From the Syllabus to the Desk

Most of what a lending desk works with is on a syllabus somewhere: the three statements and how they connect, the cash conversion cycle, cover ratios, the time value of money, audit opinions, risk-weighted capital, swaps and forwards, the rules on confidentiality and conflicts. The syllabus asks you to calculate or define them, and to pick the right one under a clock. The desk asks a different question of each: given this number, what do we do? That change is the whole of this page. Below are the five questions every loan answers — who borrows, what is lent, who lends, in what conditions, by what rules — and under each, what the syllabus taught, what the desk does with it, and where to work it in one minute on the Groundwork.

Financial reporting teaches revenue recognition, accruals, leases, provisions and impairment; audit teaches the levels of assurance and the going-concern basis; management accounting teaches contribution, break-even and variances. The desk reads all of it for one thing: the cash that will be there in a bad year to pay the debt. Adjusted EBITDA is management's number, so each add-back is tested against the history before any ratio is run. A lease that moves onto the balance sheet changes leverage although nothing happened in the business. A qualified opinion or a going-concern paragraph is read before the numbers, because it says how far the numbers can be trusted at all.

WORK IT · THE BORROWER · EARNINGS, CASH, BALANCE SHEET, BUSINESS, ASSURANCE → · TERMS · Adjusted EBITDA · Cash conversion cycle · Going concern

Financial management teaches the cost of debt, investment appraisal, working capital finance and hedging; the credit chapters of an investment syllabus teach cover ratios, seniority, covenants and expected loss. The desk uses them to shape the contract. Debt service cover is worked on cash after capital spending and tax, not on EBITDA, which is why the same company can show six times interest cover and little more than one times debt service. Seniority decides who recovers what when the security is sold, and the recovery waterfall is a sum, not a principle. Expected loss — the chance of default, the loss if it happens, the exposure at that moment — is the floor under the margin. A swap fixes the base rate and leaves the margin on top.

WORK IT · THE LOAN · CAPACITY, PROTECTION, PRICE, HEDGES → · TERMS · Debt service cover · Expected loss · Interest rate swap · Forward exchange contract

The analysis of financial institutions teaches a bank's own balance sheet: deposits lent long, capital held against risk-weighted assets, provisions against the loans going bad, earnings that move with rates. On the desk this is the background to every yes. A loan uses capital, so it has to earn its keep. A book concentrated in one sector is a risk the bank carries whatever each file says. A fixed-rate loan funded by floating deposits is a position the bank has taken, and the repricing gap is where it shows.

WORK IT · THE BANK · FUNDING, CAPITAL, ASSET QUALITY, RATE SENSITIVITY → · TERMS · Maturity transformation · Risk-weighted assets · Net interest margin · Loan loss provision

Economics teaches the cycle, monetary policy and the yield curve, and exchange rates; the property chapter teaches capitalisation rates. The desk meets them as the conditions its borrowers will live through: a floating-rate borrower tested at a higher rate than today's, an exporter whose margin is a currency mismatch, a property whose value falls when the yield buyers want rises — with the loan against it unchanged. The credit cycle is the one the syllabus names least and the desk feels most: the loans that go wrong are written when the last few years made every file look safe.

WORK IT · THE ECONOMY · CYCLE, RATES, CURRENCY, COLLATERAL → · TERMS · Credit cycle · Yield curve · Transaction exposure · Loan to value

Ethics and law teach confidentiality, conflicts of interest, inside information, fair dealing and money laundering. On a lending desk these are not a chapter at the end; they are the day. A banker holds material non-public information about every borrower. A referral fee is a conflict whether or not it changed the decision. A customer asking why a payment was held cannot be told that a report was made. The syllabus tests whether you can name the duty; the desk tests whether you keep it when the client is on the phone and the quarter is short.

WORK IT · THE CONDUCT · CONFIDENTIALITY, CONFLICTS, MARKET INTEGRITY, FAIR DEALING, FINANCIAL CRIME → · TERMS · Information barrier · Conflict of interest · Material non-public information · Tipping off · Suitability

The syllabus will not wait for this, and this does not replace it. Use the Groundwork the way a desk uses a quiet half-hour: one file a day, in the order a loan asks its questions. Thirty days of them are laid out on one page that prints — the files go on paper, the senior reads stay at the same address. The Number collects every file that is a sum: cash conversion cycle, debt service cover, expected loss, risk-weighted assets, provision coverage, the all-in cost of a swap. When the exam is behind you and an interview ahead, the placement on the first shelf is where the judgment is read, and From Audit to a Credit Desk is the road most of this site's readers took in.

Subject by subject, the same walk in the syllabus's own words: financial reporting, audit and assurance and financial management, each read by a lender. For the reader heading into an accounting firm, The Bank in Your Audit File is the other side of the first busy season, and Commercial Awareness, the Lender's Way is the question the interview will ask.