The Deal Room: The World of Corporate Banking Explained
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Hello and welcome to The Deal Room, where every week we talk specifically about all things corporate finance, from the biggest M&A and PE deals to the strategy that drives business decision making. We aim to bring what you learn in the classroom to life with real world examples and hopefully at the same time have some fun with it. So let's dive in.

Hello and welcome to The Deal Room. As you can see, Stephen is back with us after his one-week hiatus. So, Stephen, please explain. How dare you? I know, I went away, but I did actually listen to your podcast with Will and I'm quite worried. He was good. There's a reason why he's a very, very good trainer. He's extremely convincing and he had a lot of very good strategies for managing stress. Not to say that Amplify Me is a stressful environment, but...

I learned a couple of things. So hopefully,

We haven't looked at the viewer numbers yet or the listener numbers. I'm hoping that it's not much more than my average weekly because then I might be out of a job. Well, we'll see. We'll see. The numbers don't lie, Stephen. But look, I was in, obviously I was in the US last week. I was actually, I was teaching at RBC Monday, Tuesday, Wednesday, but then we, we hot-tailed it down to DC for a bit of inauguration fun. And yeah, that's an event. Yeah.

Yeah, all of our US listeners will know exactly what I'm talking about. But DC was a different place and the color red was very, yeah, it was all over the place. All right. And then on your travels then. So interacting with a lot of students. Yes. A lot of curious minds. And I'm assuming there was some questions then that resonated with you and you want to share today. Yeah, absolutely. So...

Anyone that comes up to me and says, I really like the podcast is already a friend. You've already won me over. It doesn't take it doesn't take too much. But I think it was on the first day of my teaching, the gentleman called Jardine Kerr, shout out to Jardine Kerr, who said, look, love your podcast. Tick. Happy with that. But can you spend a little bit of time talking about corporate banking?

Because corporate banking, maybe as opposed to investment banking, is just a little bit different and no less important. And also, you know, there's a lot of banks that hire a lot of graduates into corporate banking. But I think it's a little bit misunderstood. So this is going to be a bit of a short explainer podcast because, quite frankly, I'm sick of talking about Trump and I want to talk about corporate banking instead.

No, no, that's really good timing because I actually spoke at a FinTech summit today. It's actually International Education Day. If you didn't know, the day we were recording this, a few days before it goes live. And actually, one of the things that we were talking about was the more broad spectrum of different roles in finance outside of the traditional, typically when people think finance, banking or markets.

Yes.

So really excited to talk about corporate banking today. I think it's worth, again, taking that step back and thinking about the nuts and bolts of what a bank does. And obviously, if you are a bank in your most traditional form, you make money from the spread between what you give out on your deposits and what you charge on your loans. That is a bank. Now, the typical bank will, or a typical universal bank will serve...

individuals through retail banking, but they'll also serve companies. And the heartland of any relationship with a company is lending and taking in deposits and earning a spread.

And that is where this is corporate banking. Now, corporate banking specifically is focusing more on the larger companies. So talking maybe 300 million revenue plus. So you're lending money and you're providing really, really significant and important types of debt, whether it's equipment finance, leasing, trade finance, real estate finance, you know, but this is all balance sheet stuff, right?

I always like, just as an aside, I always like to think of...

a bank a little bit like the sun and the sun is your lending, your deposits and lending. And then all that orbits around the sun is all of your auxiliary and additional stuff. It's your products, it's your advisory, it's your M&A, it's your market making, it's your liquidity provision, etc. But the sun for these major banks, the sun is your balance sheet and the sun is your lending. I'm assuming then that

Hey, let's just be transparent. Like things like that and career progression. There's a clear track within that particular part of the bank as well. I mean, can you put it in context as to why people always want to work in the banking side and not corporate banking, for example, in context?

Yeah, it's really interesting. I reckon the pay per hour is probably just as good, if not better than investment banking. And quite frankly, that's why I moved from investment banking to corporate banking. It has exactly the same career progression up from analyst through associate VP, SVP or MD into team lead. And the salaries are really, really good.

But it is slightly less time bound, slightly less intense than maybe working in M&A. And there's a number of reasons for that, in part because quite a lot of the work that you are doing in the corporate bank is refinancing existing, maybe quite complex loan products.

possibly bringing together lots of other banks in what we call a syndicate, a syndicated bank transaction. Again, this is not easy stuff. You might even be responsible for underwriting that syndicate. So there's some complexity there, but the urgency of we need to do this deal and we need to respond to this auction and we need to get our next bids in, not all of your activity in a corporate bank is determined by that time pressure. Now that said...

Some of the fun stuff is when you're doing an acquisition financing, right? So if I am buying a company for $2 billion, I might choose to finance that in part with a term loan provided by a number of banks.

And then the deadlines get a little bit tighter. You are working really, really closely with your investment bank colleagues, your M&A advisors, maybe your equity capital markets team who are helping to do a raise in the private markets, whatever it might be. And that's why you really do overlap quite nicely with the investment bank.

Yeah, I was about to ask kind of two questions there. You were starting to unpack some of these products of the corporate bank. You mentioned a few there, but then also any more things around how you work alongside the investment bank in itself? Yeah, I'll take that. I'll take your second question first. You know, a lot of people, and I think wrongly so, it

describe the lending part of a bank in the context of large corporates as a bit of a loss leader?

So, hey, we'll lend you money in order to get the sweet high margin advisory deal. And it is a lot more likely, and I can tell you with some experience, it is a lot more likely that you will get an advisory fee on the M&A side if you are willing to put up a chunk of your balance sheet. So it's often used as a bit of a sweetener.

And it was definitely used with the like, you know, BNP, Paribas, HSBC, et cetera, certainly got a lot of their advisory mandates by lending a lot of money. But notwithstanding that, you should be a profitable, highly revenue, significant revenue generator in and of yourself. And it's just an added bonus when you can get on the investment bank ticket and really get a very, very good payday. And remember,

as I say a lot when I'm teaching, you know, banking is all about trust, especially at that top level. And it might be that you've lent to a particular company, you've started with a smaller relationship and you've lent to a particular company for five, 10, 15 years. And it's through that trusted lending relationship, the more quote unquote vanilla relationship that you end up being first in line for an IPO or, you know, or for a debt capital markets, um,

bond issuance or whatever it might be so this is such an important element and remember not all not all financial advisory firms have have that balance sheet right so you look at jeffries you know jeffries is a an elite boutique bank but they advise us right they don't have the balance sheet power

although they are expert at the world of advisory and investment banking, they don't have the heft of a balance sheet like an MUFG, like a Bank of America, like a BNP, like an HSBC to come alongside. So it's a very different flavor of bank. And it's a really, again, a really, really interesting place to be. So perhaps we could talk a little bit more now. Let's say you've got young people's

appetite now. They're salivating at the prospect of, okay, sounds interesting. So what type of technical skills do you need to be able to facilitate this role?

Yeah, it's a really interesting question. I'm going to take it in two different parts. The kind of core base technical skills you need from a modeling and pitch deck perspective are not drastically different from your IBD M&A fundamentals. Because remember, whenever we are analyzing companies for the purposes of an acquisition, an equity raise or a debt raise, we are looking out into the future and

to better understand the company's financial position in year one, two, three, four, five. So, you know, again, to use a cooking analogy, the kind of the base ingredients are kind of the same, right? You always start with your three statement model.

because you're trying to forecast your financials. And then beyond that three statement model, you start doing different things with that analysis. In the world of valuation, obviously you're trying to value the company for a potential acquisition or whatever it might be. For a credit transaction, for a debt raise, you are modeling that company to see how much debt that company can take on under different scenarios.

So this is credit modeling and you are looking at things like leverage ratios,

So what is the relationship between debt and EBITDA? The higher the leverage ratio, the more debt relative to EBITDA you have. And some banks won't lend over a certain amount. And the higher your leverage ratio, the riskier the transaction is. So the more you'll have to pay if you're going to get that deal away as a company. You have coverage ratios. To what extent can your operating profit cover your annual interest payments?

You have service ratios. To what extent can your free cash flow service the debt, both repayments and interest payments? And then if you get more complicated and actually somewhat more fun, you can start doing some really good credit rating analysis.

So a lot of the big, large corporates that you would be working with in corporate banking will be rated. It will have a public credit rating from S&P or Moody's or Fitch. And a lot of that rating is determined by the leverage, the coverage, the service ratios, the gearing ratios. So if you are advising a company who's looking to raise money

or looking to take out a $1 billion term loan, you're going to need to figure out, is that going to nudge that company from, you know, a triple A to a double A? Or is it actually going to nudge it from a triple B to a double B investment grade to high yield? And that's the kind of advisory technical side that

And then you have to think to yourself, you're actually putting your balance sheet on the line. So that's where the kind of credit officer comes in. You present your credit analysis to the credit officer, who's kind of a middle office function. And they look at all of the risk metrics. They look at all of the downside. They think, all right,

to what extent are we likely to recoup our money on this deal and they either sign off on it or block it so it's just again same base ingredients but you're doing a lot of other fun stuff with it I was thinking right I need to download the transcripts of this and run it in AI to pick out some key words to just basically have like a little dictionary at the end on this episode so I will do that for sure because I know you might need to go back and listen on repeat there there's a couple of ratios there

in the cooking part. Yeah, sorry. Getting a bit jargony, yeah. I'll include that at the bottom, so don't worry. Okay, so got a bit of an idea about those skills. A lot of transferability from that traditional more banking that a lot of people will know. What does a good corporate banker look like?

Yeah, this is a great question. And, you know, corporate bankers come in lots of different flavors. The one you have kind of execution focused corporate bankers, a little bit like the product specialists within an investment bank. So they are just really, really good at issuing loans, getting credit approval, etc.

syndicating, you know, large club or multi-bank transactions. They're just executors. They love that business. And then you have the relationship managers. And I have to say, by the way, you have relationship managers in coverage teams within investment banks as well. But corporate relationship managers, if you like the real world and you like real businesses that aren't necessarily doing something

necessarily in AI, but they're just a proper business, then being a relationship manager,

which is the person that acts effectively as the broker or the kind of the gateway between a company and all of the corporate banking products, whether it's, you know, leasing, whether it's hedging, whether it's trade finance, cash management, big syndicated loans, even M&A, you are that person that maintains and grows the relationship with the CEO.

Because this is not, you know, we're not talking necessarily Microsoft and Apple. You're talking about good multi-hundred million dollar or pound revenue businesses where you will probably get access to the CFO and to the CEO instead of someone slightly further down the food chain. So just to give you an example...

Some of the companies that I looked after, I was more on the execution side, less on the relationship management side. But I looked after everything from a tiling company, so they tile your bathroom, through to a metal recycling company, through to a house builder, through to in the US, Burger King.

So, you know, it is the real economy and the real world. And therefore, if you love business and you like generating relationships and you feel like you can be trustworthy, this is such a good job for you. It's a lot of fun.

So you have to have, just so I'm clear, you have to have the blend of some of those underlying technical modeling skills with the relationship interpersonal skills, or there is a space for both in different roles within one team? I would say, you know, and I'm not going to name any names for my colleagues at HSBC, but I would only name them in a positive light anyway. The person that sat next to me, his relationship skills were like a nine and a half out of 10. Yeah.

He'd pick up the phone, have great relationships, take them out for drinks or whatever it might be. I was kind of in awe of his ability to put people at ease and to generate relationships. His financial modeling wasn't very good, but my financial modeling was very good. And my relationship skills maybe weren't as developed at a younger age. So we just worked really well together. You know, I...

carried his bag around and he was great. I did all the work, which he was very thankful for, but he knew enough to be able to analyze my model and provide really, really good advice. So yes, you do need both, but you can be slightly more one way than another and still be really useful within the team. Okay. And the final question then. So students are quite used to seeing these applications open, but typically you already really see the global markets divisions open, the banking divisions opened.

Do the corporate division recruit in a similar manner? They do. And again, this is one of those things that I think a lot of students miss out on. Because by the way, if you spend a couple of years on a grad program working in corporate banking and you smash it, there is no reason why you wouldn't get recruited into the investment bank.

Because you built a similar patchwork of technical skills. You might have worked with a particular desk or a particular team and they've been impressed with you. So as a not even a side door to the investment bank, but as a really good place to start your career, there are grad programs that maybe aren't quite so competitive yet.

They are with the likes of, you know, I was just looking today, Barclays International Corporate Banking. Obviously, Barclays, if you want to sponsor us, please do. Global Corporate Banking at J.P. Morgan, both analyst and internship. Corporate Banking, so I'm just giving you a few different names of what this is called. Bank of America, analyst and internship. Corporate and Institutional Banking Graduate Program, that's HSBC.

But just remember, the only corporate banking programs you'll see at a graduate and analyst level are the ones where the bank has a balance sheet. So you're not going to see corporate banking internship at the likes of Jefferies or Evercore or Goldman Sachs.

Cool. Well, look, I think that was really useful. I learned something, certainly. And did I hit my 20-minute goal? I said this was going to be a 20-minute teaching. Well, do you know what? So now comes the real challenge. You've got 50 seconds to fill. So, I don't know, if you've got a party trick or something you can do for the final minute. I don't, but I am going to say, look, this is how interesting I am. Corporate banking is different from business banking and commercial banking. Just as an aside, business banking...

You are a relationship manager to thousands of small businesses. Commercial banking, you're going up the food chain, but you're not really big enough to do some of the fun stuff. And then corporate banking is the kind of, as I said, two, 300 million plus revenue businesses that are starting to get more sophisticated about their banking requirements. And there you go, 13 seconds left. That's it. Wrap it up. Wish everyone a great week ahead. As promised, 20 minutes on the nose. We'll see you next week. Thanks, Stephen. Thank you, Ant.

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