FIG Investment Banking: A Sector Primer Covering Banks, Insurance, and Fintech

You can't value a bank with a DCF. Not in any useful way.

Banks borrow to lend. Their "cost of goods sold" is interest expense. Their assets are loans—which might default. Nothing about them fits the standard corporate finance framework.

This is why FIG (Financial Institutions Group) is considered one of the most technical specialties in investment banking. The companies are complex. The regulations are dense. The valuation methods are different.

It's also a massive sector. Banks, insurance companies, asset managers, fintech—financial institutions represent trillions in market cap and generate consistent deal flow.

This guide covers FIG from the ground up. What the subsectors look like, how valuation differs, and why some bankers love FIG while others avoid it.

---

The FIG Landscape

What FIG Covers

FIG is broad, encompassing most financial services:

Banks:

• Commercial banks (lending focused)
• Investment banks (advisory and capital markets)
• Universal banks (both)
• Regional and community banks
• Specialty lenders

Insurance:

• Life insurance
• Property & casualty (P&C)
• Reinsurance
• Specialty insurance
• Insurance brokers

Asset Management:

• Traditional asset managers
• Alternative asset managers (PE, hedge funds)
• Wealth managers
• Registered investment advisors (RIAs)

Fintech and Specialty Finance:

• Payment processors
• Consumer lenders
• Mortgage companies
• Exchanges and market infrastructure
• Insurtech and other disruptors

Deal Flow

FIG generates consistent M&A and capital markets activity:

M&A drivers:

• Bank consolidation (especially regionals)
• PE activity in insurance and asset management
• Fintech acquisitions by incumbents
• Cross-border deals

Capital markets:

• Bank capital raises (regulatory driven)
• Insurance IPOs and offerings
• Fintech growth equity and IPOs
• Convertible issuances

Restructuring:

• Bank failures and FDIC-assisted deals
• Insurance company reorganizations
• Distressed specialty lenders

---

The Banking Subsector

How Banks Work

Banks borrow money (deposits, debt) and lend it (loans, securities).

The core model:

Interest Income (from loans/securities)
- Interest Expense (on deposits/borrowings)
= Net Interest Income (NII)

+ Fee Income (advisory, trading, servicing)
= Total Revenue

- Operating Expenses
- Provision for Loan Losses
= Pre-Tax Income

Net Interest Margin (NIM): The spread between what banks earn on assets and pay on liabilities. Typically 2-4% for commercial banks.

The Balance Sheet Matters

Unlike corporates, bank balance sheets are the business.

Assets:

• Loans (the core product)
• Securities (investment portfolio)
• Cash and reserves

Liabilities:

• Deposits (checking, savings, CDs)
• Borrowings (wholesale funding)
• Debt

Equity:

• Common equity
• Preferred equity
• Retained earnings

The leverage reality: Banks operate with ~10:1 leverage or more. Small changes in asset quality can wipe out equity.

Regulatory Capital

Banks must maintain minimum capital levels. This is crucial for FIG.

Key ratios:

• CET1 (Common Equity Tier 1): Core capital / Risk-Weighted Assets
• Tier 1 Capital: CET1 + Additional Tier 1 / RWA
• Total Capital: Tier 1 + Tier 2 / RWA
• Leverage Ratio: Tier 1 / Total Assets (not risk-weighted)

Minimum requirements:

• CET1: 4.5% minimum, but most banks hold 10%+
• Additional buffers for systemically important banks

Why it matters for deals:

• Acquisitions consume capital
• Capital levels affect dividend capacity
• Regulatory approval required for M&A

Credit Quality

Asset quality determines bank survival.

Key metrics:

• NPL Ratio: Non-performing loans / Total loans
• NCO Ratio: Net charge-offs / Average loans
• Reserve Coverage: Loan loss reserves / NPLs
• Provision Expense: Addition to reserves in the period

What to watch:

• Trends in delinquencies
• Concentration in risky sectors
• Reserve adequacy
• Historical loss rates

---

The Insurance Subsector

Life Insurance

Life insurers collect premiums and invest them until claims are paid.

The model:

• Collect premiums upfront
• Invest in bonds and other assets
• Pay death benefits decades later
• Profit = Investment returns + mortality gains

Key metrics:

• Premiums written: New business volume
• Embedded value: Present value of future profits
• Book value and adjusted book value
• Return on equity (ROE)

Investment portfolio matters: Life insurers are massive bond investors. Interest rates significantly affect profitability.

Property & Casualty (P&C)

P&C insurers cover property damage, liability, and other risks.

The model:

• Collect premiums
• Pay claims (usually within 1-3 years)
• Invest the "float" in the meantime
• Profit = Underwriting profit + Investment income

Key metrics:

• Combined Ratio: (Loss Ratio + Expense Ratio)
  • Below 100% = Underwriting profit
  • Above 100% = Underwriting loss
• Loss Ratio: Claims / Premiums
• Expense Ratio: Operating costs / Premiums

Underwriting cycles: P&C is cyclical. "Hard markets" have high prices and profits. "Soft markets" have competitive pricing and losses.

Insurance Valuation

Insurance companies use specific valuation approaches:

Book value metrics:

• P/B (Price / Book Value)
• P/TBV (Price / Tangible Book)
• Compare to ROE expectations

Embedded value (life): Present value of future profits from existing policies

Earnings metrics:

• P/E based on operating earnings (excluding realized gains)
• ROE relative to cost of equity

---

Asset Management

The Business Model

Asset managers charge fees to manage money.

Revenue = AUM × Fee Rate

Fee structures vary:

• Traditional equity: 50-75 bps
• Fixed income: 20-40 bps
• Alternatives: 1-2% management + 20% performance

Operating leverage: Most costs are fixed (people, technology). Revenue scales with AUM.

Key Metrics

AUM and flows:

• Total AUM
• Net flows (inflows - outflows)
• Organic growth rate

Profitability:

• Fee rate (revenue / average AUM)
• Operating margin
• Revenue per employee

Client metrics:

• Client retention
• Revenue concentration
• Distribution channels

Valuation

Asset managers are valued on earnings and AUM:

Earnings-based:

• P/E multiples
• EV/EBITDA

AUM-based:

• % of AUM (especially for transactions)
• Varies by business type (alternatives command premium)

What drives multiples:

• Fee stability (alternatives vs. passive)
• Growth profile
• Margin quality
• Client stickiness

---

Fintech

The Landscape

Fintech covers technology-enabled financial services:

Payments:

• Payment processors (Visa, Mastercard)
• Payment facilitators (Stripe, Square)
• Digital wallets

Lending:

• Consumer lenders (SoFi, Upstart)
• Small business lenders
• Buy-now-pay-later

Banking and neobanks:

• Digital banks (Chime, Nubank)
• Banking-as-a-service

Insurance tech:

• Digital insurers (Lemonade, Root)
• Insurance infrastructure

Infrastructure:

• Data providers
• Compliance tech
• Banking infrastructure

Valuation Challenges

Fintech valuation is complicated:

Growth stage companies: Many are unprofitable, requiring revenue-based valuation

Unit economics matter:

• Customer acquisition cost (CAC)
• Lifetime value (LTV)
• Take rate (for payments)
• Net interest margin (for lenders)

Regulatory uncertainty: Business models may face regulatory challenges

Common approaches:

• Revenue multiples (EV/Revenue)
• Comparable companies (public fintech)
• Private market comps (recent funding rounds)

---

FIG Valuation

Why Standard Methods Don't Work

DCF limitations for banks:

• Can't project free cash flow normally
• Interest is operating, not financing
• Balance sheet IS the business
• Regulatory capital constrains distributions

Traditional comparables issues:

• Operating metrics mean different things
• Revenue includes interest (not like product revenue)
• Leverage is the business model

Bank Valuation Methods

Price / Book Value: The most common metric for banks.

• P/B compares market value to accounting equity
• Banks trade at 0.5x to 2.0x+ book depending on quality
• Higher P/B = market believes bank will generate returns above cost of equity

Price / Tangible Book:

• Excludes goodwill and intangibles
• More conservative measure
• Often used for acquisition pricing

Price / Earnings:

• Still relevant but interpreted differently
• Earnings depend heavily on credit cycle
• Normalized earnings matter more than current

Dividend Discount Model:

• Value = PV of future dividends
• Appropriate because distributions are constrained
• Regulatory capital limits affect capacity

Excess Returns Model:

• Value = Book Value + PV of Future Excess Returns
• Excess return = (ROE - Cost of Equity) × Book Value
• More theoretically sound than simple P/B

Insurance Valuation

Life insurance:

• Embedded value (EV) methods
• P/B based on adjusted book value
• Multiple of normalized earnings

P&C insurance:

• P/B most common
• Combined ratio assessment
• Reserve adequacy analysis

The ROE Connection

For all financial institutions, ROE is the key profitability metric.

The framework:

• Cost of equity for banks: ~10-12%
• If ROE > CoE: Bank should trade above book
• If ROE < CoE: Bank should trade below book

P/B = f(ROE, Growth, Risk)

This is why FIG analysis focuses heavily on ROE sustainability and drivers.

---

Deal Considerations

Regulatory Approval

FIG M&A requires regulatory approval that other sectors don't face.

Bank M&A:

• Federal Reserve approval
• OCC, FDIC, or state regulator approval
• Community Reinvestment Act considerations
• Antitrust review

Insurance M&A:

• State insurance commissioner approval (each state)
• Form A filings
• Change of control approvals

Timeline impact: Regulatory approval can add 6-12+ months to deals.

Capital Implications

Acquisitions affect regulatory capital:

Goodwill: Deducted from regulatory capital (bad for ratios)

Synergies: Cost savings improve future earnings and capital generation

Mark-to-market: Acquired assets marked to fair value can affect capital

Stress testing: Regulators assess capital adequacy under stress scenarios

Integration Complexity

FIG integration is notoriously difficult:

Systems integration: Core banking systems are complex and critical

Regulatory compliance: Combined entity must meet all requirements

Culture: Financial services cultures vary significantly

Client retention: Particularly important in wealth and asset management

---

Working in FIG

The Technical Demands

FIG is considered highly technical:

What you need to know:

• Bank accounting (CECL, loan loss reserves)
• Regulatory capital framework (Basel III/IV)
• Insurance accounting (stat vs. GAAP)
• Industry-specific metrics

The learning curve: Steeper than most sectors. Expect 6-12 months to feel comfortable.

The Career Advantages

Deep expertise: FIG knowledge is specialized and valued

Consistent deal flow: Financial institutions always have activity

Exit opportunities:

• Bank corporate development
• Insurance company strategy
• Fintech
• Specialty PE (FIG-focused funds)

The Potential Drawbacks

Narrower exits: Harder to switch to non-FIG roles

Technical burden: Constant learning required

Regulatory complexity: Deals can be slower and more complex

Cyclicality: Bank M&A slows in crisis periods (but restructuring picks up)

---

FIG at Major Banks

Bulge Bracket FIG Teams

Goldman Sachs: Strong franchise across all FIG subsectors

Morgan Stanley: Particularly strong in asset management and wealth

JPMorgan: Leverage bank relationships; strong in insurance

Bank of America: Large FIG practice with bank and insurance strength

Citi: Global FIG coverage, strong internationally

Specialty Players

Keefe, Bruyette & Woods (KBW): FIG specialist, focused exclusively on sector

Piper Sandler: Strong bank M&A practice

Lazard: Insurance and restructuring expertise

---

Key Takeaways

FIG is unlike other sectors in investment banking. The companies are different, the metrics are different, and the valuation approaches are different.

What makes FIG unique:

• Balance sheets ARE the business
• Regulatory capital constrains everything
• Standard valuation methods don't apply
• ROE is the fundamental profitability metric

Core concepts to master:

• Net interest margin and spread banking
• Regulatory capital (CET1, Tier 1, Total Capital)
• Credit quality metrics
• P/B valuation and its ROE connection
• Insurance combined ratios

Career implications:

• Technical and specialized
• Consistent deal flow
• Strong exits within FIG universe
• Steeper learning curve than most sectors

For those who master it, FIG provides a differentiated skill set that's valued in banking, corporate development, and FIG-focused investment firms. The complexity that deters some creates opportunity for others.

That's the trade-off. And for the right person, it's a good one.