Credit Portfolio Management Old Challenges and New Opportunities Randy Miller Senior Vice President, Global Portfolio Strategies UNCC October 18, 2013.

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Presentation transcript:

Credit Portfolio Management Old Challenges and New Opportunities Randy Miller Senior Vice President, Global Portfolio Strategies UNCC October 18, 2013

Credit Risk Still the Primary Challenge -Longer tenors -Lack of liquidity -Concentrated balance sheets -Systematic and nonsystematic correlations It’s a Competitive Customer Service Business -A relationship business – micro vs macro -My loan is unique -The market (i.e., my competition) made me do it Portfolio Management -The portfolio you are given versus the portfolio you want -Management through the rear view mirror -It’s tough to diversify -Risk appetite versus the business plan Credit Organizations -Business, Finance, and Risk on the same page? -Incentives that support a post-cyclical bias Old CPM Challenges 2

Credit Risk Still the Main Risk -Forward-looking and nimble credit policies and practices -Evaluate for longer horizons at the loan and portfolio levels -Know your primary risk drivers (Client Selection-Structure vs correlation) -Identify emerging risks and returns – Statistics matter, but not always It’s a Competitive Customer Service Business -Have the discipline to adjust or say no. -Segment and price for standardized vs specialized product -A disciplined market leader not a follower Portfolio Management -Manage strategically to the portfolio you want -Forward-looking management -Diversify where possible, but focus on client selection and structure -Know and measure your risk appetite and develop appropriate business plans -Discipline to trade-off additional upside for longer term stability Credit Organizations -Risk appetite and business plan integration -Retail vs wholesale business models -Incentives that support a pre-cyclical bias New Opportunities 3

Credit Risk Still the Main Risk -Multi-year default probabilities -Variability of loss severity -Market-based hedge strategies (single name, portfolio) -Evaluate the basis risk -Emerging risk indicators It’s a Competitive Customer Service Business -Product performance and pricing analysis -Can you compete on price? Price elasticity. Portfolio Management -Multi-year horizon analysis -Scenario-based analysis and stress testing -Contagion risk versus correlation risk -Financial capital, economic capital, and regulatory capital Credit Organizations -Identify key performance measurement metrics -Enterprise analytics – integrated retail and wholesale models -How to tie compensation to metrics? Quantitative Opportunities 4