Kahlik Ng
Matthew Nunez
March 13, 2023
Although it is not the job that holds the most prestige in the world of finance, corporate banking is an underrated career. While it may be overshadowed by conversations about investment banking, corporate banking remains imperative in the industry. Investment banking is usually seen as the most prestigious job an undergraduate student can achieve right out of college. The gig may come with a six-figure salary, but one must be prepared to work to their limits as some may work 80 to 90 hours per week. But, corporate banking offers a career similar to being in investment banking. Bankers who pursue this line of work have a slightly lower salary, but they average around 50 hours per week. Investment banks provide advisory services to firms with large, complex financial transactions. Such companies may look to issue an initial public offering to raise equity capital for their business. In exchange for underwriting this deal and helping the company list their stocks on exchanges, the investment bank will collect a fee, which is how these businesses make their money. A complex financial transaction like this requires dedicated manpower and resources, which is where the long working hours and high compensation of investment bankers originate.
Managing directors, who head their respective divisions, may offer these deals to prospective employees who seek opportunities within their niche industry verticals. But, many of these deals are from firms that have an existing relationship with the bank, which is where corporate bankers come in.
To understand what corporate banking is, one may compare it with commercial banking. Both corporate bankers and commercial bankers are the relationship managers of the bank.
At one’s local branch, a banker whose tasks may include asking customers if they are interested in a new line of credit is a commercial banker. In essence, corporate banking and commercial banking offer similar roles and tasks but work with different client bases.
Also known as a “personal banker,” a commercial banker works with individuals and small businesses while corporate bankers work with large, established corporations.
Additionally, corporate bankers use a method known as the “loss leader” pricing strategy. This is when the bank will extend a loan for a client at below a market-rate.
“Relationship lending is a term that can sometimes mask sloppy analysis,” Richard Herring, a finance professor at the Wharton School of the University of Pennsylvania, said in an analysis. “If lending at below-market rates is rational, it should be offset by higher profits in some other aspect of the relationship.”
Although the bank does not make as much money as it can, it can establish a relationship with the client. If the client needs the services of the investment bank, they can capture and collect the fees on those complex financial transactions. This translates to why corporate bankers have lower salaries and less hours than investment bankers.
Most clients will not be up at all hours of the night. The fees on interest, especially discounted loans, will be less than the advisory fees of an investment bank product. This translates to the higher levels of both branches as well.
Managing directors at an investment banking division can expect compensation in the low millions, whereas managing directors in corporate banking usually net mid-high six figures.
For students considering what career path is suitable for them, they have a lot to consider.
Students who want the most compensation may go into investment banking. People who pursue this career will get to work with public companies who may seek mergers and acquisitions with other businesses. The trade off is having an imbalance between work life and personal life.
But, students who do not want to spend a lot of their hours at their job and do not mind taking a lower paycheck may go into corporate banking.
While the tasks may center on credit underwriting, corporate bankers will be able to meet with executives, travel to places and have the time to spend your hard-earned money. Plus, with new technology emerging in the field, corporate banking may see growth in the coming years.
“We can easily consider that growth in corporate banking should come from transaction banking, cash management, trade finance, supply finance chain, forex and payments,” François Masquelier, who serves as the CEO of Simply Treasury, wrote in a LinkedIn post. “But these sectors can only deliver growth if banks invest in modernization of technology, theirs and the one offered to customers.”
