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Morgan Private
Bank: Risk Management
during the Financial
Crisis 2008 - 2009
Group 1:
Rodrigo Arstegui
Gabriela Ashcallay
Giancarlo Carbajal
Katya Vilcahuamn

Table of Contents

1. JP Morgan Private Bank information

Invesment Model
Risk Management Challenges
2. The Global Access Portfolios
Risk Management
The New Risk tool
3. Risk Lessons from the Financial Crisis
4. Questions

JP Morgan Private Bank
Background Risk Management
Invesment Model
information Challenges

The most successful global The had a managed Products passed a rigorous
private banking businesses. architecture: Morgan Funds and process with high marks.
Award winner of service and externally managed fund Products used in client portfolios
innovation. products. were consistent with the goals
Wealth Management: Capital Requirement: Due diligence on agreed upon between the firm
preservation, capital growth both products (internal and and client.
and liquidity. external). 3 goals: (a) Strengthen the
Bankers were problem solvers. Banker function: Consider all traditional compliance-oriented,
Client segmentation: ultra-high clients needs and what the firm (b) governing process and
net worth and high net worth might offer to help to satisfy support for the risk culture, and
them. (c) review of the operational risks.
The Global Access Portfolios

Risk Management The New Risk tool

Traditional tools to measure the market risk

Global Access risk oversight operated in embedded in client portfolio were
two teams: unsatisfactory.
a. Independent oversight: Responsible for Value at risk (VaR) had its limits, and the
risk management oversight across all the estimated loss was based on historical data.
investment activities. The New Risk tool consider eleven market
b. Risk management as a business partner: factors.
keep the portfolio managers honest and Team members speak the same language when
fine tune what they should sell and buy. it came to risks and returns.
Understand how changes in these views could
impact the sensitivity of their portfolios.
Risk Lessons from the Financial Crisis
New level of attention across the financial The power of liquidity
system. Staying dynamic
First Issue: enhancing the ongoing Sticking the view
assessment of the credit quality. Lessons Effective risk management is
Second Issue: improving the ability to gain not only as sustained risk aware
access to any collateral. culture, but also continuous
Final Issue: understand the extent to which investment in appropriate
fund managers. resources including people,
Clients are partners in the decision process. technology and solutions.

Moved to a very defensive position, Was not convinced that the

significantly reducing its allocation to market had reached a bottom
2008 equities and raising cash. 2009 Tip toe back into the market
Had not foreseen the perilous through a combination:
condition of the financial system and Downside-protected trades.
the extreme moves in the markets. Quickly taking gains and
The stresses in the market were likely cutting losses.
to worsen. 5

1. How successful do you think Morgans Private
Bank was in managing its risks during 20082009?
The strategy that the company used was really successful because of the following:
1. Had another model to analyse the market: A model of eleven factors that maintain the neccesary
information available, allowing them to make sure the portfolios were in synch with their views of the
macro environment.
2. Had a new level of attention across the financial system, they thought about their clients.
3. Had a different view, that is essential when it comes to risks. The company was focused on risk awareness
4. Moved to a very defensive position, significantly reducing its allocation to equities and raising cash.
5. Predicted that the stresses in the market was about to get worse.
6. Continued staying dinamic and sticking to their view.
7. The effective risk management: investing in appropriate resources including people, technology and

2. What was "risk management" at Morgans Private Bank?
Was it different for Erdoes, Regan, Madigan, and
Zhikharev? How?
Erdoes Regan Madigan Zhikharev

Risk managers Development of a Having a view is Invesment process:

belong to the market-oriented risk essential, where do Built around
management function. we think we are optimizing risk
table. Responsibility of heading? Budget utilization.
The problem is the managers is to Wanted risk Keep portfolios in
unknown crisis. manage the risks managers as alignment with the
People that think and returns. strategic partners. board.
about the what ifs. Have a common Proposed the new Proposed the new
Understand as language for risk. risk tool with eleven risk tool with the
much about a Have a mechanism factors. eleven factors in
clients business and for decision making Cutting risk happnes order to keep
their personal processes. in several stages, so everybody honest.
needs. Being prepared does adding it risk. 3 lessons: power of
Clients are partners and continuing to The trick is liquidity, staying
in the decision plan what could go balancing the art dynamic and
process. wrong. and science in the sticking to the view.
3. Which type of risk management provided more
value for Morgans Private Bank and why?

4. Putting yourself in Mary Erdoes shoes, what would have
concerned you about risk management at the Private
Bank? What would you have done about your concerns?
Should have top management declared embedded risk
managers (like Georgiy Zhikharev) part of the portfolio
management team?

5. How did the embedded risk managers contribute
to the Global Access team and its work during the
financial crisis?

6. Is Morgans Private Banks risk management
model sustainable/applicable elsewhere?