

Just keep in mind that doing financial analysis on banks is about the most interesting thing in banking.

The logistics and operations side of commercial banks will make you want to impale yourself on a rusty knife and then pour lemon juice in the wound.

Aug 21, 2016

+1, great post!!!

Aug 26, 2017

I'm writing my bachelor thesis about FIG post M&A/Takeover performances. Found this post insanely useful. Brilliant stuff, thank you so much!

Mar 1, 2018

Brilliant! Thanks a lot!

Mar 1, 2018

Unbelievably good post, great work!