Overview of Financial Risk Management Services

July 2013

Sagacious, LLC

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A wide variety of market forces have increased the financial risk in the system in recent years

• Increased regulatory pressure• Enhanced reporting requirements• The Great Recession• Increased rate and price volatility• Technological change• Increasingly complex financial instruments and strategies• Valuation assumptions• Competitive pressures

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The current regulatory environment adds a further level of uncertainty

• The Dodd Frank Act creates numerous uncertainties which will require effective risk related capabilities in the near future– Reporting requirements will likely increase for many firms that use derivatives– Central clearing of interest rate swaps will create additional aggregation, reporting

and transmission of data requirements– The extent to which the Volker Rule eliminates certain business opportunities is

uncertain

• Certain areas are bound to be affected and will require firms to re-examine and improve their capabilities– Risk measurement and reporting requirements– Capital requirements– Limit structures– Policies and procedures effectiveness and internal reviews– Systems and data aggregation and transmission capabilities

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Senior management is often not fully cognizant of underlying risks and risk management practices

• Is someone betting the company’s future? On what? How often?• What are our current and prospective risks and how can we better

measure, monitor and manage them?• What are the biggest risks to our P&L?• What risk measurement approaches are we using and do they

accurately reflect the underlying risks?• What risk mitigation strategies are in place and how effective are

they?• How comprehensive and effective are our internal controls?• Are responsibilities known and well defined?

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• Risk policies, procedures and reports that accurately measure and reflect the underlying risks

• Comprehensive risk measures across stress and scenario analysis, probabilistic measures and capital at risk to accurately assess the underlying risk profile

• Reasonable valuation assumptions for all pricing and risk measurement models

• Sufficient systems capabilities to manage increasingly complexity financial instruments and strategies

• Up to date risk adjusted performance measurement approaches to better asses risk and return tradeoffs

• An ability to keep up with increasing regulatory pressures

• Adequate reporting capabilities that ensure all levels of management get the correct risk information in a timely fashion

A variety of key capabilities must be in place to effect comprehensive risk management

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To ensure your firm has comprehensive risk management capabilities, you should be certain of capabilities in numerous areas• Risk measures are comprehensive and relevant to the underlying business so

as to reduce the probability of losses from extreme events • Comprehensive risk management policies, procedures and processes that

reduce the probability of errors going unnoticed • A top-down driven Risk Management Process exists that ensures all levels of

management are involved in risk assessment and management • Systems capabilities and interactions that enhance activities and ensure

accurate risk measurement • Compliance with current regulatory initiatives so as to free up capital to do

more business

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In today's volatile environment, these capabilities must be employed in managing risks in several key areas

• Market Risk – volatilities can rise sharply, causing large losses in a very short time

• Credit Risk – counterparty ratings can change very quickly, requiring fast actions regarding collateral valuation and lending

• Operational risk – the ability to complete normal activities in a fast moving environment is critical to ongoing activities

• Systems risk – as prices and market conditions change rapidly, comprehensive systems capabilities help monitor the changing conditions

• Liquidity management – a wide variety of liquidity sources are necessary to ensure smooth running of day to day operations

• Data management – clean, comprehensive data is key to any risk analysis. Garbage in, garbage out

• Contractual agreements – must be verified with all terms understood and agreed upon to enable fast action when required

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Our Risk Management professionals have been helping firms meet these critical risk management objectives for over 25 years

Our experience has enabled our client s to:• Manage regulatory initiatives such as Dodd Frank to continue to excel at their

activities and grow their businesses• Develop comprehensive internal risk management policies, procedures and

reports to measure and monitor financial risk to ensure optimal risk taking• Define key roles and responsibilities for a independent risk management

functions and implement risk management systems to measure and monitor all key risks

• Perform supporting analysis for market, credit and operational risk as well as derivative products related litigation support

• Create and implement risk adjusted performance measures to allocate capital efficiently

• Analyze trading and hedging strategies and value complex instruments• Assess valuation and pricing models

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The FRM Team

Why is our experience valuable to our clients?

We have significant industry experience in areas critical to our clients’ businesses• Fixed income, equity, energy, credit products and derivative products• Risk management experience at large investment and commercial banks• Pricing securities and assessing valuation models

We have broad technical expertise in many functional areas• Risk management• Risk measurement• Risk monitoring• Marketing• Trading• Litigation support analysis

Our significant experience allows us to provide significant value to our clients’ activities

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This wealth of expertise provides benefits to our existing and prospective clients in all relevant areas of their activities

The Sagacious value chain

• Industry experience

• Technical expertise

• Functional experience

• A better understanding of client needs

• An ability to solve client problems

Practical results that go right to your bottom line

Our deep So we can provideGives us

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Our services enables our clients to better manage risks, enhance decision making and increase profitability

• Financial risk identification, assessment and quantification

• Litigation support involving derivatives and other complex instruments/strategies

• Risk-Adjusted Performance Measurement• International treasury strategy services• Treasury and risk management reviews• Risk management systems design and

modeling• Executive risk management information

systems• Regulatory advisory practice• Portfolio analysis, valuation and unwind

recommendations• Due diligence in corporate acquisition• Policy formulation and assessment• Internal audit and control support

• Risk management systems selection and implementation

• Market, liquidity, and credit risk measurement and management techniques

• Risk monitoring and reporting• Litigation support involving derivatives and

other complex instruments/strategies• Risk adjusted performance measurement

and capital allocation• Organizational structure assessment and

redesign• Risk management policies and procedures• Risk limit assessment and management• Internal audit and control support• Industry best practice benchmarking• Valuation of complex models and securities• Review of trading and hedging strategies

CorporationsFinancial Institutions

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• ATT• Ford• Johnson & Johnson• Exxon Mobil• BP• Edison Source• Hercules• Chevron• Valero• Koch• PG&G• Green Mountain Energy• Commerce Energy• Progress Energy

We have successfully provided clients with services that enable them to better manage their ongoing activities

• American Express• AIG• JP Morgan• Banc One• Bank of Boston• Citibank• Deutsche Bank Capital• Fidelity Investments• Goldman Sachs• Federal Home Loan Bank system• Farm Credit Bank system• National Bank of Canada• Natwest• Royal Bank of Scotland• Dresdner Bank• Standish Ayer & Wood

CorporationsFinancial Institutions

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Nick Barcia

A highly experienced enterprise Risk Manager and financial executive, Nick has over 20 years industry and consulting experience managing business, market, credit, financial, operations, systems and energy risk at major institutions. He also has extensive experience in capital markets, fixed income and equity trading, derivative products, Treasury and foreign exchange.

Nick has spent his career in many areas of general finance and risk management. He has extensive experience in implementing comprehensive risk measurement and management functions and capabilities at major investment and commercial banks. A subject matter expert in risk management, capital markets and derivatives, he has also provided litigation support to the SEC and the U.S. Attorney’s Office on trading and securities fraud.

Nick has held senior positions in several major consulting firms, most notably KPMG and Coopers & Lybrand. He was also a partner in NetRisk, a boutique financial consulting firm. In these positions, he was responsible for performing engagements such as implementing market and credit risk measurement and management methodologies across trading desks, risk management system evaluation, selection and implementation, developing capital allocation methodologies and general business and financial issues. Nick has held positions such as head of risk management at a major investment bank, risk manager for foreign exchange and hedge structurer. He has also held senior positions at Merrill Lynch, Kidder Peabody and CIBC.

A Ph.D. in Economics from The City University of New York and Economics and Finance Professor at Baruch College, Nick has lectured on capital markets products and risk management on five continents.

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A highly experienced enterprise Risk Manager and financial executive, Phil has over 20 years industry and consulting experience managing business, market, credit, financial, operations, systems and energy risk at major institutions. He also has extensive experience in capital markets, fixed income and equity trading, derivative products, Treasury and foreign exchange.

Phil has spent his career in many areas of general finance and risk management. He has extensive experience in implementing comprehensive risk measurement and management functions and capabilities at major investment and commercial banks. Phil is a leader in the risk management community. For 10 years he was the Regional Director, New York for PRMIA (Professional Risk Managers International Association) and a Director of the global organization.

Phil has held senior positions in industry and at major consulting firms, most notably Chevron Texaco and KPMG. He was the Global Risk Manager at Chevron Texaco after implementing the global energy risk management policy. Phil managed Energy Trading and Risk Management for KPMG. He was responsible for performing engagements such as implementing market and credit risk measurement and management methodologies across trading desks, risk management system evaluation, selection and implementation, developing capital allocation methodologies and general business and financial issues. Prior to that, Phil was Chevron Texaco’s Foreign Exchange Hedge Manager after working on Wall Street as a FX Trader at UBS and an FX Broker at Tullett and Prebon.

Phil has a BA in Economics from the University of Texas at Austin and did graduate work in Finance and Accounting at Pace University, New York.

Philip Merrill

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For more information on how Sagacious can help you better manage your businesses, please contact:

Philip MerrillPhilip.merrill@BeSagacious.com973 220 5678

Nick Barcia, Ph.D.Nick.Barcia@BeSagacious.com917 607 3425