I'm an analyst at a commercial bank

RavySnake
RavySnake

I'm an analyst at a commercial bank. I primarily underwriting commercial loans and perform financial analysis on small to mid sized companies. If you ever had questions about lending or credit, AMA

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http://www.mergersandinquisitions.com/case-studies-reader-success-stories/
CouchChiller
CouchChiller

@RavySnake
What sort of culture do you lads have? I know it can't be like IB.

What're your thoughts on credit unions?

if I post collateral equal to the loan's value I'm trying to get, will it work?

TechHater
TechHater

Do you underwrite secured or unsecured loans? In either case, how do you value the company's assets?

FastChef
FastChef

@RavySnake
Do you ever think about moving to debt syndication as opposed to underwriting commercial loans

JunkTop
JunkTop

@CouchChiller
What sort of culture do you lads have? I know it can't be like IB.

Definitely different from IB. Never having worked IB, I can't be 100% certain, but based on what I have read about IB culture, commercial banking is definitely more laid back. Analysts aren't working 9-9. IB is definitely more glamorous as well and the compensation is better.

What're your thoughts on credit unions?

Decent place to go for a consumer, whether for credit or deposits. I haven't had to compete on deals with a lot of CUs.

if I post collateral equal to the loan's value I'm trying to get, will it work?

Typical lenders are cash flow centric, with collateral as a secondary source of repayment, so your cash flow needs to be able to support repayment at an acceptable margin. Unless it's liquid collateral like cash or stocks, lenders will rarely go 100% loan to value. Typical LTVs are 60%-75% for equipment, 70% to 80% for accounts receivables, and 50% or less for inventory.

GoogleCat
GoogleCat

@JunkTop
Thanks.

Ignoramus
Ignoramus

@TechHater
I do both. For unsecured, we focus on the strength of the company's cash flow vs their assets. For example, we typically see if cash flow can completely repay us over a 5 year amortization. Some banks also have a working capital requirement (e.g. working capital that is 2x the amount of unsecured debt).

@FastChef
That is one thing I wish my bank did. Debt syndication, from what I observed, are easy money for banks for the fees (especially if you are the lead bank). If you are a participant bank, analysis is basically copying and pasting analysis that the lead bank did plus a few comments of your own.

Illusionz
Illusionz

@FastChef
Forgot about the secured piece. For secured piece, we are typically financing a piece of the company's balance sheet. Typical examples are equipment or accounts receivable. For equipment, we would get it appraised by a third party, usually at "as-is" value and liquidation value. Accounts receivable we rely on the company's AR reports, though for larger commitments we engage a third party collateral examiner to make sure the borrower's books are legit.

Need_TLC
Need_TLC

@GoogleCat
One thing I have noticed recently are comments from older bankers saying that no one really gets trained or wants to go into lending anymore since IB is sexier. It's possible that in the future there may be a shortage of people who have credit skills.

Lunatick
Lunatick

@Illusionz
@Ignoramus

Neat, I work in ABS ratings (one of the Big 3). We stress the shit out of things before we give that Aaa.

farquit
farquit

@Lunatick
That sounds pretty interesting. What do you guys use for stress testing? Most decent banks stress test repayment source and some banks also stress test the interest rates as well. For us, the underwriting has to be on point because we pledge a lot of loans as collateral.

Firespawn
Firespawn

@farquit
For getting AAA it depends on the transaction type, but usually we assume shit hits the fan fast, and the bonds *still* have to pay off. We'll notch down the ratings of obligor(s), throw in 10-50% haircuts to value, assume the max historical delinquency rates instead of the mean, that sort of thing. I work on a lot of different asset classes, so one size doesn't really fit all.

Do you guys provide collateral for CDOs/CLOs? That's one place I haven't touched but *really* want to.

PurpleCharger
PurpleCharger

@Firespawn
I see. Interesting to see similarities and differences between the lender level and the securitization level.

Unsure as to whether we do that. I think most of our collateral is to the Federal Home Loan Bank to secure credit facilities to us.

Soft_member
Soft_member

@Need_TLC
Yeah. It's the same with STEM, the really smart ones are going over to the high finance world.

Comp might get a nice boost tho. What's after analyst?

w8t4u
w8t4u

@Soft_member
I could see comp rising in the next 10 years or so. After analyst it's either banker or you go towards the risk management/audit side of things.

Emberfire
Emberfire

i just graduated college and have never had a job. i have a bank account. do i have credit?

ZeroReborn
ZeroReborn

@Emberfire
Credit means having a record of obtaining and handling debt as agreed. You have a credit card? Store charge card? Your bank account history is reported through a different system than your credit history, so it won't show up on a credit report (unless your bank account went to collections).

Illusionz
Illusionz

@ZeroReborn
@Emberfire

To piggyback, if you have student loans/store cards, those will show up on your report, so it's something. Store cards can be a decent place to start, just make sure you immediately link it to a bank account to autopay it each month.

Spazyfool
Spazyfool

@RavySnake
I forgot to ask! Not sure if applicable, but generally what interest rates can you expect for one-off ventures? Like if an LLC was formed specifically to build and sell one house (with house as collateral and the LLC providing something like 20% of funds).

Sir_Gallonhead
Sir_Gallonhead

@Spazyfool
"Builder finance" projects are usually extended to an established company in the area who will be building multiple houses. One-off projects will be harder to finance unless you have an existing relationship with a bank who has a good understanding of your finances.

20% equity into a project is good. Expect an interest only draw period as you build, followed by a mortgage with P&I payments. Presume it will be a developed lot (i.e. utilities, permits, etc are already in place)? If not developed, then expect to put in more equity. I would venture rates for an one-off deal to be north of 5.00% plus a 1%-1.5% loan fee.

girlDog
girlDog

@RavySnake
Does it matter if I max out my card and pay it off 100%? I spoke with a Barclays analyst once and while my credit history was flawless, he was concerned about me not having any large payoffs such as making a massive purchase and killing it off. Is this something thats massively underrated? On credit report there is a "highest balance" thing.

massdebater
massdebater

@girlDog
Revolving debt such as credit cards should be revolved (i.e. used and paid down). This shows that you have the capacity to not only make interest payments but also the principal. This is why you will also see % of revolving accounts being utilized.

Inmate
Inmate

@massdebater
This is why you will also see % of revolving accounts being utilized.

on your credit report.

hairygrape
hairygrape

I assume your loan recommendations are subject to an executive committee prior to approval. Does that absolve you of internal responsibility if your loans go into default? Are you subject to adverse performance review if your loans go bad? Does it affect your compensation?

Emberburn
Emberburn

@hairygrape
Whoever approves it, owns it. Credit committees are typically found at smaller banks. At larger banks, they entrust credit officers who will have substantial credit authority (e.g. approving deals for relationships exceeding $20M). Loans that go bad do not affect my performance or compensation, as long as you were underwriting appropriately at the time of origination.

WebTool
WebTool

@Emberburn
So is your performance judged solely on loan volume? That seems like it could create a perverse incentive loop.

DeathDog
DeathDog

@WebTool
My comp isn't dependent on loan volume, that's a criteria for bankers. I am mostly judged on quality of my analysis and how well I manage my portfolio of existing loans. That includes timeliness of reviews.

BinaryMan
BinaryMan

I'm looking into getting into banking, will the jobs be automated any time soon?

AwesomeTucker
AwesomeTucker

@DeathDog
Ahh, so you're just a credit analyst, not a loan originator. Sorry, I was making assumptions.

Carry on.

PurpleCharger
PurpleCharger

@BinaryMan
Depends on the job. Positions that require a knowledge of the local market will be hard to outsource. Credit underwriting specifically is combination of art and science. That subjectivity will be hard to automate in the near future.

Illusionz
Illusionz

What did you major in and how does one get into the finance world with a STEM degree.

Raving_Cute
Raving_Cute

@RavySnake

What'd you study and how'd you get your job? Favorite and least favorite thing about it?

Lord_Tryzalot
Lord_Tryzalot

@Illusionz
going to be honest with you, i have not finished my degree. I sort of fell into this position. Started doing real basic credit stuff (inputting applications) and worked on more complex deals. Can't really give you a path to jump into finance with a STEM degree, but this site has a few stories you might find interesting.

http://www.mergersandinquisitions.com/case-studies-reader-success-stories/

Soft_member
Soft_member

@Raving_Cute
Like I mentioned here @Lord_Tryzalot

I have not finished my degree, though my declared major was finance. Pros of the job is that it's pretty comfy. I rarely work more than 40 hours a week and I get to see a variety of deals and see how a variety of businesses work. Having a foundation in credit analysis is a pretty transferable set of skills into other areas of financial analysis. Cons are compensation is capped since I don't get a lot in terms of bonuses. It can also be tedious looking at financial statements day after day.

New_Cliche
New_Cliche

@massdebater
You didn't really answer my question. The Barclays guy didn't care that I had a payment history, he wanted to see that I made large purchases in the past and liquidated the debt successfully.

Lunatick
Lunatick

@New_Cliche
Using your card for a large purchase and then paying down that debt is revolving it. For the reason I mentioned earlier, banks like to see that.

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