Credit Portfolio Management: A Practitioner's Guide to the Active Management of Credit Risks

With the banking industry in flux and the credit business at its core, Credit Portfolio Management is a timely and practical guide on how to successfully manage a credit portfolio in light of a challenging market environment and increased regulatory scrutiny.

Structured in line with a credit value chain, Part I deals with the framework in which credit risk is originated and managed. It comprises of three chapters: a brief description of the role that credit risk played in the financial crisis and thereafter; the credit risk strategies which aim at optimizing the risk/return profile of the portfolio under the condition of adequate capital; and finally an introduction to stress tests which support a proactive and forward looking approach to portfolio management by allowing the quantification of improbable but plausible outcomes.

In Part II, conceptual aspects of an Active Credit Portfolio Management (ACPM) are discussed. It ranges from the description of the value proposition to a full credit cycle approach to portfolio management. Since in most organizations a loan transfer pricing scheme underpins the internal role of ACPM to optimize the risk and the return side of credit portfolio, it is given due consideration. Part II also reviews practical aspects of the implementation of ACPM, and dedicates a chapter to the accounting symmetry of credit derivative hedges and loans. It concludes with an overview of regulatory capital relief.

Part III focuses on the back end management of a credit portfolio where corrective actions are usually carried out by use of controversial credit default swaps. Michael provides a non technical, detailed description of CDS as a hedging tool for credit portfolio managers whilst also introducing other hedge instruments such as Loan CDS and sub-participations.

A number of case studies are used throughout the book to illustrate the various topics in a real world setting.

About the Author

Michael Hünseler is Head of Credit Risk Strategies and Analytics at Unicredit Group. Previously, he was Head of Active Credit Portfolio Management at Hypovereinsbank and Head of Credit at Deka Investment. Michael was inducted into the Hall of Fame of the most influential people in credit portfolio management in 2004 and was named Credit Portfolio Manager of the Year 2007 by Risk.