Where do commercial bankers usually take clients?

Personally, not a lot of knowledge about that – it’s almost always the account manager that does all the wining and dining. I am aware that it’s quite common to get valued clients in the box seats of a hockey game.

The account manager will also alternate the meetings with the client between a more formal setting in the bank’s meeting room (where the analyst/associate would almost always be present).

Business lunches and dinners are also very popular. The banker will always pay – it really comes out of all the fees that are charged to the client. Usually this will be close to the bank branch where the client conducts business, so for larger accounts this is predominantly Downtown.

What kind of credit work is done? What other groups within the bank do you work with and what products do they sell?

I assume the question relates to products offered. The most standard financing products offered by account managers include various types of overdrafts to finance the company’s working capital needs and term loans, revolving or not, to finance the purchase of fixed assets, owner occupied real estate, or in more real cases, the acquisition of another company.

The term loans will be frequently secured by real estate, fixed assets, both or general security agreement over all assets. All risk insurance and indemnity will be provided as well as the hypothecation of shares. Term loans would come with different features such as drawing conditions, and different repayment schedules or just a bullet at the end.

Additionally, capital leasing financing is provided where the bank strikes and agreement with a client to purchase a piece of equipment on their behalf and lease it back to them with the end of useful life incentive to purchase the same in many shapes shares and forms. Depending on the piece of equipment in question, the features of financing is adjustable.

The trade and receivable finance team would support account manger is providing the core trade products such as guarantees and standby letters of credit that can be performance based or financial obligation driven. Those could be issued to client’s suppliers, clients, landlords, and etcetera. Documentary credit is also offered with the bank acting either as issuing bank (when your client is the party requesting the bank to issue the documentary credit as a main source of repayment) or as the advising bank (when your client is a party receiving the documentary credit from their client/buyer and respective issuing bank).

The core trade loans will be provided on both importer’s and exporter side. Those are more structured products and can have many shapes and forms, providing financing for any stage of trade cycle: starting with the company’s inventory purchase before its manufactured and sold end ending with financing the company’s receivables.

All these trade products are short term loans that enable the company to optimize its cash flow allocation and improve the amount of cash on hand and respective DPO, DSO and DIO ratios.

There is also an FX origination team that would establish daily settlement limits for the company to exchange the currency in real time, and book forward contracts. The cash liquidity team will support account manager by facilitating corporate cards, improving the efficiency or company’s payables and receivables. The syndication teams, or private sponsors teams are always there to assist the account manager with structuring support for syndicated club deals, or companies managed by private equity shops.

What is an interesting file that you have worked on?

Can’t really talk about deals while making exciting and yet not disclosing any info. Exciting deals obviously involved big easily identifiable companies that have undergone big restricting changes and required financing terms that go beyond the lending guidelines. Other examples would involve prominent companies that got transferred to special credit, but again those are very easy to identify.

What does the competitive landscape look like for banks? For example, which banks are aggressively trying to grow their book?

The question would be better answered by someone in the leadership role, but I’m happy to offer my two cents. My impression is that a lot of times the bank’s competitiveness, which is expressed through its ability to offer structures (pricing, terms, and collateral) that other banks can’t match, is determined by it’s risk appetite mandate. That mandate is dictated by the bank’s leadership and is a subject to multiple regulatory and performance variables.

In Western Canada, the two strongest players in commercial/corporate lending space are RBC, and BMO. RBC has been leading the pack historically, and BMO has been very bullish recently with very aggressive risk tolerance allowing them to go after clients that others bank don’t consider safe like companies in cannabis industry.

With higher risk appetite, BMO also started offering structures that usually don’t get approved at other banks. The second tier is held by CIBC, HSBC, and TD all competing with comparable risk mandates. HSBC appears to have an edge with its global network allowing them to provide getter products in trade space at lowest price. It appears that Scotia currently lead in any aspect.

Canadian Western Bank was growing at a very fast clip, but their Western Canadian concentration hit them when the oil price got crushed in 2014 – you can see their stock price get hammered in line with many oil and gas companies. They have since recovered. ATB Financial, the provincial owned lender/crown corporation, saw similar business pullbacks.

There is always the threat of new entrants. We are seeing banks such as Silicon Valley Bank start branches in Canada.

What does commercial Banking look like from an economy perspective?

Hard to give a good answer. There is a notion of a reduction in economic activity (well known and discussed), so the anticipation of further reductions in interest rates to stimulate the economy is strong. The effects on the expected revenue and margins result in the hiring freezes and maintain flat staffing in attempt to optimize costs. There is also a big notion of upcoming technological disruption.

Commercial banking segment recognizes that there is a need to invest in technology to improve efficiency hampered by omnipresent manual processes. It is recognized that a lot of low-level judgement processes can be automated, reducing the need for labour overhead and improving the output. Some banks are already strongly looking into AI credit approving systems for high volume, low exposure credits.

What is causing commercial banks to lend more or less? How do interest rates affect this?

Interest rates influence the profitability of lending activity (return over risk weighted asset %), and account manager’s yearly sales targets get adjusted accordingly. For instance, in the environment of decreasing interest rates, the sales target would increase at the decreasing rate. However, regardless of interest rate, the bank will try to maximize the lending and auxiliary driven revenue. Hence, interest rates will not affect the bank’s desire to lend less or more.

The lending volumes are mainly subject to the bank’s risk appetite that guides the notion of what is allowed or not allowed. Changes in lending policies might affect the lending activity for a given industry or for companies that operate in or trade with certain countries. The changes are driven by the regulation, and international banks would usually be more stringent with their lending guidelines as they must comply with more requirements.

What are the hours like in commercial banking?

Overall, hours appear to be good. The working hours might vary depending on the geography, the portfolio one manages and the seniority. On average, team leaders (directors and VPs) have it worst due to the level of responsibility and high volume of deals on the go and would still work under 70 hours on the worst week.

They are followed by account managers due to acting as the connecting link between the client and the big infrastructure of the bank. Analysts have it relatively well with the average of about 50 hours. Of course, the longer hours come with busier portfolios or ongoing new money deals that must be brought across the line as soon as possible.

Hence, you would see analysts on the very busy portfolios working proportionally more than others and working 60-70 hours/week consistently. During slow periods like second half of December, people might be working less than 35 hours a week. A lot of people seem to take work-life balance and family time quite seriously.