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Should Treasury be a profit center and how should the financial result be distributed? Marcel Burtscher
Should Treasury be a profit center and how should the financial result be distributed?
Marcel Burtscher
Agenda
What are the goals of Treasury?
What are possible operating models?
What are the right KPIs?
Should the financial result of Treasury be allocated?
Interactive part
What are the goals of the Treasury function?
Are goals of the bank and Treasury
strictly aligned?
Which conflict of interest exists?
How are they (not) reflected in the
KPI system?
FundingLiquidity
IRRBB FTP
Balance Sheet
Management
Capital
Risk taking
Profit budgets
What are the goals of the Treasury function?
What are possible operating models?
Soft Profit center
(through the cycle)
No profit intended /
AdvisoryCost centerProfit center
Business model?
Steering implications? Granularity and complexity of FTP? KPI system?
Allocation?
What are possible operating models?
Can most of the
market risk be
hedged?
Does the risk appetite allow significant market
risk?
Do you accept the
market risk?
Business model?
Income driven
TreasuryReactive Hedging
Pricing / Steering /
Optimization
No profit (neutral
result) intended
Soft profit center
(through the cycle)
Allocation
Granularity and complexity of FTP
Mandate of Treasury and KPI
yes
no
yes no
no
yes
Soft profit center
(through the cycle)
The Treasury NII contribution
What are the right KPIs?
Segment PnL Bank PnL
Risk appetite
and -limits
Qualitative/
project goals Business model
Strategic goals
Clear mandate
Incentivization
of behavior
Stakeholder
interaction
Risk/behavioral
Modeling
Product
innovation
Funding cost
Should the financial result of Treasury be allocated?
Operating model
Motivation for allocation
Allocation basis and -mechanism
Implications
Performance assessment
Example
Treasury segment result
YTD 2018; in monetary units
Revenues interest
Interest rate risk gapping 100
Liquidity risk gapping 50
Optionality premiums (net of
realized effects) 30
Valuation result -20
Gross income 160
OPEX -20
Net profit before tax 140
Equity cost -30
Risk adjusted profit before tax 110
Assets Liabities avg. RW RWA
Corporate 100 30 80% 80
SME 20 80 40% 8
Retail 120 150 60% 72
Private Banking 10 70 50% 5
FI 20 15 100% 20
Capital Markets 60 20 100% 60
Treasury 50 15 15% 8
380 380 245
Balance sheet RWA
Example
11
46
5
41
311
34
SME
RWA
Corporate Retail Capital MarketsPrivate Banking FI Treasury
42
8
51
4 8
25
TreasuryPrivate BankingRetailSMECorporate Capital MarketsFI
Assets0
200
-40 -3 -5 -3-5
30
Corporate
0-20 15
SME Capital MarketsRetail
-3025
Private Banking
-8
5
-2
TreasuryFI
0 0
155
-2
Maturitytransformation
Optionality0
-2OPEX
-8 -2
0-20
1
2
3
Interactive part
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