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Banks are intermediaries for capital and hold the risk or underwrite when this dynamic is not perfectly balanced. 

Insurance is the business of selling indemnity (security against loss) for a premium (policies). As with banks, risk pooling is a core part of the business.

Asset managers are institutions that take a fee for managing money via investing it for a beneficiary.

Financial Institutions Group Overview

Financial Institutions Group (“FIG”) focuses on financial organizations such as banks, insurers, asset managers (public, private and everything in-between), leasing companies, thrifts, credit unions, captive lenders and

Some subsectors are covered jointly or entirely by another jurisdiction. For instance, financial technology (“fintech”) may be covered by FIG or technology while health insurance may include healthcare teams.

Financials are very different from normal corporates and are often separated entirely for the purposes of debt capital markets due to the role that debt plays on the balance sheet of many types of financials. For banks, insurers and anything that sources funds to lend at a higher margin, debt and interest expense are viewed more like assets and costs of goods sold rather than a component of capital structure. Financials are also evaluated very differently in terms of valuation metrics due to this difference.

Asset managers and fintech companies are seen as more “normal” companies in terms of valuation.

Nonetheless, financials are major capital markets participants and investment banking clients. On the sales and trading side financials look well beyond risk management or hedging solutions and will take active positions on variables such as interest rates or hedging via both vanilla and structured finance.

FIs, especially large, systematically important firms, have to keep an eye out on their capital – this is something that they are evaluated on by 1) global and domestic financial regulators; 2) creditors; 3) equity analysts. As such, to keep capital ratios adequate, they will take on all sorts of debt, equity and hybrid instruments.

A cursory look at any major FI’s annual reporting will show that they hold:

  • Fixed Rate Debt
  • Floating Rate Debt
  • Debt in Different Currencies
  • Preferred Shares
  • Hybrid Debt
  • Subordinated Debt
  • Common Equity

All of these instruments may have swaps in place to serve a certain mandate or based on a view by their treasury teams. Bonds will have various embedded options be it calls, puts, conversion.

Financial institutions are obvious beneficiaries of scale and operate in a mergers & acquisitions intensive space.

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