S&P Global Conference: Another Perspective

16 May 2018

The event started at 8:30 sharp where there was some complimentary drinks, to get to know other professionals attending this event. This in itself was beneficial, in being able to interact with experienced professionals, from Moody’s to Bank of England to university professors.

Initially, Doctor Altman started the talk with a reminder on how long his econometric model (Altman Z-score) has been standing (over 50 years) and how the development of the model occurred. He went on to discuss the multiple misuses of the model he has seen from bankers to rating agencies, and his recommendations for future use. I would say this was the theoretical part of the talk, which will be useful when it comes to implementing what I have learned through my university degree.

Altman highlighted the fact that the world is becoming a more risky place, with rescheduling of debt booming. Banks are becoming even bigger structurally, something that resembles a black box which gets more difficult to control as the depth increases. This can be seen through Altman’s model as the number of defaults is increasing, and less companies are classified as ‘safe’.

Through careful examination of the default rates in 2018 (around 2.4%), we realise the world is in a benign cycle due to the average default rate being closer to 3.4%. He goes on to show how these trends may be worrying when viewing the historical graph of default rates before recessions, which is worrying for risk management. In addition, after a short break guest speakers joined professor Altman, forming a panel to discuss how can firms deal with the increasing risk for their corporations.

Evgueni Ivantsov, the CEO of Credit Suisse, suggested dynamic forecasting and reverse crash tests, with some examples on how to implement such strategies. Mourad Choudry, Professor at the University of Kent, criticised stress tests performed in the UK and said in-depth liquidity forecasting should be another risk mitigating act. The choice of which analysis to go through would depend on the firm’s business strategy and plan, which need to work concurrently with the risk procedures and appetite of the corporation.

This was one of my first professional conferences, and the experience was more rewarding than I have expected. First, getting to discuss real world problems and hearing the analysis from highly-positioned employers, only helps broaden your mind set to tackling issues. Moreover, meeting professor Altman, one of the most well-known figures in the econometrics field, and understanding where the model comes from and how to correctly use it, as students including me have been learning it for years was very beneficial. Delving deep into the opinions on how sustainable and safe the financial world is now in terms of risks serves only to broaden the point of view I have built in my mind.

The speakers gave real life solutions on how companies deal with risk, which puts the student in a position to compare what was studied in the Business School, and professional implementation. It was not only about that; in the end there was ample time for some Q&A’s which brought up extremely interesting topics to get the panels view on, such as the impact of Brexit, the US bond markets and even cryptocurrencies' future. Ultimately, the event was eye opening in many ways, gave the chance to get a glimpse into the real risks financial institutions are facing, and the ways to mitigate them.

Ahmed Ouf, MSc Banking and Risk. Find more information about Santander funding under Opportunities.