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.
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 guide and examples for the “Walk me through your resume” question.
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.
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?
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:
- Vantiv / Worldpay by Morgan Stanley and Credit Suisse – For an acquisition, so it’s slightly different from the usual CB deals.
Restaurants / Retail:
Chemicals / Materials:
- Lenders Presentation by Credit Suisse for Rockwood (Note the “Financial Targets,” but lack of specific projections)
- Walter Investment Management by Credit Suisse, RBS, Bank of America Merrill Lynch, and Morgan Stanley
Power & Energy:
- WireCo WorldGroup (This one is also for an acquisition)
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.
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