Giving credit where credit receives its due: An Interview with Marco Suter

RMA Journal, The, March, 2002 by Nicholas Hayes, Beverly Foster

In real estate, it's "location, location, location." At UBS, it's "reputation, reputation, reputation." And effective risk management is a key contributor to maintaining this most valuable asset. UBS AG was created in 1998 following the merger of Union Bank of Switzerland and Swiss Bank Corporation. It is the world's leading provider of private banking services and asset management, globally prominent in investment banking and securities, and the Swiss market leader in corporate and retail banking. The various business lines operate as a group, drawing on one another's strengths to offer customers exceptional service.

As group chief credit officer and member of the Group Managing Board, Marco Suter is responsible for the functional management of the credit risk control departments globally and for formulating credit risk policies, determining methodologies to measure credit risk, and setting and monitoring aggregate portfolio ceilings in response to the Group's tolerance for risk. He exercises personal credit authority with respect to portfolio ceilings as well as for individual transactions and/or counterparties. In concert with the chief credit officers of the business groups, he ensures that the Group's credit risk strategy and policies are effectively communicated, supervised, and controlled throughout the organization.

Suter was in New York in January 2002, in part to participate as one of three chief credit officers serving as panelists at the RMA New York Chapter's most popular meeting each year. Nicholas Hayes, RMA's director of Global Relations, met with him to learn more about the credit risk management environment of UBS.

RMAJ: As Group chief credit officer, you provide policy and oversight to the credit transactions throughout the business lines. Can you give us a more detailed look at your responsibilities and how your background has helped ensure your ability to address them?

MS: My responsibilities cover essentially three areas. The first and most visible is my day-to-day involvement in credit decisions. At UBS, credit authority is delegated to individual, independent credit officers and not to committees. Based on our experience, committees tend to dilute rather than to foster responsibility and accountability. Our Group Executive Board has delegated its full credit authority to me, and I, in turn, have delegated a substantial part of my authority to our divisional chief credit officers. The riskiest and largest transactions, however, still come to my desk.

My second area of responsibility is to ensure that our various portfolios of credit risk are well controlled, that exposures and risks are properly identified and accurately measured, that our business activities are operating within the established risk parameters, and that our risk profile is regularly reported to our Group Executive Board as well as to our Board of Directors. We see risk and return as a pair, and during the budgeting and planning process, risk parameters are defined and approved by the Group Executive Board and the Board of Directors. We use expected loss, statistical risk, and stress loss as the currencies with which we define and control risk.

My third, and possibly most important, task is to manage, as the functional leader, the chief credit officers and their organizations in the business groups and to run efficient staff units at the Corporate Center. Through the Corporate Center units, I ensure that our framework of credit policies is continuously updated and that the business groups adhere to our policies and principles. These departments also focus on credit portfolio models in the widest sense, on risk reporting, and on credit risk data aggregation. We emphasize continuous risk education and reinforcing a firm-wide risk culture, which are particularly challenging and important responsibilities for any organization undergoing organic and acquisitive growth.

I see the key ingredients necessary for my position as experience--I've been in this business for about 25 years; personality--I must be able to do the unpopular thing and say no at times; and recognition that this is not a single person's job--I must be able to recognize my own limitations and know that true success comes from a team approach. The Credit Risk Control Team at UBS comes from a broad academic, business, and cultural background; is very strong; and is, therefore, very well respected. Working with this group of professionals is both highly stimulating and challenging.

RMAJ: Would you say that the UBS commercial banking business strategies are similar to those of large U.S.-based banks?

MS: Swiss banks, similar to most European banks, were never subject to Glass-Steagall, that is, restrictions separating commercial banking from investment banking. So they were never pure commercial banks in the first place. Unlike some of our peers, however, UBS is not positioned as an international commercial bank and has no ambition to become one. UBS really is a commercial and retail bank only in Switzerland, where we have a loan portfolio of approximately $96 billion--about 60% of this portfolio is low-risk home mortgage loans to private individuals. Contrary to the U.S., where a substantial share of home mortgage loans are securitized, the vast majority of home mortgage loans in Switzerland is held by banks, insurance companies, and pension funds.