My experience as a credit analyst at Wells Fargo

November 26, 2022 by Aamey MEHTA

My experience as a credit analyst at Wells Fargo

In this article, Aamey MEHTA (ESSEC Business School, Master in Finance, Singapore campus, 2022-2023) shares his experience as a credit analyst at Wells Fargo.

The Company

Wells Fargo is the fourth largest bank in the United States in terms of total assets, with $1.9 trillion AUM. It is headquartered in San Francisco. On February 2, 2018, account fraud by the bank resulted in the Federal Reserve barring Wells Fargo from growing its nearly $2 trillion-asset base any further until the company fixed its internal problems to the satisfaction of the Federal Reserve. In September 2021, Wells Fargo incurred further fines from the United States Justice Department charging fraudulent behavior by the bank against foreign-exchange currency trading customers. Under the leadership of the current CEO Charles W. Scharf the bank is aiming to stabilize and improve the bank’s public image and I was able to witness the transition first hand as well as the CEO’s vision and mission for the company.

I worked in the Subscription Finance Group (SFG) which is under the Corporate and Investment Banking (CIB) department of the organization. The team was newly set up in India to provide support to the main team in the US and UK. This gave me exposure to several different aspects of the business and allowed me to learn a lot.

What is Subscription Finance?

Subscription credit facilities typically take the form of a senior secured revolving credit facility secured by the unfunded capital commitments of the fund’s investors. The facilities are subject to a borrowing base determined based on the value of the pledged commitments of investors satisfying specified eligibility requirements, with advance rates based on the credit quality of the relevant investors.

The purpose of subscription credit facilities is usually to provide liquidity for the fund on a faster basis than calling for capital contributions. Under a credit facility, borrowed funds typically can be made available within a day, while under a typical limited partnership agreement, capital calls may take 10 business days or more.

Logo of Wells Fargo

Source: Wells Fargo.

My Internship

I worked at Wells Fargo full time for 16 months from March 2021 to July 2022 and was mainly involved in the credit risk and analysis of the various clients of the bank (investment funds like hedge funds and real estate funds). Subscription Finance is a niche part of finance which refers to the process by which investors sign up and commit to investing in a financial instrument, prior to the actual closing of the purchase. Wells Fargo lent money to different investment funds. The collateral was the uncalled capital that these funds could draw from their respective investors. Wells Fargo would internally review the investors in each fund and come up with a risk profile for each client. The fees for these loans were LIBOR plus a negotiate premium.

My missions

Part of the team that undertook the task of preparing an Annual Review credit memo for the first time in India as well as teaching 7 new members of the team on how the process is done.
Co-Led the setup and work of the 5-member Deal Structuring Squad which undertook the task of understanding the terms that were included in various credit memos and educating the rest of the 25- member team on what each data point meant and where this information was sourced from.
Led the team that undertook the process of preparing and analyzing the FX Portfolio Overview File every week and established a reporting framework with the US team lead. The team highlighted and resolved 2 key errors that were previously overlooked.
Part of the Portfolio Overview team that undertook the preparation of the daily Portfolio Overview File. The team analyzed the daily reports and highlighted any discrepancies that arose. The reports generated were distributed firm-wide.
Completed Financial Spreading for 46 deals every quarter.

Required skills and knowledge

For the role I needed to have a working knowledge of how credit ratings are relevant during due diligence of a company. I also needed to have basic finance knowledge of how loans are priced and how hedge funds and other investment funds make money. However, the most important skills that were needed were those of ethics and compliance. As we were working with sensitive and private information it was of utmost importance that we were in compliance with the banks guidelines and did not violate any compliance standards.

What I have learnt

My full-time role taught me how hedge funds and large asset managers set up their different funds. It was insightful to learn about the different structures of the various and how they differ across geographies.

Another important learning was how different asset managers have different funds. The funds have different investment strategies such as real estate and each strategy would have different terms and different credit terms to analyze and look at.

There were several soft skills that I learnt too. The biggest one being communication. We were constantly in touch with the team in the US and liaising with them across different time zones to schedule calls and trainings was a new experience for me.

During this job I was also able to significantly improve my excel skills and understanding of several functions. This helped to increase my efficiency at my role and make some files more functional for the organization.

Three key financial concepts

Here are three useful concepts I used during my job at Wells Fargo.

Interest Rate Pricing

During my time working at Wells Fargo, I learnt that LIBOR was no longer the benchmark that was going to be used to determine pricing. The market was transitioning to a new rate called SONIA. SONIA is rate based on the actual overnight rate in active and liquid wholesale cash and derivatives market which makes it more robust and less volatile than LIBOR. The key difference is that LIBOR is forward-looking – it is agreed at the start of an interest period. SONIA is backward-looking – it cannot be determined until the end of an agreed interest period. This means that borrowers will no longer have upfront certainty about the amount of their interest payments and will require the calculations of the interest due at the end of the period.

Sovereign Immunity

Some of the clients of the bank were government backed funds and institutions. For example, a client was Abu Dhabi Investment Council (ADIC), which is the investment arm of the Government of Abu Dhabi and had $829 Billion of AUM as of 2022. These clients had sovereign immunity. Sovereign immunity refers to the fact that government cannot be sued. In the USA this is particularly relevant in the state of Texas. The main learning point was how banks like Wells Fargo treat such special entities, that is to say how it defines the different credit terms for these entities and how it takes into account for the fact that there is no recourse on such loans (due the sovereign immunity of these entities).

Credit Rating

I learnt that the credit rating analysis done by different agencies such as S&P and Moody’s, do not use the same approach. Often the ratings provided by both agencies may vary. The bank used to collate ratings from these two rating agencies for the same entity. Based on the ratings the bank would use an internal credit rating system to provide three different scores across three different categories for the entity. These scores fell into different bands as defined by the bank’s policy. Based on which band they fell into; different terms were offered to the clients and different negotiation was done. For example, a client that had a lower score across the categories would be offered more flexibility and better terms. The credit ratings were also assigned to the various investors of the fund as they were to be used as collateral while availing the loan which resulted in extensive due diligence.

Useful resources

Wells Fargo

S&P Global (rating)

S&P Global (Capital IQ)

Moody’s

About the author

The article was written in November 2022 by Aamey MEHTA (ESSEC Business School, Master in Finance, Singapore campus, 2022-2023).

My experience as a credit analyst at Amundi Asset Management

August 14, 2022 by Jayati WALIA

My experience as a credit analyst at Amundi Asset Management

In this article, Jayati WALIA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) shares her apprenticeship experience as an assistant credit analyst in Amundi which is a leading European asset management firm.

About Amundi

Amundi is a French asset management firm with currently over €2 trillion asset under management (AUM). It ranks among the top 15 asset managers in the world (see Table 1 below). Amundi is a public company quoted on Euronext with the highest market capitalization in Europe among asset management firms (€10.92 billion as of May 20, 2022). Amundi was founded in 2010 following a merger between Crédit Agricole Asset management and Société Générale Asset management.

Table 1. Rank of asset management firms by asset under management (AUM).
Top asset management firms rankings Source: www.advratings.com

Amundi has over 100 million clients (retail, institutional and corporate) and it offers a range of savings and investment solutions, services, advice, and technology in active and passive management, in both traditional and real assets.

Amundi logo Source: Amundi

My apprenticeship

My team at Amundi, Fixed Income Solutions, works in coordination with all the teams of the firm’s global bond management platform. The team’s work revolves majorly around product development on Amundi’s Fixed Income offerings including technological work, generating new investment ideas, and bringing them to clients both institutional and distributors. My position in the team is Assistant Credit Analyst.

Missions

My work primarily involves setting up tools and procedures linked to various investment solutions and portfolios handled by team. The tools are developed through algorithms in programming languages (mainly Python) and their functionalities range from analysis of market signals for investment, pricing of securities, risk monitoring and reporting. I worked on fixed-income portfolio construction and optimization algorithms implementing modern portfolio theory.

My daily responsibilities include report production related to daily fund activity such as monitoring fund balance and calculation of regulatory financial ratios to check for alignment against specific risk constraints. Additionally, I also participate in market research for new investment ideas through analysis of various fixed-income securities and derivatives.

Required skills and knowledge

The work and missions involved in my role require technical knowledge especially programming skills in Python, quantitative modelling and an understanding of financial markets, products and concepts of valuation, various types of risks and financial data analysis. Other behavioral skills such as project management, autonomy and interpersonal communication are also essential.

Three key financial concepts

The following are three key concepts that are used regularly in my work at Amundi:

Credit ratings

Credit ratings are extensively used in fixed income. They reflect the creditworthiness of a borrower entity such as a company or a government, which has issued financial debt instruments like loans and bonds.

Credit risk assessment for companies and governments is generally performed by rating agencies (such as S&P, Moody’s and Fitch) which analyze the internal and external, qualitative and quantitative attributes that drive the economic future of the entity.
Bonds can be grouped into the following categories based on their credit rating:

Investment grade bonds: These bonds are rated Baa3 (by Moody’s) or BBB- (by S&P and Fitch) or higher and have a low rate of default.
Speculative grade bonds: These bonds are rated Ba1 (by Moody’s) or BB+ (by S&P and Fitch) or lower and have a higher rate of default. They are thus riskier than investment grade bonds and issued at a higher yield. Speculative grade bonds are also referred to “high yield” and “junk bonds”.

Often, some bonds are designated “NR” (“not rated”) or “WR” (“withdrawn rating”) if no rating is available for them due to various reasons, such as lack of credible information.

Credit spreads

Credit spread essentially refers to the difference between the yields of a debt instrument (such as corporate bonds) and a benchmark (government or sovereign bond) with similar maturities but contrasting credit ratings. It is measured in basis points and is indictive of the premium of a risky investment over a risk-free one.

Credit spreads can tighten or widen over time depending on economic and market conditions. For instance, times of financial stress cause an increase in credit risk which leads to spread widening. Similarly, when markets rally, and credit risk is low, spreads tighten. Thus, credit spreads are an indicator of current macro-economic and market conditions.

Credit spreads are used by market participants for investment analysis and bond valuations.

Duration and convexity

Bond prices and interest rates share an inverse relationship, i.e., if interest rates go up, bond prices move down and similarly if interest rates go down, bond prices move up. Duration measures this price sensitivity of bonds with respect to interest rates and helps analyze interest-rate risk for bonds. Bonds with higher duration are more sensitive to interest rate changes and hence more volatile. Duration for a zero-coupon bond is equal to its time to maturity.

While duration is linear measure of bond price-interest rates relationship, in real life, the curve of bond prices against interest rates is convex i.e., the duration of the bonds also changes with change in interest-rates. Convexity measures this duration sensitivity of bonds with respect to interest rates.

Useful resources

Amundi

About the author

The article was written in August 2022 by Jayati WALIA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

My professional experience as a Credit Analyst at Société Générale

February 7, 2022 by Louis DETALLE

My professional experience as a Credit Analyst at Société Générale

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) relates his internship at Société Générale as a Credit Analyst.

Source: Wikipedia.

Quick presentation of the bank and its activities

Société Générale is one of the three main French banks and one of the oldest. Created in 1864, Société Générale is famous for both Investment Banking activities and Retail Banking. The business department I was a part of deals with the daily relationship between the bank and its clients whatever they need. That’s what made my internship so interesting because I was able to work on a huge variety of topics.

When was it?

My internship took place between July 2021 and December 2021. So it represented a 6-month internship which is the duration for which students with few professional experiences should aim for. Bear in mind that the longer the internship, the better for the recruiters you will encounter later: a long professional experience shows that you are able to work for a long time and that can be committed.

What were my missions during this internship?

As for what I was asked to do, my job consisted mainly of preparing credit analysis in order to facilitate the approval of the loan request. Indeed, as you may know, banks cannot agree on any credit demand the client asks, they must conduct a close and thorough analysis of the company: its business plan, its strategy, its past and above all, its financial health…

The commercial team I was involved with works hand-in-hand with the clients and cannot necessarily conduct the financial analysis as thoroughly as a person whose main job would be to do so. Therefore, my team would often provide me with some files concerning a company, explaining me what they had been asked to implement by the client and I would work on that topic for 2 or 3 days. Genuinely, I always started with some sector analysis, “has a watershed occurred recently and can it unsettle the client’s business and perhaps its ability to reimburse the credit it is asking for?”, then I had to work on the overall overview of the company, its history, its management, its strategy for the foreseeable future and what have the previous strategies yielded. Last but not least, I was asked to work on the financial analysis of the company that I always divided into 3 parts. First, I would analyze the P&L account and assess the profitability of the company over the past 3 years, “what is the core business?”, “how does the firm produce value?”, “how has the profitability evolved over the past 5 years and why?”… Second, I would check the global equilibrium of the firm balance sheet with a close look at the liabilities part. Hence, I would compute the financial ratios that you will learn in this course and study: 1) have they evolved significantly? 2) compared to other firms from the same sector, how do they look?

Finally, I would work on the cashflow statement which gives a key information to the bankers: the ability of the client to manage its cash and allocate its resources to the different expenditure items.

What skills have I acquired during this internship?

On the hard skills side, I developed strong analytical skills in financial analysis, accountancy and in terms of synthesis. On the soft skills side, I was able to develop my discussion skills through several meetings at C-level. In overall, I think the biggest advantage of my internship was that it helped me understand the functioning of a bank-credit approval.

Why should you be interested in this post?

If you are considering a career in finance, learning about one of your fellow alumni’s first internship in the finance industry can be of excellent help. In addition, you’ll learn what’s to be expected for your first internship, that you cannot skimp on !

Useful resources

Société Générale Website

About the author

The article was written in February 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Credit analyst

June 14, 2021 by Rodolphe CHOLLAT-NAMY

Credit analyst

In this article, Rodolphe CHOLLAT-NAMY (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2023) introduces you to the job of credit analyst.

Within an investment bank, several jobs are directly linked to bonds. Among them is that of credit analyst. What does a credit analyst do? What are the qualities required to be a credit analyst?

The missions of a credit analyst

Within a bank, the role of the credit analyst is to study in depth the financial situation of companies (risk assessment, analysis of strengths and weaknesses, analysis of financial accounts, etc.) in order to determine their solvency.

More concretely, analysts have three main tasks:

Firstly, as mentioned above, analysts conduct in-depth analyses of the financial statements and credit applications of the companies under their responsibility. They keep abreast of their current situation and closely monitor any developments that may affect their debt capacity.

Secondly, analysts provide recommendations related to the analysis and evaluation of the credit risk. If they think that the company is solid, they can for example propose to buy bonds of this company, which would thus constitute a safe investment. On the other hand, if they believe that the risk of default is increasing, they will propose to sell.

Finally, a significant part of analysts’ job is to present their results. This may take the form of a daily summary publication, or a more in-depth quarterly or annual publication. In addition, analysts may have to meet with the bank’s clients, mainly investors, to present their recommendations.

In addition, there may be ancillary tasks. For example, analysts may seek to develop new mathematical and statistical models to improve their understanding of bond risks.

What is the day-to-day life of a credit analyst like?

Analysts’ day starts early, before the financial markets open, so that he has time to brief investors on the latest bond news in the sectors they follow.

After that, their day depends very much on the calendar of the companies he or she follow. During the quarterly publications of these companies, they will spend time reading them and collecting the information contained in them. Similarly, they will attend the various conferences organized by these companies to explain the published results. The rest of the time, they will analyze this information, update their projection models and update their recommendations.

As the end of the semester or the year approaches, credit analysts’ days can become longer because they have to produce a semiannual or annual publication in which their recall the economic context and their recommendations. Following the publication of this, they will often make a tour of their clients to present it. This is known as a roadshow.

The qualities required to be a good credit analyst

Several qualities are necessary to be a good credit analyst.

First of all, credit analysts have strong corporate finance skills. In particular, they have a good understanding of corporate debt and liquidity ratios. The main ratios are: the debt-to-equity ratio which informs on the financial structure of the company, the interest coverage ratio which measures the capacity of a company to pay its interests and the debt-to-EBITDA ratio which measures the capacity of the company to repay its debt with the money generated by its activity.

Secondly, it is imperative to be very rigorous. Indeed, the quality of the analyses depends on the data collected. Analysts cannot afford to make mistakes in the figures they report. To this end, they have recourse to several sources of information: companies’ annual reports, press releases, financial statements, as well as market analyses produced by other players. It is important to note that all this information is public. Indeed, for legal reasons, to avoid insider trading, analysts have limited access to the information.

In addition, analysts must have strong synthesis skills. It is their analysis that investors will buy. It must therefore be as relevant as possible in order to present the best possible guidance. Moreover, the format of these analyses must also be carefully designed. They must be easily understandable by its readers. Analysts must therefore have presentation skills in order to sell them. It is important to take care of the content and the form.

Finally, analysts improve over time. They usually cover a particular sector. For example, he or she will be a specialist in the automotive sector. The better their knowledge of the sector, the more relevant their analysis. To do this, they must be familiar with the general environment of the sector they are following in order to identify future trends. Secondly, they must build up a database of the companies they follow. The more accurate and long-standing the database, the better they will be able to put the new information they collect into perspective.

Useful resources

Rating agencies

S&P

Moody’s

Fitch Rating

About the author

Article written in June 2021 by Rodolphe CHOLLAT-NAMY (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2023).

My experience as a credit analyst at Wells Fargo

The Company

What is Subscription Finance?

My Internship

My missions

Required skills and knowledge

What I have learnt

Three key financial concepts

Interest Rate Pricing

Sovereign Immunity

Credit Rating

Related posts on the SimTrade blog

Useful resources

About the author

My experience as a credit analyst at Amundi Asset Management

About Amundi

My apprenticeship

Missions

Required skills and knowledge

Three key financial concepts

Credit ratings

Credit spreads

Duration and convexity

Related posts on the SimTrade blog

Useful resources

About the author

My professional experience as a Credit Analyst at Société Générale

Quick presentation of the bank and its activities

When was it?

What were my missions during this internship?

What skills have I acquired during this internship?

Why should you be interested in this post?

Related posts on the SimTrade blog

Useful resources

About the author

Credit analyst

The missions of a credit analyst

What is the day-to-day life of a credit analyst like?

The qualities required to be a good credit analyst

Related posts on the SimTrade blog

Useful resources

Rating agencies

About the author