FIG: Financial Institutions Group in Banking

What Is the Financial Institutions Group

The Financial Institutions Group, commonly called FIG, is a specialized industry coverage group within investment banking that advises financial services companies. Unlike generalist groups that work across industries, FIG bankers develop deep expertise in the unique characteristics of banks, insurance companies, asset managers, and other financial firms.

FIG stands apart from other coverage groups because financial institutions are fundamentally different from industrial or technology companies. Banks and insurers have balance sheets that dwarf their income statements, face extensive regulatory oversight, and create value through managing risk rather than manufacturing products. These differences require specialized analytical frameworks that FIG bankers master.

Understanding FIG matters for candidates interested in the group and for anyone preparing for investment banking interviews where industry knowledge questions may arise. Even if you target a different coverage group, knowing how FIG operates demonstrates breadth of knowledge about the banking industry.

Client Base and Sub-Sectors

FIG serves a diverse range of financial services companies, each with distinct business models and advisory needs.

Banks and Depositories

Commercial banks, regional banks, and credit unions form a core FIG client base. These institutions gather deposits, make loans, and generate income from the spread between what they pay depositors and what they charge borrowers. Bank advisory work includes merger transactions, capital raises, and strategic alternatives analysis.

Bank M&A has produced some of the largest transactions in financial services history. When BB&T and SunTrust merged in 2019 to form Truist, the $66 billion deal created the sixth largest US bank. FIG bankers advise on these transformational combinations that reshape the competitive landscape.

Insurance Companies

Life insurers, property and casualty insurers, and reinsurers represent another major FIG client segment. Insurance companies collect premiums, invest the proceeds, and pay claims when covered events occur. Understanding insurance accounting and reserve methodologies is essential for advising these clients.

Insurance M&A often involves complex valuation considerations around policy liabilities and investment portfolios. The Chubb acquisition of ACE in 2016 for $29.5 billion demonstrated how large these transactions can become and the sophistication required to evaluate combined insurance operations.

Asset Managers

Investment managers, mutual fund companies, private equity firms, and hedge funds fall within FIG coverage. These firms earn fees for managing client assets, with business models driven by assets under management and investment performance.

Asset management M&A has accelerated as firms seek scale to compete on fees and distribution. When Franklin Resources acquired Legg Mason in 2020 for $4.5 billion, the deal created one of the largest independent asset managers globally.

Specialty Finance

Non-bank lenders, consumer finance companies, mortgage originators, and fintech firms represent the specialty finance sub-sector. These companies often focus on specific lending niches or leverage technology to compete with traditional banks.

Specialty finance attracts significant private equity interest, and FIG bankers frequently advise on LBO transactions involving these businesses.

Financial Sponsors

FIG teams often maintain dedicated coverage of private equity firms, hedge funds, and other alternative asset managers as clients themselves. This coverage focuses on GP stake transactions, fund financing, and strategic advisory for the investment firms rather than their portfolio companies.

Unique Deal Characteristics

FIG transactions differ meaningfully from deals in other sectors due to regulatory complexity and the nature of financial company assets.

Regulatory Considerations

Financial institutions face extensive regulatory oversight that directly impacts M&A transactions. Bank mergers require approval from multiple regulators including the Federal Reserve, OCC, FDIC, and state banking authorities. Insurance combinations need state insurance commissioner approvals.

These regulatory processes add months to transaction timelines and create deal risk that does not exist in other industries. FIG bankers must understand regulatory frameworks and maintain relationships with regulators to navigate approval processes successfully.

Community Reinvestment Act compliance, deposit concentration limits, and systemic risk considerations all factor into bank M&A analysis. Understanding these constraints helps FIG teams advise clients on deal feasibility before committing resources to transactions that regulators might block.

Valuation Methodology Differences

Standard valuation approaches require significant modification for financial institutions. Banks and insurers typically trade on price to book value and price to tangible book value rather than enterprise value multiples common in other industries.

DCF analysis works differently for financials because distinguishing operating cash flows from financing cash flows proves nearly impossible when lending is the core business. Excess capital models and dividend discount approaches substitute for traditional free cash flow methodologies.

Understanding how different valuation multiples apply to financial institutions versus industrial companies demonstrates sophistication that interviewers value.

Capital and Regulatory Ratios

Bank transactions require analysis of regulatory capital impacts that do not exist in other sectors. Common Equity Tier 1 ratios, leverage ratios, and liquidity coverage ratios all constrain what combined institutions can do post-merger.

Deal structures must account for capital treatment of goodwill and intangibles, which receive harsh treatment under bank capital rules. FIG bankers analyze how transactions affect combined entity capital ratios and whether regulatory minimums can be maintained.

Insurance transactions similarly require analysis of statutory capital adequacy and risk-based capital ratios that determine how much business insurers can write.

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Day-to-Day Work in FIG

FIG analysts and associates perform similar functions to other coverage groups but apply specialized methodologies to their analysis.

Financial Modeling

FIG modeling emphasizes balance sheet analysis rather than income statement projection. Bank models focus on loan growth, deposit trends, net interest margin dynamics, and credit loss provisions. Insurance models project premium growth, loss ratios, combined ratios, and investment income.

Merger models in FIG incorporate regulatory capital analysis alongside standard accretion/dilution calculations. Understanding how goodwill creation affects capital ratios adds complexity beyond typical M&A modeling.

Client Coverage

FIG bankers maintain relationships with CFOs, treasurers, and heads of corporate development at financial institutions. These relationships generate deal flow when clients consider strategic transactions or need capital markets advice.

Senior FIG bankers often develop regulatory relationships as well, understanding how specific regulators approach transactions and what concerns they prioritize during approval processes.

Transaction Execution

Deal execution in FIG involves coordinating with regulatory counsel, managing extended approval timelines, and addressing regulatory feedback throughout the process. The regulatory component adds workstreams that do not exist in other coverage groups.

Due diligence for financial institutions emphasizes credit quality analysis, reserve adequacy, and regulatory compliance rather than the operational and commercial focus common in industrial transactions.

Skills and Background for FIG

Succeeding in FIG requires foundational investment banking skills plus specialized knowledge of financial services.

Technical Requirements

Understanding bank and insurance accounting represents the most critical technical requirement. Bank accounting involves unique treatments for loan loss reserves, held-to-maturity versus available-for-sale securities, and interest income recognition. Insurance accounting includes policy liability reserving, deferred acquisition costs, and embedded value concepts.

Credit analysis skills matter more in FIG than other groups because loan portfolios represent the primary asset for bank clients. Understanding credit quality trends, loss given default assumptions, and reserve methodologies helps FIG bankers evaluate bank transactions.

Regulatory capital frameworks including Basel III requirements and insurance risk-based capital rules require dedicated study. These frameworks determine how much capital financial institutions must hold and constrain strategic options.

Background Considerations

Candidates with finance, accounting, or economics backgrounds naturally fit FIG because understanding financial statements and markets is central to the work. Actuarial backgrounds can provide advantages for insurance coverage given the quantitative nature of reserve analysis.

Some FIG teams recruit candidates with regulatory experience who understand approval processes from the inside. Former bank examiners or insurance department staff bring perspective that pure banking backgrounds lack.

Career Development

FIG offers career paths into financial services operating roles that other coverage groups cannot match. Former FIG bankers frequently move to corporate development or treasury roles at banks and insurers, leveraging their industry expertise.

Exit opportunities to private equity exist, particularly with firms that specialize in financial services investments. Understanding PE exit strategies helps FIG bankers advise on transactions where financial sponsors are involved.

Current Trends in FIG

Several themes currently shape FIG advisory work and deal flow.

Bank Consolidation

The US banking industry remains fragmented with thousands of community and regional banks that may consolidate over time. Regulatory burden and technology investment requirements create scale advantages that drive smaller institutions toward mergers.

Interest rate volatility and deposit competition have accelerated consolidation discussions as banks seek scale to manage margin pressure. FIG teams actively advise on these combinations.

Insurance Industry Evolution

Insurtech disruption and distribution changes are reshaping insurance industry structure. Traditional insurers face pressure to modernize technology platforms and customer interfaces, sometimes through acquisition of technology-enabled competitors.

Climate risk and changing loss patterns affect property and casualty insurer profitability, potentially driving strategic repositioning and M&A activity.

Asset Management Consolidation

Fee pressure and passive investing growth continue driving asset management consolidation. Firms seek scale to spread fixed costs across larger asset bases and compete for distribution relationships.

Alternative asset managers have grown significantly and now represent substantial market capitalizations that enable larger acquisitions and public market transactions.

Fintech Integration

Traditional financial institutions increasingly acquire or invest in fintech companies to access technology and talent. These transactions often involve FIG bankers given their financial services expertise, even when targets are technology companies.

Fintech valuations and business model assessments require blending technology sector knowledge with financial institution understanding.

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Interview Preparation for FIG

Candidates targeting FIG roles should prepare for both standard investment banking questions and industry-specific technical topics.

Common FIG Technical Questions

Interviewers frequently test understanding of financial institution fundamentals:

"Walk me through how a bank generates income" requires explaining net interest income from lending spreads plus fee income from services, with profitability driven by efficiency ratios and credit costs.

"How would you value a bank" should cover price to book and price to tangible book multiples, comparable transactions analysis, and limitations of DCF for financial institutions.

"What happens to regulatory capital in a bank merger" tests understanding of goodwill creation, capital treatment of intangibles, and pro forma capital ratio analysis.

Demonstrating Industry Interest

Showing genuine interest in financial services helps candidates stand out. Following bank earnings calls, understanding current regulatory debates, and knowing recent FIG transactions demonstrates commitment beyond generic investment banking interest.

Reading financial institution annual reports and understanding business model differences across sub-sectors shows preparation that interviewers notice.

Addressing Why FIG

Be prepared to explain specifically why FIG interests you rather than other coverage groups. Strong answers might reference intellectual interest in financial institution business models, relevant academic coursework or experience, or long-term career goals in financial services.

Avoid generic answers about deal size or prestige that could apply to any group. Why investment banking answers should have FIG-specific elements when interviewing for these roles.

Key Takeaways

Conclusion

The Financial Institutions Group represents one of the most technically demanding coverage areas within investment banking. The complexity of financial institution business models, regulatory frameworks, and valuation approaches creates barriers to entry that reward specialists with deep expertise.

For candidates interested in financial services, FIG provides unmatched exposure to the industry and preparation for operating roles at banks, insurers, and asset managers. Even for those targeting other coverage groups, understanding FIG demonstrates breadth of knowledge that interviewers value.

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