by Luis Miguel Ochoa Comments (29)

The Definitive Guide to Corporate Banking

The Definitive Guide to Corporate Banking

When you hear the words “corporate banking,” you might immediately think of loans.

Or, you might be confused about what “corporate banking” means and how it’s different from commercial banking and investment banking.

In either case, your thinking would be justified.

The corporate banking division at a bank does advise on loan issuances, but the work goes well beyond that.

There are some similarities to commercial banking and investment banking, but there are fundamental differences as well.

We’ll look at all those points and more, including the job description, recruiting, interview questions, compensation, and exit opportunities here:

(Special thanks to Angela Choi for her technical expertise in the area of corporate banking.)

The Corporate Banking Job Description

As a corporate banker, you’ll be like the hub in a wheel for clients who need to access the bank’s products and services.

Your job is to get the other areas of the bank, such as markets, treasury, trade, transactions, and debt capital markets, to assist with deal execution.

These deals are usually credit-related, but there’s a lot more to it than traditional loans.

For example, the corporate banking division also offers cash management (collecting cash and managing changes in foreign exchange rates) and trade finance (e.g., factoring and export credit and insurance) services.

It might also offer services for liquidity management, supply chain finance, and risk management.

Often, these services and loans are not very profitable by themselves, especially in a low-interest-rate environment.

Instead, corporate bankers aim to win and retain clients who then hire the bank for M&A deals, debt and equity issuances, and other transactions with higher fees.

In short, a corporate banker tries to maximize the revenue per client through an expertise in credit.

In the Asia-Pacific region, corporate banking is often called “Relationship Management” or “Coverage Banking,” both of which describe the role more appropriately.

Your clients in corporate banking (CB) could be divided into domestic vs. multinational corporations vs. financial institutions, or they might be divided by revenue, such as $100 – $500 million vs. $500 million+.

At the junior levels, you focus on crunching the numbers, assessing companies’ risk profiles, and executing deals.

As you move up, the role turns into a sales job – just like any other role at an investment bank.

The two main branches are relationship management (retaining existing clients and suggesting additional services/products to them) and business development (winning new clients), and many roles are a hybrid of the two.

Corporate Banking vs. Investment Banking

Investment bankers advise companies on mergers, acquisitions, and debt and equity issuances and earn high fees from one-off deals in the process.

By contrast, you will not advise directly on mergers, acquisitions, or equity issuances in corporate banking, and the debt deals you do will be smaller, with lower fees.

You focus on winning repeat business from clients over the long term rather than earning high fees from a once-in-a-decade $50 billion M&A deal.

The other difference is that you’ll never work on the other services offered by CB, such as cash management and trade finance, in investment banking.

You will also earn significantly less money in corporate banking and you will not have access to the same breadth of exit opportunities, but in exchange for that, you will have a much better work/life balance.

Note that at some banks, corporate banking is a division of investment banking – in which case there will be more overlap, and the rules above may not apply as readily.

Corporate Banking vs. Capital Markets

CB and Equity Capital Markets (ECM) are completely different because ECM bankers advise clients on equity issuances such as IPOs and follow-on offerings, while CB does credit-related deals.

There’s more overlap between CB and Debt Capital Markets (DCM), but the difference lies in the products: You advise on investment-grade bond issuances in DCM, while you work on Term Loans, Bridge Loans, Revolvers (or revolving lines of credit), and the other services clients might need in CB.

Corporate Banking vs. Leveraged Finance

Leveraged Finance focuses on high-yield bond issuances that are often used to fund transactions such as mergers, acquisitions, leveraged buyouts, and recapitalizations.

By contrast, the credit facilities you arrange in corporate banking are used mostly for “everyday purposes,” such as a company’s working capital requirements.

Also, everything in corporate banking is investment-grade and intended for safer, relatively healthy companies.

Corporate Banking vs. Commercial Banking

Commercial banking is broader than corporate banking and services clients such as individuals and small businesses that are “below the bar” for corporate banking coverage.

For example, you might work on a $50 million loan for a small business in commercial banking, but a $500 million loan for a public company would be more common in corporate banking.

Commercial banking also includes services such as checks and credit cards that corporate bankers do not offer.

Finally, commercial banking is not tied to the capital markets and investment banking as closely as corporate banking is.

However, this distinction gets confusing because some banks combine their corporate banking and commercial banking groups, or they label their corporate banking teams “commercial banking” and create separate CB teams that are more about risk management.

So… read the fine print closely.

How to Become a Corporate Banking Analyst: Who Gets In?

Entry-level professionals tend to be a 50/50 split between undergrads/recent grads and those with several years of work experience.

That experience might consist of work at a credit rating agency, a credit research firm, or other departments at the bank, such as commercial banking.

This experience must be related to accounting, finance, or risk analysis – you’re not going to break in after spending 2-3 years at a marketing agency or a newspaper (for example).

At the undergraduate level, your grades and school reputation do not need to be quite as good as they do for investment banking roles at top firms.

For example, if you have a 3.4 GPA, you majored in accounting at a public university ranked #20-30 in the country, and you have 1-2 accounting or credit-related internships, you would have a good shot at corporate banking roles.

With that same profile, you would be far less competitive for investment banking roles.

The “minimum” requirements for undergrads and recent grads are probably around a 3.2 GPA, a reputable-but-not-Ivy-League school, a finance/economics/accounting-related major, and 1-2 internships.

Banks do offer internships in corporate banking, but the process is not as structured or accelerated as it is for investment banking internships.

So, you may have to do more of the networking and application legwork yourself.

Sometimes banks also refer to this area with slightly different names, such as “Global Banking” or “Global Banking and Markets” or “Relationship Manager,” depending on your region.

Corporate Banking Interview Questions

Interview questions for these roles could be summarized as: “Accounting and financial statement analysis, credit analysis, and fit questions.”

They’re a smaller subset of the standard questions in IB interviews because you’re unlikely to get anything about valuation or DCF analysis, merger models, or LBO models.

Common Fit Questions and Answers

Walk me through your resume / tell me about yourself.

See our walk-through, guide, and examples.

What does a corporate banker do? How does this division fit into the bank as a whole?

See everything above.

Why are you interested in our bank specifically?

See this article.

Why corporate banking rather than investment banking?

Don’t say that you “want to work on deals but have a better lifestyle” – instead, say that you like how the corporate banking role is central to everything at a bank, and you want to manage long-term client relationships rather than just working on one-off deals.

What are your strengths and weaknesses? / Give me an example of a time when you led a team.

See our walk-through, guide, and examples.

Common Accounting Questions and Answers

Walk me through the 3 financial statements and how you link them.

This one is covered in our Interview Guide and pretty much every other guide and course out there.

What is EBITDA, and how do you calculate it starting with Net Income or Operating Income?

EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization” and it’s a proxy for the recurring cash flow from the core-business operations of a company. You can compare it to the company’s Debt or Interest Expense to assess its creditworthiness.

For the calculations, see our tutorial (start with Operating Income on the Income Statement, add D&A on the Cash Flow Statement, and then look for potential non-recurring charges to add back).

If you start with Net Income instead, add back income taxes, reverse Interest & Other Income/Expense, and then add D&A from the Cash Flow Statement (and then look for non-recurring charges, time permitting).

What happens on the statements when Accounts Receivable or Depreciation goes up by $10?

See our tutorials for both of these.

Common Credit Questions and Answers

How would you evaluate the creditworthiness of a company?

One approach is the “5 C’s”: Look at the company’s Character (track record of repaying debt), Capacity (stats like Debt / EBITDA and EBITDA / Interest), Capital (contribution from the company’s assets), Collateral (what the lender can claim if the loan is not repaid), and Conditions (purpose of the loan).

In practice, at the corporate level, you’ll conduct both financial and industry/qualitative analysis of the company.

The financial analysis might focus on whether or not the company can maintain its targeted credit stats and ratios even in downside scenarios, and the probability of default.

The industry/qualitative analysis might focus on the points that impact risk for lenders: for example, a high percentage of locked-in or recurring revenue, industry leadership in a high-growth market, and low CapEx requirements will boost creditworthiness, and the opposite will reduce it.

What are maintenance and incurrence covenants?

Maintenance covenants relate to financial metrics that the company must maintain after it raises debt – for example, it must maintain Debt / EBITDA of less than 5x and EBITDA / Interest of at least 2x to avoid penalty fees. These are most common on “bank debt” issuances such as Revolvers and Term Loans.

Incurrence covenants relate to specific actions that a company must take or not take. For example, if the company sells assets, it must use 50% of the proceeds to repay the lenders. These are more common on high-yield bonds.

A company has EBITDA of $100, Debt of $500, and a pre-tax Cost of Debt of 6%. Its maximum Debt / EBITDA is 6x, and its minimum EBITDA / Interest is 2x. What are the EBITDA ‘cushions,’ and what do they tell you?

The company’s Debt / EBITDA is $500 / $100, or 5x, and 6x would represent EBITDA of ~$83, so the company has an EBITDA cushion of ~$17 there.

The company’s Interest Expense is $500 * 6% = $30, so its EBITDA / Interest = $100 / $30 = 3.3x.

2x EBITDA / Interest would mean EBITDA of $60, so the EBITDA cushion is $100 – $60 = $40.

These cushions indicate how close the company is to violating its covenants and, therefore, how much risk there is for the lenders.

What’s the difference between Revolvers and Term Loans?

They’re both forms of Senior Secured Debt with floating interest rates and maintenance covenants, but Revolvers are more like “overdraft accounts” for companies.

If a company needs to borrow beyond its current capacity, it can do so by drawing on its Revolver, which is usually undrawn at first. The company then pays interest on the drawn portion until it can repay that amount (there are commitment/undrawn fees as well).

By contrast, Term Loans are drawn initially and amortize over time – anywhere from 20% per year over five years (fully amortizing) to 1% per year until maturity (closer to “bullet maturity”). The company pays interest on the full principal remaining in each period.

Corporate Banking Products: Loans, Fees, and Written Documents

It’s difficult to describe service such as cash management and trade finance because banks do not publicly disclose the documents for them, so we’ll focus on the most common loans here instead:

  • Term Loans: See above. You lend a fixed amount of money that the client draws on upfront and that requires annual principal repayments.
  • Bridge Loans: Quick financing until a more permanent funding source is put in place. A financial sponsor might use a bridge loan after a bond offering is launched and before the proceeds are raised.
  • Revolvers: See above. The client pays a commitment fee for access to a credit line that can be drawn on as needed; often used to meet short-term borrowing needs if mandatory debt repayments or capital costs exceed the company’s available cash flow.
  • Letters of Credit: Written agreements in which the bank backs payment in case the borrower defaults.
  • Asset-Based Loans (ABLs): These use inventory or receivables to ensure payment is made; see the previous coverage of Structured Finance on this site.

These loans are often syndicated, i.e., a group of banks will jointly issue the loan to the borrower to distribute risk.

Fees tend to be significantly lower than the ones on M&A deals and IPOs because the deals are more straightforward and they serve a different purpose: staying on the client’s radar and generating future business.

When you work on these loans, your bank could assume a few different roles:

  • Lead Arranger: Similar to a bookrunner in equity and debt offerings; in this role, you’ll handle a larger portion of a capital raise.
  • Agent: Similar to a co-manager in equity and debt offerings; you’re responsible for a much smaller portion of a capital raise.
  • Administrator: Monitors the interest payments and debt principal repayments.

The more responsibility your bank has, the higher the fee.

Fees may also be split with industry coverage, capital markets, and other teams at the bank, depending on the nature of the deal and who sourced it.

Much your work as an entry-level professional is similar to the tasks in other credit-related groups like DCM and LevFin: debt comparables, committee materials describing a client’s business to win deal approval, and presentations and information memoranda for clients.

The financial modeling includes similar elements, such as a Sources & Uses schedule, Pro-Forma Capitalization table, and analyses of key leverage and coverage ratios as well as liquidity metrics such as the Revolver Availability.

The key difference in corporate banking is that you tend not to use projected financial statements in lender presentations and other documents.

You focus on the company’s historical performance and what it will look like immediately after the debt issuance takes place.

Also, you’ll sometimes draft Ratings Agency Presentations, or RAPs, which are shown to credit rating agencies to demonstrate stable cash flows and low volatility.

Your task is to prove your client deserves a higher credit rating, which will result in a lower cost of borrowing.

Here are a few examples of lender presentations and memos by industry:

Technology / Payment Processing / FinTech:

Restaurants / Retail:

Internet:

Chemicals / Materials:

Financials:

Consumer:

Power & Energy:

Manufacturing:

Airports:

Corporate Banking Salary, Hours, and More

First, note that there is a big difference between banks that classify corporate banking within investment banking and ones that place it in commercial banking or other groups.

If your bank puts CB within IB, you’ll tend to earn significantly more; if corporate banking is within commercial banking, you’ll earn less.

In the first case – CB within IB – base salaries for Analysts tend to be slightly lower than investment banking base salaries (think: a $5-10K discount).

However, bonuses tend to be far lower, and they’re often capped at a relatively low percentage of base salary regardless of your performance.

In investment banking, full-year bonuses for Analysts often represent 70-100% of base salaries, and that only climbs as you move up the ladder.

But in corporate banking, your bonus will be much lower – perhaps 35-45% of your base salary.

So, as of 2018, you will most likely earn around $100K USD all-in, as opposed to the $140K – $160K that First-Year IB Analysts might earn.

Your base salary will increase as you move up, but there will be a modest discount to IB pay at each level and a significantly lower bonus as well.

For example, MDs in corporate banking won’t earn in the low millions USD as some MDs in investment banking would. A more realistic range would be ~$500K – $600K (with about 50/50 base/bonus).

Associates might earn bonuses representing 50-70% of their base salaries, but not 100%+ as in investment banking.

That’s a rough idea of compensation for the “corporate banking within investment banking” case.

If it’s the “commercial banking” case, Analysts might earn ~$70K all-in and not reach $100K until they become Associates. Directors might earn in the $300K – $400K range.

There’s a lot of confusion about this point because people don’t understand that different banks classify corporate banking differently, so be careful whenever you see compensation numbers online or in surveys.

In exchange for lower total compensation, you get a nice work/life balance: the average workweek might be around 50-55 hours.

There will be occasional spikes when deals heat up, but you’ll still have a good amount of free time.

Corporate Banking Exit Opportunities

So… decently interesting work, good hours, and the potential to earn in the mid-six figures once you reach the top levels.

What’s not to like?

The main disadvantage is that corporate banking doesn’t give you access to the same exit opportunities as investment banking. In fact, it’s not even close.

For example, it is almost impossible to move directly from corporate banking to private equity, hedge funds, or corporate development.

Even credit-focused exit opportunities like mezzanine funds and direct lenders are unlikely because you won’t have the depth of modeling and deal experience they’re seeking.

If you want to pursue those opportunities, you’re better off moving into investment banking first.

If you stay in CB, the exit opportunities are similar to those offered by DCM: Treasury roles in corporate finance at normal companies, credit rating agencies, or credit research.

If you make it to the Relationship Manager level and you develop a solid client list, other options might be private wealth management or private banking.

After all, you’ll know many executives who need someone to manage their money, and you’ll be familiar with all the departments at your bank.

Many professionals end up staying in corporate banking for the long term because it offers a nice work/life balance, reasonable advancement opportunities, and high pay at the mid-to-top levels.

Corporate Banking: Final Thoughts

If you are looking to work crazy hours and make the most amount of money humanly possible in the finance industry, then corporate banking is not for you.

But if you want a good work/life balance, you’re interested in credit and the other services a bank might provide, and you like the idea of relationship management, then it’s a good fit.

It can also be a solid way to get into IB through the side door, but if you want to make that move, you have to do it quickly, or you risk getting pigeonholed.

If you understand all that, you can never be confused about corporate banking again.

M&I - Luis

About the Author

Luis Miguel Ochoa has facilitated a variety of strategic initiatives from corporate acquisitions to new market development. He earned his B.A. in economics from Stanford University where he was a member of the varsity fencing team.

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Comments

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  1. Hi Brian,
    How competitive would you say CB internships are at firms like BAML or Citi during undergrad and how competitive it is to win a FT role out of university?

    1. Moderately competitive? I don’t know. Not as competitive as IB roles, but more so than, say, commercial banking or most jobs outside of tech/finance. You can definitely win these roles with a worse profile than you would need for IB roles. Winning a FT role out of university might still be tough because most firms only want to recruit their interns, but it’s more feasible than in IB or consulting.

  2. Dear Brian,
    What are your thoughts on going into direct lending vs investment banking?

    1. Completely different profile in terms of work, compensation, exit opportunities, etc. Compensation and exit opportunities are generally worse, but the lifestyle is better and the work is arguably more interesting. It can be good if you want to stay on the credit side and go into something related afterward, but it’s not as good as IB in terms of the breadth of exit opportunities (e.g., you won’t get into corporate development coming from direct lending).

  3. In Ukraine in the period of deep recession There was a common path from IB to CB. I saw several VPs from reputable (on Ukrainian IB market) investment firms that made a switch to relationship positions in well known financial institutions (BNP, Unicredit, EBRD, PASHA holding etc.).
    I think this type of switch could be typical for emerging and frontier markets (think Central and Eastern Europe, Latin America, North Africa, most of Asia)

    1. Thanks for adding that. Yes, I could see how corporate banking might be more appealing during a recession.

  4. Hi Brian,
    I have the opportunity to get into an CB internship of a large bank. I’m studying two majors: applied math and economics. Do you think it would be a smart idea to accept it, win experience in the banking / finance industry and then get an internship in IB?

    1. For a 1st or 2nd year internship, yes, corporate banking is a solid option. As a 3rd year option, it’s not as good because at that point, you really need the IB internship. But the recruiting timeline is so screwed up now because it begins over a year before the summer of your 3rd year that it’s not clear what the best timing for everything is anymore.

  5. Hello Brian,

    How difficult is it to move up the corporate banking hierarchy and become an MD? I know the article mentions that more people choose CB as a long term career, does that lower the chances of upward mobility compared to IB?

    1. I’m not sure about that one, but it’s probably somewhere in between the difficulty of advancing in IB (i.e., there’s a clear path with clear timing, but you have to survive, which is a tricky) and the difficulty of advancing in corporate finance at a big company (less of a clear path, and it takes much longer, but it’s not as brutal on your way to the top). I think it’s the type of field where, if you’re really motivated and willing to outwork everyone, you can reach the top. That’s harder to do in IB because everyone else is also trying to outwork everyone else, and politics become a huge issue on your way to the top.

  6. Hi Brian,

    You absolutely nailed it on all points with this post. I’m trying to pivot OUT from a Corporate Banking Role that was paired with IB, just as you described in the post. Are there any other exit opportunities outside of “Treasury roles in corporate finance at normal companies, credit rating agencies, or credit research”? How about FP &A roles at large corporate / multinationals companies similar to those covered in large CB’s? How would a CB’er transition into corporate development w/o an MBA?

    1. I think it would be difficult to move into corporate development because you need experience with M&A deals and joint ventures to do that. FP&A might be more feasible, especially since some companies offer rotational programs in corporate finance. Other than those, you could always move into a capital markets role in IB or maybe even an industry group if that industry group does a lot of debt deals.

      But it all depends on what you want to do. Corporate finance is quite different from corporate development, which is also quite different from IB groups at the bank. People do transition over from CB into IB, but they typically do so quickly because it gets more difficult the longer you stay in CB.

  7. Hi Brian,

    Do the 50-55 hour weeks apply to BB corporate banking as well? I’ve heard from other sources that BB corporate banking hours are more like 60-70 a week.

    1. You’re right that the hours could be worse depending on the group. But I think it’s less about whether the bank is a bulge bracket or boutique/middle market and more about how the bank classifies corporate banking. If it considers CB a part of “investment banking,” the hours will probably be worse; if it’s more a part of “commercial banking” or a separate group, the hours will be better (and the pay lower).

  8. Brian – Thank you for the article. CB is one of the more nuanced positions in the industry and this article articulates it very well. I work in CB at a large Canadian bank and my only disagreement with the article is that from my experience the base salaries are in line with those of IBs. As you point out correctly, though, there is a large bonus discrepancy.

    My question is, why do some banks combine both IB and CB into the same group? I’ve seen analysts with titles of “Corporate and Investment Banking Analyst”. Does this mean some banks have analysts doing both roles? I can’t imagine how an analyst would have enough time to do that.

    1. Thanks for adding that. Not sure about the base salaries, but maybe they’re a bit different in Canada.

      I think banks combine IB and CB into the same group for cross-selling/up-selling opportunities and because some of the skill sets are similar. I’m assuming that most people with titles like “Corporate and Investment Banking Analyst” are probably working on debt deals in both areas. Banks might also combine them because CB doesn’t exactly fit anywhere else, and it might just be easier to put anything client-facing into the same category.

  9. Hi Brian,

    Do all the BBs have corporate banking divisions? How actively do they recruit fresh college graduates?

    1. Yes, the large banks all have corporate banking divisions, but sometimes it has slightly different labels depending on the firm (e.g., https://www.goldmansachs.com/careers/divisions/consumer-and-commercial-banking/). They are less proactive in recruiting university students than investment banking groups because there’s less turnover and competition for students. The set of targeted schools are also a bit different.

  10. Hi Brian,

    Would you say there is more job security in corporate banking compared to IB? Also, how important is an MBA for career advancement in corporate banking?

    1. Yes, there’s probably more job security in corporate banking because even if there’s a recession and deal activity falls off a cliff, CB clients will still need to use the other services of the bank for everyday business purposes.

      I don’t think an MBA helps too much in corporate banking unless you’re using it to move in from a completely different industry.

  11. Hi Brian, What is the career advancement like in corporate banking? is it the same as investment banking (Analyst > Associate > VP > Director > MD)? Is progression at the same pace as investment banking or slower?

    1. The progression is similar and at about the same pace.

  12. guntankshan

    Sup brian.

    Is this the same thing as “wholesale credit” or is that a different animal?

    Second, in reference to one of the other comments, is the market much smaller than IB? especially in Canada? you don’t here a lot about corp banking recruitment to the same extent as IB

    1. I believe Wholesale Credit is a subset of Corporate Banking or works closely with the group. I think the issue is that there’s less turnover in corporate banking, so banks do not necessarily need a structured recruiting process each summer each year like they do with IB. With constant turnover, they always need to be in recruiting mode there.

      I don’t think the market is that much smaller than IB – it’s just that you tend to hear less about it for the reasons mentioned here, and banks tend not to advertise the roles as much.

  13. Hi Brian, Would people ever move from investment banking to corporate banking? I understand that the pay would be less, but would it be a good option for someone looking for a better work/life balance? Thanks!

    1. I’m sure some people do occasionally move from IB to CB, but I think it would make more sense to move from a traditional IB industry group, M&A, etc. into a capital markets team like ECM or DCM if you’re looking for a better work/life balance because the pay differential is much smaller, and if you change your mind, it would be easier to move back into a different IB group later on.

  14. Hi Brian, amazing article and amazing blog, it was posted a while a go but I hope my comment finds you.

    I’m looking to make a switch to corporate banking. I have about 5 years of accounting experience and CA, CPA in Canada earned while working at large O&G company mainly in financial reporting and some planning/corp. tax. I do have descent exposure to debt reporting and reading debt agreements for various type of loans (Notes, Bonds, ABLs, revolvers) and creating calculation models and future ratio forecasts, as well as cash flow models.

    I wanted to see if you thought it would be reasonable to expected to get a job in CB switching from my current position in reporting? I see some credit/banking jobs post CPA along side with CFA or MBA as potential background/requirement, so I though by background can help especially with debt reporting/ some modeling exposure. Any recommendations on how to improve my chances?

    Thank you for your help beforehand!!

    1. I think 5 years might be too much experience to move into CB because they wouldn’t know where to put you (too much experience to be an Analyst, not enough to be an Associate). But it’s worth reaching out, doing some networking, and seeing what people say. The requirements might not be as strict as IB where you can’t go beyond X years of experience or you won’t get in.

      The best way to improve your chances is to find professionals in CB on LinkedIn, contact them via email, explain your background, and see what they say. Getting a CFA or MBA is time-consuming, expensive, and not required for these roles, and you already know many of the technical skills required.

      1. Thank you Brian! That’s a fair comment, we’ll see what I can find.

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