2. 2
• Understand the FIG IB landscape, including:
• Typical roles and responsibilities
• Common products and services
• Learn about the common FIG IB slides and how to
construct them
• Learn key analyses and metrics specific to FIG IB
Course Objectives
3. 3
Section 1: What is FIG?
Section 2: Day 1 in the Banks group
Section 3: Benchmarking analysis
Section 4: Capital roll forward
Section 5: Risk management overview
Section 6: Conclusion
Our Journey
4. Learning Objectives
What is FIG? ✓ What Does FIG Do?
✓ A Look at FIG Clients
✓ How Do FIG Groups Get Hired?
✓ FIG Group Roles &
Responsibilities
5. Financial Institutions Group (FIG):
Investment banking group providing
capital raising and advisory services
for financial institutions
6. What is FIG?
6
Bulge Bracket Investment Bank
IB Industry Coverage
IB Product
Coverage
FIG M&A ECM
DCM Lev Fin
Consumer
/ Retail
Healthcare
Oil &
Gas
Financial
Sponsors
Industrials
Power &
Utilities
TMT
Sales and Trading
7. What Does FIG Do?
7
M&A advisory
Equity Capital
Markets
Debt Capital
Markets
8. What Does FIG Do?
8
M&A Advisory
• Advise on M&A opportunities for
financial institution clients.
• Acquisitions
• Mergers
• Divestitures
M&A Advisory
Equity Capital
Markets
Debt Capital
Markets
9. What Does FIG Do?
9
Equity Capital Markets
• Help clients raise equity capital
(e.g., IPO, PIPEs, follow-on offerings)
• Focus on capital needs to satisfy
regulatory requirements
• Cover hybrid debt instruments (e.g.,
convertible bonds) used to explore
equity credit and avoid dilution
M&A Advisory
Equity Capital
Markets
Debt Capital
Markets
10. What Does FIG Do?
10
Debt Capital Markets
• Help clients raise debt capital (e.g.,
short-term borrowings)
• Manage liabilities on clients’
balance sheets aside from having
deposits (Banks) or premiums
(Insurance) fund a regulated
entity’s activities
M&A Advisory
Equity Capital
Markets
Debt Capital
Markets
11. Who Are FIG’s Clients?
11
Banks Specialty Finance
Insurance Asset Managers
Fintech
12. Overview of FIG Clients
12
Banks
Regulated Yes (Federal Reserve)
Valuation
methods
Dividend discount model
(DDM), public and transaction
comps
Commonly used
multiples
P/E, P/B, P/TBV
Key financial
metrics
ROAE, ROATCE, NIM, Non-
interest margin, efficiency ratio
13. Overview of FIG Clients
13
Insurance
Regulated Yes (NAIC)
Valuation
methods
Dividend discount model
(DDM), public and transaction
comps, actuarial valuation
Commonly used
multiples
P/E, P/B
Key financial
metrics
Combined ratio (each
component), Portfolio yield,
ROAE, ROAA
14. Overview of FIG Clients
14
Specialty Lenders
Regulated Some
Valuation
methods
Dividend discount model
(DDM), Discounted Cash Flow
(DCF), public and transaction
comps
Commonly used
multiples
P/E, P/B, P/TBV
Key financial
metrics
ROAE, ROATCE, NIM, Non-
interest margin, efficiency ratio
15. Overview of FIG Clients
15
Asset Managers
Regulated Yes (SEC and FINRA)
Valuation
methods
Discounted Cash Flow (DCF),
public and transaction comps
Commonly used
multiples
P/E, EV/EBITDA, Fees/AUMs
Key financial
metrics
ROAE, ROAA
16. How Do FIG Groups Get Hired?
16
Citizens Bank
is growing its
loan portfolio
and needs to
raise equity via
a share sale
They invite
several
investment
banks to pitch
their services in
a “bake off”
They present
relevant
experiences,
roadmaps to
execution & peer
valuation
estimates
FIG teams at
each bank
construct pitches
to show why they
are the best “fit”
Citizens selects
Goldman and
JPMorgan to
execute its sale
shares in a
follow-on
offering
17. How Do FIG Groups Get Hired?
17
• If a bank wants to
execute a transaction
itself (e.g., raise
capital, acquire a
target)…
Use their own
internal FIG groups
to execute the
transaction
Bulge Bracket Banks
Use an independent
advisor (though
might use their own
FIG groups)
Other Banks
18. Why is FIG Different?
18
• Distinctive valuation methods (e.g., Dividend Discount Model)
• Capital regulations (e.g., Basel)
• Unique accounting, primarily financial assets on balance sheet
• Banks and Specialty Lenders – loans, deposits instead of inventory, accounts
receivable and accounts payable
• Insurance Companies – investment portfolio supporting written insurance
policies
• Asset Managers – investment portfolios
Note: Fintech companies will follow more traditional cash accumulating companies depending on the space covered. We will focus on its approach elsewhere.
19. Who Does What in FIG?
19
Note: Different banks might have different nomenclature for each position.
• Manages associates and
analysts (staffing) across all
verticals
• Reviews documents before
submitting to senior bankers
• Ultimate technical source of
information for junior bankers
VP
• Collaborates with MD on
origination efforts
• May start taking over client
relationships
• Manages execution of
transactions with VP,
associates, and analysts
• Signs off on client documents
Director
• Leads client origination efforts
• Responsible for client
relationships and compliance
• Covers a particular vertical
within FIG (e.g., Banks)
Managing Director
20. Who Does What in FIG?
20
Note: Different banks might have different nomenclature for each position.
• Knows the model/technical
aspects inside out for all
verticals
• Most senior person in Excel
and PowerPoint
• Makes sure deliverables
progress smoothly
Associate
• Puts together the models
• Updates comps
• Creates presentation slides
Analyst
21. Who Does What in FIG – An Example
21
• Guides associate
to build a roll-
forward slide
with current
valuation levels
in the peer
universe
• Performs final
review before
sharing with
senior banker
VP
• Puts together a
shell of the slide
• Asks analyst to do
the analysis and
complete the
slide
• Reviews the
analyst’s work
Associate
• MD has an
upcoming
meeting with a
client and wants
to understand its
current standing
from a regulatory
capital
perspective
Managing Director
• Analyst runs the
analysis and
completes the
capital roll
forward slide
Analyst
• Director
performs a high-
level overview
and provides
detail to include
in the slides
Director
22. Learning Objectives
Day 1 in the
Banks Group
✓ What Happens on the First Day?
✓ How Should You Do Your Work?
✓ What Work Can You Expect?
✓ Resources to Seek Out
✓ Key Metrics for Banks
23. What Typically Happens on the First Day?
23
• Meet with the staffer who places you in
projects with different MDs or project
groups
• You will work on projects categorized by:
1. Execution/live deal;
2. Origination/ pitching; or
3. Internal work
Day 1
What do I do next?
24. How Should You Go About
Doing Your Work?
Baseline: Listen to what your staffer wants and go learn how to complete
each deliverable
Set Yourself Apart: Learn how to do a quick assessment of the clients that
you cover by putting together a:
Benchmarking Analysis Capital Roll Forward Risk Management Overview
25. What Work Should You Expect To Do?
25
Know your clients well
(investment banking is
100% about clients)
• Banks is probably the
most transparent space
(read their websites)
• Regulators (FDIC, Federal
Reserve New York)
Know how to
construct documents
that bankers ask for
• Look at past documents
put together by your
group
• Know what resources to
leverage
• Understand big
picture (Technically
and fundamentally)
26. Resources To Seek Out
26
Bankregulatordatasupersedesanydatasource
Bank websites
• All Banks (publicly traded
or private) have to file
regulatory filings with the
Fed and they usually have
very detailed publicly
available presentations
Sources
• Federal Deposit Insurance
Corporation (FDIC)
• Federal Reserve Bank of
New York (New York Fed)
Databases
• SNL (owned by S&P) is
the go-to database for
Bank information and
data (watch out for wacky
number formats!)
27. Key Metrics for Banks
27
Metric Definition Formula
Total Loan Portfolio Total amount of money loaned out to customer base Total loans excluding bad
debt provision
Return on Average
Assets (ROAA)
Performance metric on profitability Net income/Average total
assets
Return on Average
Equity (ROAE)
Performance metric on profitability Net income/Average total
equity
Return on Average
Tangible Core Equity
(ROATCE)
Levels the playing field by excluding goodwill;
eliminates any overpaying or underpaying incurred
during an acquisition
Net income/Average tangible
core equity
Deposit ratio Higher percentage means less interest or dividends paid
to investors (cheaper funding)
Deposits/Total liabilities
Net Interest Margin
(NIM)
Performance metric carving out interest bearing assets;
a measure of core business profitability
Net interest income/Interest
bearing assets
Efficiency Ratio Amount of money a bank needs to operate relative to its
total income
Non-interest expenses/Total
income
29. Dictionary Definition:
The practice of comparing business
processes and performance metrics to
industry bests and best practices from
other companies. Dimensions
typically measured are quality, time
and cost.
30. Banks Groups Definition:
How are the Banks who look like me
doing relative to me in terms of
profitability, efficiency, growth, and
quality of assets.
31. Key Considerations
31
How am I performing
relative to my peers?
In terms of profitability,
efficiency, growth,
quality of assets, and
capitalization
How do I look
relative to my peers?
There is no one exactly
comparable entity
Why am I
not performing
optimally?
Charging too little
interest, spending too
much, or lending to the
wrong crowd
32. How Do You Benchmark?
32
To select a peer group,
identify banks with similar…
Products
(loans,
services)
Size
(loan portfolio,
total assets)
Geography
Funding
Strategies
(deposits,
debt)
Industry
Exposure
33. How Do You Benchmark?
33
• Use the FDIC to look through all banks and select by criteria
(unrealistic)
• Use SNL to select peers and get an automatic peer group based on its set
criteria
(can modify to filter and create your own peer group)
• Look at a bank’s peer group in an Investor Presentation – usually found in
the Investor/Regulatory section of their webpage
(most common method - we will use this method in this course)
34. Example: Citizens Bank
34
Peer group selection
• Citizens Bank has a Fixed Income Presentation
showing the peer group on slide 23:
• BB&T*, Comerica, Fifth Third Bancorp,
KeyCorp, M&T Bank, PNC Financial Corp.,
Regions Financial Corp., Suntrust*, US
Bancorp.
• Peer listings may be found in different sections;
we used slide 23 and then confirmed in the
notes section
Sources
*SunTrust and BB&T merged as part of Truist, so they may no longer be a comparable
peer as a combined entity
35. Example: Citizens Bank
35
Your VP wants to understand how Citizens
Bank is performing relative to its peers as
there is an upcoming call with the client
The Situation
36. Example: Citizens Bank
36
Layout the slide
Usually, a benchmarking
page is set up as a four-
quadrant slide composed
of 4 graphs highlighting
any metrics to be shown
1
Determine which
metrics to show
Good practice to separate
slides with size and balance
sheet metrics from those with
performance or income
statement metrics
2
Gather the data
and build charts
in PowerPoint
Insert graph data in
PowerPoint and have an
Excel file supporting your
calculations; never mix
3
37. Benchmarking Slide
37
Total loan portfolio Total borrowings / Total liabilities
NPLs as a % of total loans CET1
124.1
311.0
253.1
113.1 110.7 105.0 98.5 88.0
52.0
6.6%
11.7%
10.7% 10.1%
9.1% 8.9%
7.8%
4.6% 3.9%
9.8%
11.7%
10.3% 10.1% 9.9% 9.8% 9.5% 9.4% 9.3%
0.67%
1.30%
0.90% 0.84% 0.81% 0.80% 0.74%
0.62%
0.41%
Note: Figures as of 3Q2020 in US$ million unless noted
39. Benchmarking Slide Key Takeaways
39
What did you find
out?
Draw preliminary conclusions
as to how the different metrics
show relative performance.
Due to provisioning and risk
management, Citizens shows
lower profitability.
What are you trying
to show?
Is Citizens more or less
profitable than its peers? Does
it have a lower NIM? Is it very
efficient?
In this period, Citizens seems to
be less profitable than peers, in
the “middle of the pack” in
terms of NIM, efficiency, and fee
ratio.
Highlight findings to
your VP
Annotate findings when
turning in a first draft. For
example, “I noticed that
Citizens has a noticeable higher
NIM than X; you should note
this item when we review in
detail…).
Similar to how we drew
conclusions above for Citizens,
you must communicate any
detail of how you arrive at your
conclusions.
41. Definition:
A Capital Roll Forward is a graphical
analysis bridging beginning
regulatory capital (CET1 for Basel III
regulations) and ending/projected
regulatory capital.
42. What is a Capital Roll Forward?
42
• Banks need to keep this regulatory capital above a
certain threshold (defined globally at a 4.5% minimum
but discussed with the Regulator on a case-by-case basis)
• This capital has 3 main drivers on a stand-alone basis:
• Earnings (increase if positive)
• Loan growth (increase in Risk Weighted Assets)
• Dividend payments (reduction in capital)
Bankers use
this analysis to
initiate
conversations
on additional
capital needs
whether debt
or equity,
and/or
capacity to
acquire other
banks
43. Example: Citizens Bank
43
Your VP requests a Capital Roll
Forward for the next two years for
Citizens Financial Bank
The Situation
44. Example: Citizens Bank
44
Look for the
beginning
balance of CET1
1
Retrieve projected
earnings and loan
growth from databases
like CapitalIQ.
These Banks will sometimes
provide guidance in their
investor presentations
2
Make a dividend
assumption, based
on guidance or
prior dividend
payments
3
45. How Do You Create a Capital Roll Forward?
45
The Math
Beginning CET1 %
• Beginning CET1/Risk-weighted Assets (RWA)
Ending CET1%
• Numerator: Beginning CET1+Earnings-Dividends
• Denominator: (Loan growth x Current RWA)
1
2
3
4
5
46. Capital Roll Forward
46
Key assumptions
• Earnings are generated
based on multiplying
capital at 13% ROE
• Dividend payout ratio
is 40% of Net income
• Loan growth is
assumed to be 2%
1 2 3 4 5
47. Capital Roll Forward Key Takeaways
47
Based on the bank’s growth
assumptions, will it need
additional capital?
Most likely, Citizens will not need
additional equity or debt, however,
if any debt instrument would come
due and refinance, they will need
help from the Banks
Can we pay a higher dividend
without running into trouble?
Can we buy someone else?
Citizens regulatory capital base is
growing, however, it might be
building up capital to be ready in
case of an acquisition or other
inorganic growth initiatives
49. What is a Risk Management Overview?
49
Banks lend money and book
those loans on their balance
sheet in two ways:
• Performing loans: Loans currently
on time with payment
• Non-Performing loans (NPLs):
Commercial loans 90 days past due,
consumer loans 180 days past due
• To cover for potential losses, banks
set aside a provision (an expense)
that will be recorded as a contra-asset
in the total loan portfolio, decreasing
the net loan balance
• To keep a balance sheet clean, banks
write-off or eliminate loans that are
considered uncollectible and fully
provisioned
50. A Bank will begin to worry if NPL
balances increase and they have not
provisioned enough to support any
losses from those loans
51. What Do You Look for in a Risk Management Slide?
51
Charge offs
as a %
of NPLs.
Are you cleaning your
balance sheet as you
accumulate more NPLs?
Increasing
levels of NPLs/
total loans.
Signals that the quality of
the loans is deteriorating;
must ask yourself why!
Allowance
for credit
losses/NPLs
Have you provisioned
enough loan loss
reserve to support
further deterioration
of your NPLs
52. Example: Citizens Bank
52
Your VP wants to understand where
Citizens Bank stands in terms of non-
performing loans and write-offs
The Situation
53. Example: Citizens Bank
53
Layout the slide
Usually, a risk management
overview page is set up as
a four-quadrant slide
composed of 4 graphs
highlighting any metrics to
be shown
1
Determine which
metrics to show
NPLs/Total loans, Net charge
off ratio, Allowance for credit
losses as a % of total loans and
Provisions for credit losses,
Net charge offs
2
Gather the data
and build charts
in PowerPoint
(Preference for
organizational purposes)
Always insert graph data in
PowerPoint and have an
Excel file supporting your
calculations; never mix
3
54. Provisioning and Write Offs
54
NPLs as a % of total loans Net charge off as a % of total loans
Allowance for credit losses as a % of total loans Provision for credit losses, net charge offs
1.10% 1.09%
1.73%
2.01%
2.21%
0.38% 0.41%
0.46% 0.46%
0.70%
101 110
600
464
428
113 122 137 147
210
3Q2019 4Q2019 1Q2020 2Q2020 3Q2020
1.07% 1.05%
1.70%
1.95% 2.05%
Note: Figures as of 3Q2020 in US$ million unless noted
55. Risk Management Slide Key Takeaways
55
Is the balance
sheet clean?
From what we can see,
Citizens has taken
conservative approaches
and provisioned for loans
that most likely resulted
from the pandemic.
As a bank, am I ready
to absorb the losses
of my troubled loans?
Citizens seems to be very
well capitalized to handle
any potential losses.
Is my client’s loan
portfolio exposed to
events that can trigger
additional NPLs?
From Citizens’ presentation,
we see that their loan
portfolio is well diversified
across industry and
geography; events like the
pandemic that had effects
across industries exemplify
those risks.
57. Succeeding on Day 1
57
Understand the big picture.
Do not execute work without knowing its purpose
Know your clients well.
Know why the client needs you
Know how to build the
documents bankers ask for.
Develop base knowledge as a segue into more
complicated analyses
Benchmarking
Selecting and
comparing peers
Capital roll forward
Do we have enough, too
much, or too little capital?
Risk management
overview
Is our balance sheet clean,
can we clean it any further,
and are we safe?
58. Connecting the Dots
58
Once you learn how to
create these documents,
the following items
should come to mind:
Why is bank performance important
when generating investment banking
origination ideas?
Why is regulatory capital important
for understanding which products
may be of interest to a client?
How does the quality of a bank’s loan
portfolio affect its ability to grow or
continue to perform?
