Really need some help here regarding wtf Credit Research actually does at BB’s
I’ve heard a lot of different things from just YouTube searches and this forum. Everything seems to be equity research though. I’ve heard anything from looking at companies applying for loans at the bank to back end sales and trading essentially. Anyone work that job that could help?
Based on the most helpful WSO content, Credit Research at Bulge Bracket (BB) banks primarily involves analyzing and evaluating the creditworthiness of corporate issuers and their issued securities. This role is distinct from Equity Research, which focuses on equities and their market potential. Here's a breakdown of what Credit Research typically entails at BBs:
Credit Analysis: Analysts in Credit Research spend a significant amount of time assessing the financial health and creditworthiness of companies. This involves deep dives into financial statements, industry position, and market trends to understand the risk associated with lending to or investing in these companies.
Issuing Credit Ratings: Part of the role can involve assigning credit ratings to issuers and their debt instruments. These ratings help investors understand the risk level of default associated with the debt issued by companies.
Sector Specialization: Similar to Equity Research, Credit Research analysts often specialize in specific sectors (e.g., TMT, Healthcare, Industrials). This specialization allows them to develop deep industry knowledge and better assess the risks and opportunities within those sectors.
Producing Research Reports: Analysts produce detailed reports that highlight their findings, analyses, and recommendations regarding the creditworthiness of companies or specific debt instruments. These reports are crucial for clients looking to make informed investment decisions.
Supporting Sales and Trading: While not directly involved in sales and trading, Credit Research provides essential support to these teams by offering insights and analyses that inform trading strategies, particularly for fixed income securities.
Client Interaction: Analysts may also interact with institutional clients, providing them with insights and answering queries related to credit investments. This can involve discussing the rationale behind ratings or outlooks on specific sectors or issuers.
It's important to note that while the core focus is on analyzing and evaluating credit risk, the role can vary between BBs and may involve additional responsibilities depending on the bank's structure and the specific team's focus.
Sources: Credit Risk at BB, Q&A: Credit hedge fund analyst at MF, former BB trader, Credit Rating Agency vs Credit Risk at a BB, Q&A: Equity Research Associate Laid Off, BB Ops Vs Big4 Consulting Vs Credit Research
So there are a couple things credit research could mean - so you always need to clarify.
First, which is what I think you are referring to, is the credit research arm of the research division (typical the same division that does equity research, economic research and commodity research). Think of these guys as doing a similar job as equity analysts in terms of analyzing a business, but applying it to a company's debt stack. So for example, an equity analyst might say "buy xyz stock" whereby the credit analyst recommends clients "short the 2024 bonds" (i.e. taking an opposite view if you will of the value of the credit vs. the equity). They may also align. Really depends. The credit analyst's job, similar to the equity analyst's job is to decide where there might be mispriced securities within a companies cap stack (of course the equity analyst is limited to usually just the common stock of the business whereby the credit analyst might recommend people to buy the 1L term loan and short the bonds, or buy the long dated bonds, or buy the short dated bonds or buy CDS (credit default swaps) on an issuer etc. etc.... some capital structures have 30+ issuances of bonds and term loans, so there is a lot of analysis that goes into which security may be mispriced). These credit analyst's will likely publish their research (like the equity, economic and commodity guys), and will also typically advise the trading floor on positioning (if the bank has no desk analysts). Exit ops are typically to long / short hedge funds, long only credit funds, and some are even making the transition to private credit.
Second definition of credit analyst could mean a desk analyst. Take everything we said above, but just assume their client is really just the internal trading desk. This is like a mini-internal hedge fund role. They are doing research on potential positions for the bank to overweight/underweight (of course, limited by regulatory constraints), and pitching them to the traders on the desk. These guys will also talk to outside investors on the buy side as well, but at the end of the day they dont typically publish their findings and are usually working in favor of the desk. Exit ops are typically to long / short hedge funds, long only credit funds.
Another potential definition could be within a bank's asset management division where folks are doing the buy side credit work of some of the stuff mentioned above. This would be the exit ops for most people.
The final definition that sometimes gets lumped into credit research, is the credit risk group, which is quite different from the rest. This is your traditional middle office role focused on minimizing risk the best they can to the balance sheet of the bank. This is typically more of a transaction based role, whereas the above examples are more focused on the public markets opportunities. Credit risk has some similar skill sets to credit research, but of course, is viewed as the red headed step child of the bank because their job is essentially to act as a gatekeeper to lev fin bankers trying to jam shit deals through the bank that could get stuck on the balance sheet. People can exit to decent roles out of here, but you really need to be the diamond in the rough as most folks are comfortable developing next to no skill set in this role and become a useless pass through for banks. That's a generality from people I've overlapped from, but that doesn't mean there aren't great people within these groups. Typical exits may be risk roles at buy side shops, portfolio management roles at buy side shops, CLO investment teams, long only investment teams and sometimes even private credit investing teams as well.
Hopefully this helps.
Thank you so much for taking the time to right all this out it honestly helped so much. From my understanding my role would be essentially the first one, thank you again!
Can I PM you?
Sure
Nice write up. Trading desks are mostly putting client trades or own?
This is somewhat of the gray area that exists. In theory, they are supposed to execute only on client trades. That being said, if a trader can defend a position as one that he "thought a client might want in the future", he can put on trades here and there. Before '08, traders were prop investors first, market executors second. Now it's flipped, market executors first, prop investors second.
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