2005 Annual Report Julius Baer Holding Ltd. - GAM Holding AG

Notes
Comment on risk management
1. Risk management framework and process
Risk is defined as a deviation from an expected outcome.
Risk management is a business enabler and
therefore a key focus of the management process of
the Julius Baer Group. The Group is exposed to various
risks, resulting in the following risk landscape:
– Strategic and business risks
– Credit risks
– Market risks (trading book)
– Liquidity and financing risks
(including market risk banking book)
– Operational risks (including legal risks,
compliance and personnel risks)
– Reputational risks
The Board of Directors defines and regularly reviews
an appropriate risk policy to effectively manage
the risks of the Group and to determine suitable
processes and instruments. The Board of Directors
is assisted by its Risk Committee.
The overall responsibility for the implementation of
the Group’s risk management lies with the Group
Executive Board. It is assisted by its Risk Committee
of the Executive Board (RCEB) and the following
Group functions:
– Group Risk Management (GRM) for the management
and controlling of credit risks, market risks
(trading book), liquidity and financing risks (especially
banking book) and of operational risks
(excluding legal risks and compliance)
– Group Legal Management (GLM) for the management
and controlling of legal risks and compliance
These functions establish appropriate risk guidelines
and directives, coordinate and contribute directly to
the risk management of the divisions and ensure
independent risk controlling. The main responsibility
for risk management, however, lies with the divisions.
82 JULIUS BAER GROUP
All risks are mapped to a ‘risk landscape’ featuring
the probability of occurrence and the potential
impact and are managed by the divisions. The risk
landscape is also used for the yearly strategic planning
process by the divisions, the Group Executive
Board and the Board of Directors.
2. Strategic and business risks
Strategic and business risks are managed and controlled
by the divisions, the Group Executive Board
and the Board of Directors. Following the principles
of value- and risk-oriented management and controlling,
an annual strategic check-up is carried out to
determine the necessary strategic and structural
projects and adjustments. After the analysis of the
mid-term financial and risk-relevant implications,
implementation is then initiated through a rolling 3year
planning cycle, and then in the annual budgets
accordingly.
This process provides the basis for active and efficient
financial, capital and risk management. The various
controlling processes and tools – such as
monthly comparison of the actual results with the
budget or rolling forecasts – allow an analysis of the
sensitivity of the Group’s earnings to various scenarios.