Chapter 18: The FIG Special - G2G IB Interview Prep

The FIG Special

Financial Institutions Group Coverage Universe Everything you need to master the most regulated sector in investment banking Cram Sheet - Coming Soon Available on launch day

Why FIG is Different

Financial Institutions Group is the crown jewel of investment banking M&A and capital markets coverage. But it demands a fundamentally different analytical framework than corporates. Regulated Capital: Every decision flows through regulatory constraints (CET1, leverage ratios, MREL, Solvency II) Mark-to-Market Volatility: Trading books create earnings volatility banks can't control No Traditional EBITDA: Net Interest Income (NII), Net Revenue, Operating Profit replace EBITDA Liability Side Matters: Cost of deposits, funding structure, and refinancing risk are existential Interview Rule: Never value a bank like you value a corporate. The regulatory lens is non-negotiable.

BANKS: Universal/Retail Banking Fundamentals

The heart of traditional banking. Key metrics for any bank interview question. Net Interest Income (NII): Interest earned on loans minus cost of deposits. The core earnings driver. Net Interest Margin (NIM): NII as % of average earning assets. Typically 1.5–3.5% for Tier 1 banks. Cost-to-Income Ratio: Opex / Net revenue. Lower is better. Top-tier: 40–50%. Stressed: 80%+ CET1 Ratio: Common Equity Tier 1 as % of RWA. Minimum requirement ~4.5%, plus buffers = 13–15% target for Tier 1 banks. Loan Deposit Ratio (LDR): Total loans / total deposits. 80–100% is healthy; above 110% signals funding stress. NIM = NII / Average Earning Assets Example: NII €10bn / avg assets €500bn = 2% NIM

BANKS: Credit Quality & Impairments

The early warning system. Credit metrics tell you where losses are hiding. NPL Ratio: Non-Performing Loans / Total Loans. Tier 1 EU banks: 0.5–2%. Above 3% = concern. Coverage Ratio: Loan Loss Provisions / NPLs. Target: 50–100%. Low coverage = future charge. Cost of Risk (CoR): Impairment charges / average loans. 20–50 bps is normal. 150+ bps = stress. IFRS 9 Stage Classification: Stage 1 (performing), Stage 2 (early warning), Stage 3 (defaulted). Migration to Stage 2/3 = future provisions. Critical Interview Trap: IFRS 9 introduced forward-looking provisioning (expected loss) vs. old IAS 39 incurred loss model. Banks must provision earlier now. Overlay management (subjective add-ons) can mask deterioration. Always ask about model overlays and PMO (Post-Model Overlays). Example: Bank A: €100bn loans, 2% NPL ratio, 60% coverage = €1.2bn reserves. If 50% of Stage 2 loans (say €8bn) migrate to Stage 3 next year, potential €400m additional provision hit.