Bank One Cites Strong Risk Control As Key Factor Behind Q3 Profits

CHICAGO--Bank One Corporation's $1.05 billion profit for the third quarter of this year proves the strength of its risk management operations, says Verne Istock, chairman of the board of Bank One. The $1.05 billion figure represents the combined profits of Bank One and First Chicago NBD, which officially merged to form Bank One Corporation on October 2.

Istock says Bank One's third quarter profits demonstrate the bank's "disciplined risk management and a focus on improving operating efficiency". Bank One isn't a heavy player in emerging markets or unregulated investment vehicles, he adds, and sub-prime lending is not a targeted segment. The bulk of its income stems from fees on loans and credit cards, reports the bank.

An executive risk management committee determines the risk/return profile of Bank One and approves all strategies and major policies, says Istock.

Market risk policy and review is led by Garret Glass, while financial services policy and review is headed by Elaine Malley-Snider. Both report to Richard Wade, Bank One's head of risk management, who in turn reports to Istock. Wade, Glass and Malley-Snider were members of First Chicago's market risk management group prior to the merger, says a Bank One spokesperson.

Credit risk

Credit risk managers include: Sarah McClelland, head of commercial group credit policy; Don Sadlowski, head of credit review; and Britt Swofford, who oversees the bank's international and country risk policy. McClelland, Sadlowski and Swofford also report to Wade. They too held similar roles at First Chicago prior to the merger, says the bank spokesperson.

The only member of Bank One's old risk management group with a leading risk role at the merged bank is Doug Steltz, responsible for portfolio analysis and review. Portfolio risks examined at the bank include on-balance sheet and off-balance sheet credit risk, market risk, operating risk, fiduciary risk and liquidity risk, adds Istock.

Technology remit

Identification, assessment and monitoring of risk is looked after by Bank One's corporate risk management department. This group is also responsible for maintaining risk management technology, says Istock.

Mike Lindbergh has been named as Bank One's head of risk technology. The bank spokesperson says the risk technological platform of the merged bank will be based on software from Summit Systems, the New York-based risk systems vendor.

Bank One recently went live with Summit Systems as its derivatives trading and risk management system (Derivatives & Risk Technology, April 27).

At the time of the Summit deployment, the bank was using internally developed systems for VAR calculations and credit risk management. Officials said they considering replacing these home-grown systems with Summit. Bank One also uses Targa, a derivatives analytics system developed by Park City, Utah-based Theoretics (D&RT, March 2).

First Chicago also uses Summit as part of its market and credit risk systems infrastructure. The bank's risk management methodologies include VAR calculation, static gap analysis, earnings sensitivity modelling, and modelling of current and potential credit risk exposures (RMO, April 20).

Industry observers note that First Chicago has a history of actively promoting its risk management skills within the financial services industry.

Advisory service

The bank created a forex and derivatives risk advisory service some two years ago, targeted at corporate clients (RMO, August 26, 1996). The unit is run by Fred Stambaugh from the bank's London office.

Last year, First Chicago formed a joint venture with Tokio Marine and Fire Insurance to offer risk management advice and products to clients in Asia (RMO, December 15, 1997).

First Chicago has also been a key player in industry-wide initiatives to reduce foreign exchange settlement risk. Garret Glass was former chairman, Multinet International, the multilateral netting service that is now part of CLS Services (RMO, April 22, 1996). Glass is now a member of CLS's board of directors.

Earlier this month, First Chicago launched a back office outsourcing service dubbed Global Trading Operations (RMO, October 19). Services offered by GTO include forex trade confirmation, settlement, profit/loss accounts, nostro accounts reconciliation, limit monitoring, reporting query resolution and brokerage.

-- Adriana Saraceni