What Is Corporate Banking? The Work and the Career

Corporate banking is the part of a bank that serves large companies: listed groups and large private ones, whose money is run by a treasurer and whose decisions answer to a board. It lends to them, runs their payments, manages their currency and interest rate risk, and brings in the rest of the bank when they need something it does not sell itself. Banks also call it wholesale or institutional banking, and when it shares a division with the investment bank, corporate and investment banking.

No rule says where corporate begins. Each bank draws its own line, usually by revenue or by how much it has lent, and one bank's upper commercial is another's lower corporate. The capital rules draw lines of their own, for their own purposes: the Basel framework treats a company whose group sells less than €50 million a year as a small or medium-sized enterprise, and bars the most advanced internal models for groups with more than €500 million of revenue. Those are not definitions of corporate banking, but they show that the rules, too, treat size as a difference in kind.

The more useful test is structural. A company has become corporate when several banks share its debt, when a treasurer answers the phone instead of an owner, and when nobody offers a personal guarantee because no owner-manager stands behind the business. Corporate Banking vs Commercial Banking sets the two side by side, and Commercial Banking vs Retail Banking covers the step below.

Debt. The core product is the revolving credit facility, a committed limit a company can draw and repay, which for most large companies is insurance as much as funding. Beside it sit term loans and acquisition facilities. Small enough and the bank lends alone, on a bilateral facility. Larger, and the loan is syndicated: several banks lend on one agreement, each holding a share, so that no bank carries the whole company. The credit itself is the subject of Corporate Lending and Credit Risk.

Transaction banking. Cash management, payments, and trade finance such as guarantees and letters of credit. It is unglamorous, and it is what makes a company hard to move: it brings deposits as well as fees, and a company with its payments at one bank does not switch lightly.

Markets. Foreign exchange and interest rate hedging, sold by specialists and usually connected to the loan: a company borrowing at a floating rate may want to fix it, and an exporter wants to sell its foreign receipts forward.

Introductions. When the company wants to issue bonds or shares, or to buy a rival, the corporate banker brings in the capital markets and advisory teams. In a bank with no investment bank, this is where the relationship can be lost to one that has.

The coverage banker owns the relationship: fewer clients than a commercial banker, larger and slower, each with its own plan for what the bank should do next. Much of the job is internal, assembling people who do not report to them around one client and arguing for the capital.

Analysts and associates build the models, spread the accounts and draft the credit paper. The product specialists own their own lines. A separate credit team, which the coverage banker does not run, can say no; on a large file that decision sits with a credit committee. A large client is not a safe one, which is why the file is still read the same way: what grew, whether the earnings became cash, and what repays the debt.

Corporate loans are priced keenly, because the borrower is strong, several banks want the business and a treasurer compares every line. Take a relationship constructed for this page, on assumed figures that are not market levels. A company with US$800 million of revenue has a five-year US$250 million revolving facility shared equally by five banks. This bank holds US$50 million, of which US$10 million is drawn on average.

The undrawn part looks free, but it is not: the bank has promised that money, and under the Basel framework a commitment counts at 40% of its size. Take a risk weight of 100%, the standard figure for an unrated company, and suppose the bank holds capital of 12% against it and its shareholders want 10% after tax.

Now take off what the loan costs. A 0.5% chance of default and a 45% loss if it happens on US$26 million is US$58,500 a year, and suppose that running the relationship costs another US$120,000.

On those assumptions the loan earns about half of what its capital asks for. It is the company's other business that closes the gap, here shown after its own costs.

That is the arithmetic behind a question every interviewer in this seat asks: why would this company use us rather than the three banks it already has? A bank that holds a share of the facility and wins nothing else has lent below its cost of capital, and it will sooner or later give up its seat. The same logic explains why a treasurer rations the side business among the banks in the facility, and why the price of a loan and the value of a relationship are argued over together. The figures change from bank to bank. The shape of the sum is why the seat exists.

Titles differ, but the ladder usually runs analyst, associate, then a director or vice president who covers clients, then a managing director or head of coverage. Some banks use graduate programmes as the way in; others take analysts into the team directly. A coverage seat itself is rarely a first job. Most people arrive from commercial banking, from a structuring or credit team, or from corporate finance.

What moves someone up is being trusted alone with a client and a credit: a treasurer who takes the call, and a credit committee that believes the paper. It is a slower apprenticeship than the commercial path in one respect, because an analyst sees fewer companies a year and writes part of a paper the team owns. It is faster in another, because each of those companies shows how a large balance sheet is really funded.

The usual moves out are into a company's treasury or finance leadership, private credit, leveraged finance, or back to a larger seat in commercial banking. Pay at the same title tends to run above commercial banking, because the revenue per relationship is higher and the teams are smaller; how it compares with investment banking depends on the bank and the year. Interviews test how you read a company and whether you know where the money comes from; the practice test for relationship seats covers the same ground.