FIG, the financial institutions group, covers banks, insurers, asset managers and the speciality finance businesses in between and it carries a reputation as the most technical seat in coverage. The reputation is earned, but for a reason candidates rarely articulate: FIG is the sector where the standard valuation toolkit does not just strain, it breaks and the interview is largely a test of whether you understand why. Understand the why and the whole group opens up from first principles.
Why the toolkit breaks
For a normal company, debt is financing: a way to fund operations that sit apart from it. For a bank, debt is the raw material. Deposits and borrowings are the inputs, loans and securities the outputs and the margin between them is the business itself. That single inversion topples the toolkit domino by domino: enterprise value stops meaning anything, because separating operating value from financing has no sense when financing is the operation; interest stops being a below-the-line cost, because it is revenue and cost of goods at once; EBITDA and free cash flow stop being computable in any useful form; and working capital, as a concept, simply does not apply. This is the exception the site's multiples article flags and being able to derive it, rather than recite it, is the group's first screen.
What replaces it
FIG valuation · the ROE logic in four lines
Banks are valued on equity, not enterprise: price to earnings, price to book, price to tangible book and dividend-based models.
The driver is return on equity against the cost of equity.
The line that scores: a bank earning returns above its cost of equity deserves to trade above book value and one earning below it deserves to trade below. Price to book is simply that comparison, printed.
Corollary: tell me a bank's sustainable ROE and its cost of equity and I can tell you roughly what multiple of book it should command.
That box is the highest-value real estate in a FIG interview. Everything else, the multiples chosen, the models built, the way analysts talk about the sector, is downstream of it.
The bank income statement, in one breath
The other standard probe: walk me through how a bank makes money. The clean version: net interest income, what it earns on loans and securities minus what it pays for deposits and funding; plus fee income, payments, cards, advisory, asset management; minus operating costs; minus provisions, the expected cost of loans going bad; equals profit, earned on a regulated equity base. Two extensions earn marks. Provisions are the P&L's connection to credit risk, so the cycle flows through that line first. And the equity base is not chosen but required: regulators set minimum capital ratios, CET1 chief among them, which is why banks cannot simply lever up returns and why capital, in this sector, is the binding constraint on everything. Rates sit underneath the whole statement, which makes the FIG conversation unusually connected to your live macro view, per the site's market questions article.
The seat, honestly and the interview
The trade-off worth naming in your fit answer: FIG's technical machinery is genuinely different, which makes its juniors specialists early. The compounding is real, deep fluency in a huge, permanently active sector and the specialisation is real too, with exits tilting toward FIG-focused funds, fintech and the sector's own institutions rather than the generalist buy-side map in the exit opportunities article. Choosing the group with that trade-off stated reads as maturity. Expect the interview set to be: why no EV multiples for banks, what drives price to book, the income statement walk, one question connecting rates to bank earnings and the fit question. Every one of them is answerable from this article's two boxes plus your macro anchors and where FIG sits in the division's architecture is in the what-is-IBD map. Having the derivations pressure-tested live, by someone who watched candidates attempt them for fifteen years, is the IBD Recruiting Review.
FAQ
Why can't you use EV/EBITDA to value a bank?
Because debt is a bank's raw material, not its financing: enterprise value, EBITDA and free cash flow lose meaning when the margin between funding and lending is the business itself.
How are banks valued?
On equity: price to earnings, price to book and tangible book and dividend models, driven by return on equity against the cost of equity.
What drives a bank's price to book ratio?
Return on equity against the cost of equity: returns above it deserve a premium to book, returns below it a discount. Price to book is that comparison, printed.
Former Executive Director in TMT Investment Banking at Nomura and M&A banker at BNP Paribas. Top-rated mentor with 300+ sessions. About
