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Gerry Dorkin, Executive Director, J.P. Morgan November 2009 COUNTERPARTY RISK MANAGEMENT IN AN EVOLVING MARKETPLACE.

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Presentation on theme: "Gerry Dorkin, Executive Director, J.P. Morgan November 2009 COUNTERPARTY RISK MANAGEMENT IN AN EVOLVING MARKETPLACE."— Presentation transcript:

1 Gerry Dorkin, Executive Director, J.P. Morgan November 2009 COUNTERPARTY RISK MANAGEMENT IN AN EVOLVING MARKETPLACE

2 This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered including such client’s subsidiaries, (the “Company”) in order to assist the Company in evaluating, on a preliminary basis, certain products or services that may be provided by J.P. Morgan. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. It may not be copied, published or used, in whole or in part, for any purpose other than as expressly authorised by J.P. Morgan. The statements in this presentation are confidential and proprietary to J.P. Morgan and are not intended to be legally binding. Neither J.P. Morgan nor any of its directors, officers, employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in, or discussed as a result of, this document. J.P. Morgan makes no representations as to the legal, regulatory, tax or accounting implications of the matters referred to in this presentation. IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. J.P. Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank, N.A. and its subsidiaries worldwide. In the United Kingdom, JPMorgan Chase Bank, N.A., London branch and J.P. Morgan Europe Limited are authorised and regulated by the Financial Services Authority JPMorgan Chase is licensed under US patent numbers 5, 910,988, and 6, 032 and 137 ©2006 JPMorgan Chase & Co. All rights reserved.

3 Agenda How does J.P. Morgan manage counterparty risk? Group sessions How do you manage counterparty risk? What are your priorities? What are your biggest challenges? What is the right model? Review of findings

4 How does J.P. Morgan manage Counterparty Risk? Understanding the financial strength of banks… Two-pronged approach: Analysis of the Fundamentals (Quantitative) Overlay the Qualitative

5 How does J.P. Morgan manage Counterparty Risk? Analysis of the Fundamentals (Quantitative) Capital Assets Management Equity Liabilities and Liquidity

6 How does J.P. Morgan manage Counterparty Risk? Overlay the Qualitative: Diversity of earning streams Track record External Ratings Market Perception

7 How does J.P. Morgan manage Counterparty Risk? An evolving marketplace… Temporary support programmes rolling off: TARP TAGP Liquidity Fund Guarantees Government Ownership Increased regulatory oversight FSA liquidity requirements for banks Does your risk management strategy still make sense?

8 Sustaining liquidity management through the cycle How does J.P. Morgan manage Counterparty Risk?

9 The layers of credit risk: Counterparty concentration Core financial services provider choice; credit profile; core provider risk etc. Relationship strength; depth of understanding your business Regular assessment of counterparty risk profiles and comparison against risk preferences Opportunities to optimise cash held, classify appropriately, or invest and diversify to mitigate concentration risk Instrument type; fit to liquidity needs Changes to structure, risk profile or return profile Transparency of holdings Review assets against risk criteria: ―Cash accounts and time deposits ―money market mutual funds ―reverse repos ―direct securities investments Review other criteria e.g. jurisdiction Holdings and collateral; next level analysis Support, experience, track record and access Clear and complete investment policy ―ongoing inspection ―type, level and frequency of disclosure ―triggers for escalation or review Understand & Manage Risk Instrument choice and legal behaviour Investment quality - support and service quality Understand & Manage Risk Understand & Manage Risk How does J.P. Morgan manage Counterparty Risk?

10 Operating model: Effective and sustainable liquidity management requires a balance between: Capital Preservation Liquidity / Availability of Funds Convenience & Cost Return / Performance In addition, the balance must be achieved in compliance with the investment risk and currency risk management policies Management oversight and reporting are additional over-heads which must be organised to be efficient if practice is to be maintained long term Liquidity Management is not a ‘fair-weather activity’ or a ‘knee-jerk reaction’. It is a fundamental part of business

11 How does J.P. Morgan manage Counterparty Risk? In practice… COUNTERPARTY X

12 Group Session

13 Review of Findings


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