Ultimate Guide to Corporate Banking

Corporate Banking Groups: Investment Bank Divisions

The main players in corporate banking are universal banks with investment banking divisions and large balance sheets. Top corporate banking firms include:

• Citi
• Bank of America
• Wells Fargo
• HSBC
• JP Morgan
• RBC Capital Markets
• Truist Financial (formerly SunTrust)

In short, corporate banking requires a balance sheet. Although Morgan Stanley and Goldman Sachs offer corporate banking services, they are not as prominent because they don’t have the same type of balance sheet (i.e., no customer deposits).

Learn More → Investment Banking Primer

Corporate Banking Products: Business Model Overview

The basic business model of a Corporate Bank is similar to that of the Commercial Bank, which is the bank’s lending arm to individuals and small businesses: Use customer deposits to make loans and earn a profit on the spread.  The corporate banking division makes loans to corporations, while the commercial bank division makes loans to people and small businesses.

The difference is that the loans that a corporate bank puts together are on a much larger scale.

The two “bread and butter” corporate banking products are revolvers and term loans:

Revolving Credit Facilities (“Revolver”)

A loan that acts like a credit card for large companies.  With a revolver, a certain amount up to some predefined limit can be drawn and repaid as needed for operating and other activities.

The corporate bank charges fees on the drawn amount (“Utilization fees”) at LIBOR + a spread. In addition a small “Upfront fee” for putting the loan package together (e.g. 0.3% of the total amount) and a small “Commitment fee” on undrawn amounts¹.

Learn more about revolving credit facilities.

Term Loans

Term Loans are “bread and butter” loans in which the borrower draws the entire facility up front, incurs interest, and repays the full balance at the end of the term. Term Loans are used to fund capital expenditures, general operating activity, M&A, leveraged buyouts, and recapitalizations.

Pricing on term loans is largely the same as the revolver’s utilization fees: LIBOR + spread. Term loans are more lucrative for the corporate bank because unlike the revolver the whole amount is drawn and therefore earns strong lending returns.

Other Corporate Banking Products

In addition to revolvers and term loans, the corporate bank also provides the following products to its corporate clients:

• Bridge Finance – Usually for interim funding for M&A transactions before more permanent capital is raised. Can be lucrative products.
• Letters of credit – A letter from the bank promising payment will be made (i.e., backing from an issuing bank), effectively replacing the credit risk of the creditor/borrower with that of the bank.
• Other products – The corporate will also provide trade finance and cash management services for clients.

Learn more about term loans, bridge loans and letters of credit.

¹ Even if borrowers don’t use the revolver, the corporate bank still has to have the money on standby. Banks fully commit to funding revolver draws when needed but most of the time the revolver remains unutilized. A revolver only becomes drawn when other funding options are not available, so it is utilized when it has the highest credit risk. Banks only get small commitment fees (roughly 20% of the drawn margin) when revolvers are undrawn, but still have to allocate loan loss provisions against the revolver as their capital is at risk. This contributes to revolvers being known as a loss leader.

Corporate Banking as “Loss Leader”?

As we mentioned earlier, corporate banking is usually housed within the investment bank part of a financial institution and serves as the quarterback for broader capital markets business.  Corporate banking is closely tied to the M&A advisory and capital markets divisions within an investment bank.

What this means is that within the investment bank, corporate banking often functions as a “loss leader” to foster stronger overall investment banking relationships. Banks often give large, sophisticated clients sweetheart loan offers because they can be cross-sold on additional banking services or want to build a long-term relationship.

Clients regularly require corporate banking products such as term loans, revolving credit facilities, and cash management solutions to support business operations.

When a big corporation decides to tap into capital markets and needs to allocate distribution (and fees, or “wallet”) to the capital markets teams of various banks they’ve done business with, they often consider the prior support corporate bankers gave them when deciding how much to allocate to each bank. 

Corporate Banking vs. Commercial Banking: What is the Difference?

The underlying business model for commercial banks is actually pretty similar to the corporate bank  but unlike corporate banking, commercial banking is a standalone business line whose sole focus is generating income from its lending operations.

For example, while the commercial bank will only lend to a small business if it clears lending returns of, say, 20%, a corporate bank might accept a paltry 8% lending return if the investment bank views those returns as acceptable given the potential for future equity capital markets, debt capital markets, or interest rates derivatives business.

As a result, when screening for whether or not to extend credit, corporate banking deal committees look at historical investment banking revenues and the potential for longer term relationships.

Learn more about the key lending metrics corporate banks use to evaluate their returns.

Corporate Banking Roles

Although corporate banking is broadly considered an investment banking product, it is large enough so that there will be sub-divisions split across industry verticals and a loan syndications team. Similar to other divisions within the investment bank, the career trajectory begins at analyst and ends with a managing director role.

Corporate Banking Career Trajectory

At some banks, corporate bankers will also be in charge of credit underwriting that interfaces with the risk management function. At others, the credit underwriting will be handled by a mid-office counterparty credit team.

Corporate Banking Analyst Job Description

Corporate banking analysts are typically charged with the following tasks:

Corporate banking analysts split their time doing deal-related work and general relationship management or administrative work.

Corporate Bankers: Deal-Related Work

Deal-related work for corporate bankers will be segmented into event-driven work (e.g., acquisition finance for an LBO or merger) and recurring revenue work (e.g., renewal of revolving credit facility).

If there is a live deal, the analyst will spend most of the day putting together credit memos and running base and credit case modeling scenarios for potential loans.

Financial Modeling in Corporate Banking

For corporate banking models, analysts will run scenario analysis to see whether the company’s forecasts are in compliance with the debt covenants are, with key covenants being:

• Leverage Ratio – Debt / EBITDA must not exceed a certain maximum leverage defined in the covenants
• Minimum Interest Coverage Ratio – EBITDA / interest expense must not fall below a certain minimum in the covenants

In addition, the models identify whether or not there is a danger of a breach. They will also be looking at what debt paydown looks like in each case.

Non-Deal Related Work

If there are no new money live deals, analysts will be busy doing credit monitoring and writing up annual and quarterly reviews for the lending portfolio as well as putting together loan market updates with the loan syndications team as marketing and relationship management tools.

1. Credit Monitoring

Entails looking at the historical financials released every quarter by the companies the corporate bank lends to and solving for the leverage ratios (Debt / EBITDA) to make sure covenants have not been tripped and that they are unlikely to be tripped in the near future.

2. Loan Market Updates and Lending Portfolio Reviews

Loan market updates are PowerPoint presentations that will show where interest rates have moved and how much new loan volume has been issued (sometimes compared to a prior comparable period).

Corporate banking analysts will be in charge of putting together charts showing the moves in interest rates and other important macroeconomic factors.

Subsequent slides will have an industry update and a spread of new loans in the same industry or credit rating to show the client goalposts around where their loans would be priced if they went into the market.

There may also be a comparison of the debt covenants that were negotiated for each loan. Unlike debt capital markets, loan terms are commercially sensitive and these presentations will usually be on a no-names basis when showing the recent loan issues.

Corporate Banking Analyst Lifestyle & Hours

When staffed on live M&A deals or when there is extensive credit work required during annual review season, corporate bankers can work upwards of 70 hours a week. That’s substantial, but much less than a bad week in investment banking.

1. Corporate Banking Associate

Associates manage and mentor corporate banking analysts and check their work, while taking on administrative interactions with members of client treasury teams.

Similar to investment banking, there are times when a corporate banking associates often must also take on many of the responsibilities of the analysts.

2. Corporate Banking Vice President

VPs run the lending process and serve as the middle management function in corporate banking. They may also be given small revenue-generating or relationship management responsibilities with clients. VPs will start to be responsible for execution, such as loan documentation negotiations and walking the client’s CFO and treasury team through the lending process.

Corporate banking directors have some client accounts and focus on revenue, net income, and lending book targets.

Corporate banking base salaries can be comparable to investment banking, but bonuses are significantly lower

3. Corporate Banking Managing Director

Managing directors originate and manage the client relationship. They are typically well known in their industry vertical and serve as go-to lenders on the largest accounts.

Corporate Banking Salary and Career Path

At corporate banks that are well integrated into the investment bank, base salaries are usually comparable to investment banking salaries, but bonuses are significantly lower to reflect the stickiness of client revenue and benefit of using the broader bank platform for relationship managers.

Promotions from analyst to associate ranks are more common within corporate banking than within investment banking.

At corporate banks with less established investment banking businesses, salaries are lower than investment banking but greater than commercial banking.

How to Break into Corporate Banking: Recruiting Process

1. Direct Hiring

Corporate banking recruitment is similar to that of investment banking recruiting, although there is more of an emphasis on networking and less of a rigorous technical interview.

Corporate banking teams go to schools for information sessions either with or after the investment banking teams. The pool of target schools is much wider for corporate banks than investment banks.

At the interview stage, recruits meet various corporate banking junior and senior bankers. The last stage is with the group head. Sometimes corporate banking candidates meet with other investment banking product groups if they work closely together.

Technical interview questions tend to focus on credit and cash flow. Some interviews include a small case study where the interviewee is provided with a set of financials and asked to calculate credit ratios and make a lending recommendation.

Corporate bankers often get stuck at a certain level in their trajectory, with many trying to lateral to debt capital markets or investment banking.

2. Lateral Hiring

Lateral hiring in corporate banking to replace early leavers or for team expansion is competitive but corporate banks are open to more backgrounds, including:

• Accountants
• Internal candidates from commercial banking
• Internal candidates from counterparty credit
• Internal candidates from risk management functions

Note: During COVID, the process is similar, but these informational sessions and interviews have all gone virtual.

Corporate Banking Exit Opportunities

Corporate banking analysts have fewer exit opportunities than their investment banking peers.

The nature of the work lends itself to analyst-to-associate promotions, and climbing the ladder to become a career corporate banker. However, corporate banking is still a pyramid structure with only a certain number of MDs in each group.

As such, corporate bankers often get stuck at a certain level or look for other opportunities within the same bank, with many trying to lateral to debt capital markets or investment banking.

Outside of the bank, corporate bankers rarely place into hedge funds, private equity, or corporate development.

Although credit funds seem like a natural fit, M&A, leveraged finance, and restructuring bankers tend to have stronger modeling skills and more deal experience.

Corporate Banking vs. Private Banking

The big difference between corporate banking and private banking is the client base.

While corporate banking provides credit products for corporates, financials, and governments, private banking deals with high net worth (HNW) and ultra high net worth (UHNW) individuals and families.

While private bankers do offer credit products, they are just one offering alongside tax, estate planning, asset management, and concierge services.

As such, corporate banking has limited overlap with private banking. Such overlap exists when corporate bankers cross-sell their bank’s private banking services to the senior management of key relationship clients.

Corporate Banking vs. Debt Capital Markets (DCM)

Corporate banking works closely with debt capital markets, as corporate treasurers look at lending relationships to inform their debt capital markets allocations. The corporate banking team also works closely with DCM for any acquisition financing or bridge financing.

Both groups offer credit products, although the debt issued in DCM is more permanent capital and does not stay on the bank’s balance sheet (bonds are distributed to institutional bondholders through the bank’s sales and trading function).

Corporate Banking vs. Investment Banking

Corporate banking is sometimes referred to as “investment banking lite”. Similarities exist as the two divisions often work alongside each other as part of the broader capital markets platform. However, corporate banking is primarily focused on recurring relationship management via credit while investment bankers are more focused on idea generation and corporate finance advisory.

Corporate Banking Industry and Market Trends

In mature markets such as the U.S., Canada, Western Europe, and Australia, corporates tend to have debt more “termed out” – capitalizing short-term debt into long-term debt without taking on additional debt – as there are deep debt capital markets where they can tap into longer dated bonds in the capital structure.

The larger the corporate banking client, the more flexibility they will have in corporate banking credit solutions.

In emerging markets, borrowers lean heavily on bank debt as the cheapest capital. Unlike commercial banking, corporate banks still often syndicate the loans to reduce single counterparty exposure.

All things equal, size is a credit positive. The larger the corporate banking client and the more investment banking products that can be sold to them, the more flexibility they will have in corporate banking credit solutions.

Smaller enterprises not on investment bankers’ radar may have small lending syndicates with stricter terms and less flexibility on pricing in order to meet lending hurdles. Large investment grade corporates, however, will have standard syndicated revolving credit facilities as a liquidity backstop with favorable pricing grids.

Bilateral vs Syndicated Loans

Most small- and medium-sized businesses conduct their banking business with one main commercial bank using bilateral loans.

Meanwhile, larger corporates and institutions utilize a broader lender base (a syndicate) through corporate banking.

This works well for both parties. Corporate banks want to spread their risk exposure to each client and clients want more investment banks at their disposal. Similarly, large borrowers may not want to be beholden to one bank. As such, most corporate banking facilities are syndicated out broadly.

In some cases, club deals are arranged in which loans are split between a smaller group of banks with equal pro-rata commitments where all participants get league table credit as joint bookrunner.

While bilateral loans are more easily negotiated between the bank and the borrower, syndicated loans are generally priced at market.