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ERM-STATE OF PLAY: INDUSTRY PERSPECTIVE BY HERMAN MULDER, SENIOR EXECUTIVE VICE PRESIDENT CO-HEAD GROUP RISK MANAGEMENT

ERM-STATE OF PLAY: INDUSTRY PERSPECTIVE BY HERMAN MULDER, SENIOR EXECUTIVE VICE PRESIDENT CO-HEAD GROUP RISK MANAGEMENT FOR IADI & DELOITTE SEMINAR ON MANAGING RISK MORE EFFECTIVELY THROUGH ERM - SYSTEM BASEL 28 A pril 2004. ENVIRONMENTAL SCAN: THE MORNING AFTER!.

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ERM-STATE OF PLAY: INDUSTRY PERSPECTIVE BY HERMAN MULDER, SENIOR EXECUTIVE VICE PRESIDENT CO-HEAD GROUP RISK MANAGEMENT

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  1. ERM-STATE OF PLAY: INDUSTRY PERSPECTIVE BY HERMAN MULDER, SENIOR EXECUTIVE VICE PRESIDENT CO-HEAD GROUP RISK MANAGEMENT FOR IADI & DELOITTE SEMINAR ON MANAGING RISK MORE EFFECTIVELY THROUGH ERM - SYSTEM BASEL 28 April 2004

  2. ENVIRONMENTAL SCAN: THE MORNING AFTER! 1. BANKS: RECESSION WELL WITHSTOOD; 2. YET BUSINESS TRUST FACTOR COMPROMISED, 3. RESULTING IN REGULATORY ACTIVITY & ACTIVISM, 4. CAUSING CONFUSION & INCREASED BUSINESS RISK. 5. MULTILATERALISM UNDER PRESSURE, NATIONAL INTERESTS, 6. RESULTING INTO NEW, MORE BALANCED WORLD ORDER; EU, NATO, WTO, UN, IMF, IBRD, ETC.

  3. ENVIRONMENTAL SCAN: THE PARTY ON THE NIGHT BEFORE……….. 1. RECOVERY IN US,GROWTH IN CHINA 2. CONSUMER GROWTH AT LOW INTEREST RATES 3. CORPORATES DELEVERAGING, EM BUILDING UP RESERVES 4. PERCEIVED LOW CREDIT RISKS REFLECTED BY HISTORICALLY TIGHT LOAN-, CDS-, EMBI- SPREADS 5. HIGHLY COMPETITIVE BANKING MARKET: PACE OF THE PLACE 6. CONTINUED DIS-INTERMEDIATION (CDO,CDS, HEDGEFUNDS) 7. ONLY DISSONANT: POLITICS AS DOMINO-FACTOR

  4. ENVIRONMENTAL SCAN: THE NEW MORNING AFTER ? 1. ALL TOO GOOD TO BE SUSTAINABLE; 2. ONLY HIGH HANGING FRUIT IN SOUND, PRE-CONSOLIDATION(?), COMPETITIVE BANKING LANDSCAPE, SO: 3. WORST LOANS MADE IN BEST OF TIMES “ DEAL OF YEAR”, DOG TOMORROW 4. OPERATIONAL-, MARKET-, LIQUIDITY-, INTEREST RATE RISKS INCREASING (SO: STAY LONGER, OR LEAVE THE PARTY TIMELY………: ERM?!)

  5. LEADING BANKS TODAY: 1. B2 PROCESS AS VALUABLE CATALYST FOR DIALOGUE, LEARNING AND IMPLEMENTATION OF IMPROVED RM, EVEN BEYOND A-IRB; 2. RESULTS B2 BY DESIGN NOT BEST PRACTICE; “ FUTURE WORK” TO BE INITIATED IMMEDIATELY AFTER TECHNICAL CONCLUSION (INCL. DIVERSIFICATION); 3. CONVERGENCE BETWEEN EC AND RC AS ONGOING AMBITION, 4. BUT ALSO RECOGNITION FROM PRACTICIONERS THAT RISK MANAGEMENT (AS ART) > CAPITAL MANAGEMENT (AS “SCIENCE”),WITH: 5. ERM-APPROACHES ASPIRING CONVERGENCE

  6. ABN AMRO TODAY: 1. ERM EC PROJECT COMPLETE MID THIS YEAR: 2. EC FOR FOLLOWING CATEGORIES: CREDIT, COUNTRY/ T&C, OPERATIONAL, MARKET, INTEREST RATE, BUSINESS RISKS; 3. PRIMARY PURPOSE: BU CAPITAL ALLOCATION, PERFORMANCE CONTRACT; DIVERSIFICATION BENEFIT TO BU’S ; 4. EC ONLY GUIDELINE/SUPPORTIVE TO RISK MANAGEMENT PROCESSES WHICH ARE BASED ON CLIENT GOOE AND KEY QUALITATIVE FACTORS (KYC, STRUCTURE, DOCS, ETC.) 5. WELL ESTABLISHED GROUP RISK ORGANISATION AND PARALEL APPROVAL PROCESSES: CREDIT-GRC, MARKET-GRC, ALCO, G-ORM, EQUITY UW, ETC. WITH COMMON CFO/CRO CHAIR

  7. CONCLUDING OBSERVATIONS (1) • 1. CURRENT CYCLE CLEARLY PROVES THE POINT, AND LOOKING THROUGH THE CYCLE, INCLUDING THIS ONE, IS ESSENTIAL; • 2. ONLY THE BEST, MOST EFFICIENT, MOST EFFECTIVE WILL SURVIVE; • 3. BUT BANKING REMAINS PEOPLES’ BUSINESS, SO SKILLL-, • LEADERSHIP-, TEAMWORK- FACTORS ARE AT LEAST AS IMPORTANT AS ERM, • 4. FOR WHICH THERE ARE ALSO EXCELLENT ADVISORS, VENDORS,

  8. CONCLUDING OBSERVATIONS (2) 1. ALSO, MARKETS WILL BE SHORT-TERM DOMINATED BY AVERAGE PLAYERS; 2. EP MAY BE KEY DRIVER, BUT REVENUE IS ALSO IMPORTANT THIS YEAR; EP & REVENUE MAY BE KEY THIS YEAR, BUT COMING YEARS’ EV IS IMPORTANT TOO. 3. VERY FEW HAD PREDICTED, EVEN CLOSELY, WHAT HAS HAPPENED IN LAST 6 YEARS; SO LET’S BE HUMBLE FOR COMING ONES! (AND WORK ON OUR SCENARIOS & SYSTEMS & SKILLS)

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