CREDIT PORTFOLIO MANAGEMENT                                                                           

Credit Portfolio Management means actively managing short and long positions in credit risks as a consequence of sound measurement and analysis of the status quo of a portfolio in combination with a clear management strategy. Many banks built-up active credit portfolio management (ACPM) units in the course of the booming years before the recent crisis. Mandates and location of an ACPM unit within a bank can vary and need to be decided in a tailor-made way reflecting the overall business strategy of an institution. The following table is borrowed from our recent book on Active Credit Portfolio Management (see "Books") and provides some thoughts regarding mandates and location of ACPM units. DWH stands for data warehouse and CRM for credit risk measurement.

                                                                                                                                                               

The recent crisis which started in early 2007 as a consequence of the collapse of the subprime mortgage market in the US spoiled many bank's appetite with respect to ACPM initiatives to some extent but I personally believe that ACPM as a key concept is more important than ever. Of course, markets dried-up as a consequence of the crisis and hedging became exorbitantly expensive. Such market developments limit the flexibility of ACPM units. But I do not see any good reason why this should prevent bank's efforts in further developing ACPM concepts for the benefit of a healthy credit portfolio. In addition, it can be taken as guaranteed that markets will come back over time. To be more explicit, I guess that some products which gained high attention before the crisis will not come back in the near future, for instance, multi-leveraged asset-backed securities. But other asset classes like plain vanilla securitizations and various forms of hedging as well as capital efficiency transactions will celebrate a revival soon. Leveraging and structuring will remain to be key disciplines of financial engineering even after a heavy crisis like the current one.