Bill Wiess:
Well, welcome, everyone. I’m glad that I’m the Vice President of awesomeness now. That’s my new title. I was trying to think of a good icebreaker. And then this giant ice podium appeared next to me. So I think maybe I’ll try to ice the panelists here with some good questions. It’s too early for that. Okay. All right, let’s get started with our first question. All right, with 2020 being the year of crisis, and 2022, being what would hopefully be the next normal, most business leaders are calling 2021, the year of transition and strategic planning. So from a credit perspective, what are some of the changes that should be brought to effectively utilize this space and drive long-term success? And I’ll start with Richard, for this question.
Richard Gleed:
Well, thank you, Bill. Yeah, I think that we, you know, to understand what changes we need, I think we have to understand first, as businesses, we’re all in different situations. And I would say, really, it’s important for us to understand, you know, what changes have had for us, you know, also what industry you are in? Because, depending on your industry, it’s going to vary, you know, if you’re reliant on leisure, versus you’re an essential service that’s going to have impacts, you know, also kind of how would another shutdown affect the business? You know, are you prepared to start making those kinds of preparations? Really? How is payment behavior changed for you? Have you been affected or have you pivoted to make changes during the pandemic? So, you know, we really need to get those pieces of information on hand to help us form a strategy going forward. Some of the other things are, you know, where are you in the state of digitalization? You know, have you made steps during this pandemic to have a better-working remote? Have you put yourself in place for like, moving away from traditional payment, things like checks, and enabling more like electronic payments? Have you automated credit policy, things like that? Is your company working remotely effectively? Is that going to continue for the long, you know, long term? And I guess, then, you know, are you going to encounter staffing issues going forward that we’re all experiencing at the moment, really, some of the other things I guess, we want to talk about is, obviously we’re going to go into a bit more depth is how are you managing your risk at the moment? You know, that’s going to be key for us to have success in the future. And I think, you know, once you kind of understand these points, you can understand where your pain points are, to then put a strategy in place to, you know, counter those.
Bill Wiess:
And you mentioned staffing, and that, that’s prevalent everywhere, really right now. So definitely seeing a lot of that. Our favorite Giants fan.
Jason Brodsky:
Yes, go big blue. I’ll echo a lot of what Richard just said, I think 2021 is really the year, not only a transition, but from the conversations. I’m gathering wood, sea level folks, Chief revenue officers, Chief finance officers, Chief Risk Officers, it’s really better understanding what can we do to create efficiencies? I think Richard can get a nail on the head on Raul, you know, stuck in COVID, likely in front of resume. So how can we leverage some of those efficiencies, and as we continue to operate the businesses, and I think those teams are starting to happen, and the focus really comes down to workflow and understanding the measures of risk. So traditionally, folks would look at, you know, credit, financial and operational proficiencies. But now we’re looking at emerging measures, things that we probably didn’t even think about three years ago. You know, things like organizational complexity, legal exposure products, product sales, environmental exposure, social responsibility, and governance effectiveness, or in combination their ESG. If you think of those layers that are coming in, it’s really starting to give thought to the impact of what that does to credit risk. And then ultimately, it comes down to not only ESG, but additional nonconventional layers, cyber risk and cybersecurity has been a big one that a lot of our clients are starting to think about the impact of that. If you start on just on ESG, if you think about where the the rating agency, again, with Moody’s Analytics, not the rating agency, but the rating agency is starting to incorporate that for their credit impact scores to be able to show people the impact of the ES&G variables on a credit rating that’s become really important to help people understand that risk. And then in cybersecurity, we recently partnered with a massive investment in that industry to help understand the impact to losses and the financial impacts to that. I think those are two big ones. But I think in summary, it comes down to you know, what do we learn, and how do we apply that and not just keep going back to her old ways and take these new measurements and apply them to others. risk assessments going forward.
Bill Wiess:
Thank you! Good. Cybersecurity is everywhere, I mean, that’s something that I never would have thought would have been involved in in credit adjudication, but it really is. So all right, excellent. Next, we’re going to have a poll question. So there’s a couple of slides here. The first slide, I’m going to read this question, and then you’re going to see an illustration that shows you how to answer the poll. So what was the primary focus of your department as businesses began to reopen either one, updating my credit policy, two, investing in building a more agile credit function, three, shifting non essential workforce to high priority credit functions, or four investing in risk mitigation through factoring, credit insurance, etc. So now, we should see the instructions if you could advance the slide. And hopefully, we can see the answers as well, we won’t see the answers. All right. I’m going to guess it’s probably three, but we will move on to Oh, you got it. Okay.
Audience (1):
And it keeps getting higher, keeps going up as people are answering.
Bill Wiess:
Even a blind squirrel finds it out sometimes.
Jason Brodsky:
Rapid fire
Audience (1):
It’s actually about 60. It’s about 55%.
Bill Wiess:
Yeah, that’s a good segue into our next question, then if we could advance the slide. Next question. There were certain short-term pivots made in the credit department at the onset of the COVID crisis, like an extension of credit limits and frequent ad hoc reviews for all customers. Do you think any of these pivots should be made permanent? Or are there some that should be reverted? Start with Richard for this one.
Richard Gleed:
I spoke to my credit department about this to get some insight on how they’ve applied these things. I think the first thing they said was that you mentioned the word permanent. And they kind of scoffed at that a little bit. And we’re saying, you know, nothing is permanent, I think we’ve really realized that nothing is permanent, you know, in recent times, you know, they really highlighted that, you know, you really need to be agile and flexible these days, because things are changing day to day, really. So that was their first point. You also mentioned in there like we should, should we continue frequent reviews. I’m obviously quite coming from this background, that frequent reviews have to get kick started during the pandemic, you know, this is just an essential part of good credit management. So they shouldn’t continue, they should have always existed, I guess, this is the point. Really. I also, you know, we, during the pandemic, launched our kind of stay safe program. And this was trying to kind of kickstart these good habits, which was portfolio reviews, and free access to certain services and things like that. So hopefully, we installed some good habits with people. And then when we talk about some of the other pivots, then you know, we made and it’s really like payment, holidays and debt forgiveness, I can’t see how any business really would want those to continue. You know, we all have, you know, our objectives we need to achieve. But, you know, I think you need to do use that on a case by case basis, you need to be able to, you know, maintain your relationships with customers and sending them to collection, you need to look at those each in turn, really, you know, it may be a reputational win to maintain these, but I think to blanketly do that would be you know, is the feedback I’m getting, it’s not to be advice, really. So yeah. And I think for me, it’s really, you need to assess what changes you made. I think some of those good habits, when you said keep on keep those up really, while being vigilant and continue to manage the risk going forward.
Jason Brodsky:
Actually, I’m going to echo a lot of what Richard just said, I’m gonna add a few more layers to that. But I think that the big one that he’d mentioned is periodicity. Other views. If you think if you’re doing it annually, we’re noticing people that are moving to quarterly if you’re doing a quarterly moving to monthly. And I think with the onset of the understanding of how quick the environment can change. You don’t want to be late to that process. Because when you’re late, there’s no time for you to pivot and react. But there’s a couple of things that we’ve noticed about what COVID has done to our environment. Just think about how we work. Just think about how we now all live, how we spend our money, things just changed. If you look at online retailers, years ago, you know a couple years back online retailers compared to brick and mortar. There is a slow shift, and then all of a sudden COVID hits and brick and mortar just shut down. And the impact of brick and mortar was massive. So if you think about your exposure to that, you know, whether it’s Sears or whether it was, you know, Macy’s went through some struggles or Modells, you know, some of these stores don’t exist anymore. It’s pretty wild as you think about that impact. So what we’re starting to see a lot of our clients are looking at, again, going back to the nontraditional measurements, its economic variables. So looking at unemployment, looking at GDP, looking at corporate defaults, you know, looking at HPI, retail sales, how is that impacting your loan exposures, your credit, and really baking that into the process, that’s been a big one that has really come into the corporate exposure, traditionally, that was more on our credit risk side for banks. But now we’re seeing a lot of that more on the corporate side of it, too. Then the other piece, which is a pretty big pivot, is really around a concept of Master Data Management. And I think what that comes down to is one golden source of data. And what that allows you to do is not only from a front line or a sell side, but all the way back to the credit side, if you’re using the same golden source of data to make your decisions, you know, your exposure to supplier, you know, your exposure to not only trade credit, but even you have investments in those suppliers, you know, that exposure going in, and you can manage that risk coming out. And I think we’ve learned just so much over the last 18 months and how to create these efficiencies. There’s the one part I might disagree with Richard on, I think we want to keep it permanent, which is the part where this should be permanent. These changes shouldn’t be temporary. They made us more effective, we should really think about how to better incorporate them.
Bill Wiess:
It’s almost like changing to be more adaptable. So it’s, it’s some permanence there. Yeah, that’s good. I was just kidding. But that was actually a good CounterPoint. All right, if we could advance the slide, we’ll go to our next question. Long term success of any business is closely associated with the customer’s happiness during the current scenario of fluctuating credit risk. How do you think a credit professional should strike the right balance between their customer centricity objectives and the risk of exposure they can allow? And we’ll start with Jason on this one.
Jason Brodsky:
Great. So this is kind of an extension of that last answer I gave, I can almost put a semicolon and continue. If you think about it this way, it’s the expectations from sales to credit, or even think of that life cycle. And as you go through that, it’s really educating everyone on the impact of what’s causing the risk. So once you’re on a level playing field, no pun intended, and you have a pre qualified approach. And you can start automating those approaches. So you all agree on what those metrics are going to be. That allows you to really come to a better decision quicker. But it comes down to just one big word. It’s transparency. You know, it gives you the ability to adapt, if you know what the underlying risks are. If you think of, if you have a borrower who is behind on a payment, or you see that they’re going through liquidation, if you can go through that conversation with them. And you could see that quicker before they default. How do you adapt? What can you do with them so that they don’t default, so that you can both be in a position where it makes sense, and kind of how do you pivot to that, and ultimately react. And if you think about some of those key metrics, you might want to look at as you’re giving thought to how you guys might be doing it. Some of the key variables that we see from our clients that are important, really come down to ownership structure. So if you can understand parent companies, the global ultimate owner, right down to all of their subsidiaries, you can identify where liquidation might be happening and the impact or credit line you might have. With the ultimate owner, that’s been pretty big. His financial strength changes, obviously, following in going back to the junior annual reviews, not sorry, Junior reviews, not annually, but doing the more monthly. So you can see the financial changes in a given company, solvency and liquidity events, as I just mentioned, legal events. That’s a pretty big one, understanding the impact to the organization. And then a new one for us, which has been a pretty hot topic. We’re not new, but it’s a hot topic in sanctions and exposures. Think of everything going on in this world. If you have a global ultimate owner and understand your exposure, you can understand if any one of those director level folks have a sanction or on a Pepsi list, politically exposed person, or basically just don’t you don’t want to be working with that will get you there faster. So once you get to that faster, you can also come up with a better decision around it.
Bill Wiess:
Thank you, Richard.
Richard Gleed:
I think we kind of we can agree the majority of kind of happiness of a customer is coming through really the products you’re offering and, and meeting their requirements, but obviously that also includes good customer service and price, but we can’t take away the kind of the negative effect that a bad credit functional organization could have on that. You know, when speaking with my credit organization, they were saying really it’s not. It’s more about what they are getting right they need to really make sure that cash to order processes running smoothly, you know, chasing somebody for a debt when then they’re actually not they’ve paid the bill, incorrect invoice and they want that to be as smooth as possible they should be, you should not know that they exist really, you know is the best holding until that if everything runs smoothly, they said that’s the most we can contribute towards a happy customer by not annoying them really. Obviously they’re the credit function then is still also there to, you know, give them potentially talk about longer payment terms where possible, talk about higher credit limits and payment holidays. But again, we touched on, I think that they do have to exist, but they have to be on a case by case basis, you do have the opportunity to not make a customer unhappy. But you could also run the risk of over exposing yourselves in some way. So you need to be really careful there. There is obviously a balance between knowing your customers, working to be fair with them on both parties. And really just, you know, allowing flexibility when you can do.
Bill Wiess:
Thank you. All right, we’ve got about four minutes left. If I could ask one question, maybe just have a bullet point quick answer from each of you guys. It’s my favorite question. What are the top Automation features that credit leaders should opt for to enable their teams to make well informed decisions in less time? Richard actually, okay, call him first.
Richard Gleed:
We normally, when we’re asking companies for automation, normally the starting point is automating the credit application process. This enables you to harvest all the data you generally need, or at least improve the speed of getting that data which is needed then to automate your decisions. If we’re short on time, I’ll keep it at that really.
Jason Brodsky:
My answers were very similar. So hopefully not disappointing everyone. But I think this comes down to two big words we keep using:
adapting and pivoting to the environment. Just think about the world, boring right now. Everything is digital and virtual. So how do we understand the tools in front of us and leverage them? And it comes down to automation, and the ability to take automation to get rid of the busy work. I’m not talking about replacing employees, I’m talking about giving them the ability to focus on the work that actually generates better revenue for organizations. So the minutiae of entering in, you know, spreading a particular loan, or taking a financial statement and entering that in or going through and incorporating, you know, some manual processes. If you start to automate all of that, and put that into a system and have a workflow that sits in front of you, I think you get to better decisions faster. But just one more quick thing. Just as we think about well informed decisions, you know, I would also understand how to leverage artificial intelligence, for risk relevancy and credit sentiment. So the example would be like on a Sears, you know, if you were to just go through the internet and search for information on seniors, you might hear about their real estate and their exposure, or sales. But if you use the right solutions, there’s actually artificial intelligence that allows you to do credit sentiment on Sears. And I’ll tell you the negative impact that comes out of those articles. So you can quickly see that before you hear it now from your clients. Now, again, all goes back to automation.
Bill Wiess:
Probably most of its negative on Sears, I would think at this point, at this point, it’s, it’s not that positive. All right, I want to open it up to see if anyone has any questions I can keep asking. But do we have any in the audience? All right, we’ve got a question.
Questioner (1):
What’s your view on giving incentives right now? Whether there are bonuses for programs to come?
Jason Brodsky:
Just to clarify the question, incentives on execution, are incentives on more deals getting done are incentives on making sure that you grab that one first?
Richard Gleed:
Well, I think you know, this is part of really measuring your workflows, you should always have KPIs in place, especially now when we move into more of a remote thing. We need to make sure they’re effective, and you need to make sure they’re motivated. So I would say putting those structures in place to enable them to be successful and rewarding them for that is what makes sense really.
Jason Brodsky:
Yeah, I agree with Richard on this. I think KPIs are important, but it’s also understanding the right metrics. That can be a very slippery slope. If you go down, if you don’t incentivize them properly, you’re gonna get a lot of deals done quicker, that might not be the right deals, and they might just rush through them. So I think it’s monitoring the metrics that you create. But other than that, I agree that incentives in this environment are very important. That’s my opinion.
Bill Wiess:
All right. Well, I know that. We have one more.
Questioner (2):
Yeah. So you know, there’s only two COVID and everything’s really impacted the business. I think we’re all in agreement there. And we had to be very agile in working with our customers by the work agreement there. And so therefore, we had to update our scorecards, credit scorecards, right? But our current credit scorecards are dependent upon credit firms, like Moody’s or whatever, right? You know, that’s the data. So my question is, how up to date and current is the data that we’re getting from credit firms to enable us to empower our credit, scorecards for my working on age data that’s falling, three months, six months older reading it to me, and how much paper is
Bill Wiess:
It’s probably your favorite question, right?
Jason Brodsky:
Yeah, I will preface it with I really like my job. So I’m going to give you a quick disclosure, I work for Moody’s Analytics, not the rating agency. So I can’t speak for them. Although they are the number one client and I can understand the process. I don’t work for them. But I agree, I think there’s a couple factors there. What we’re seeing with our clients is we have different tools and solutions around credit. So obviously, there’s the rating agency that goes through and they review every corporate financial structure, structured finance vehicle, they’re going through and given the credit analysis. So that’s as timely as it can be. But remember what a rating is, it’s a laggard, right, by definition, or rating something had to have occurred or about to occur for it to get there. So by the time you’re reading that, you’re really reading it for the industry benchmark of what’s going on in the world. And understanding what could be coming up next, for your own personal business portfolio, that data is actually updated a little more frequently. So we have various data sources internally, we have models that actually calculate on kind of real time where it incorporates economic variables. So we talked about it earlier, unemployment GDP, the big one is corporate defaults. So if you look at you know, if you guys ever heard of Mark Zandi, he’s on CNBC, probably once every two weeks. He’s taking those data sets, and he’s giving monthly updates to those data sets by local MSAs and local counties. He applied that to our models to be able to show you where an expected default frequency or probability of default can occur. And that’s rapidly changing. So the data we have is pretty good and very active. I will differentiate the data from the rating agency, it is fantastic. A lot more robust. But also you’re looking at one as a benchmark, and one is an underwriting solution. That’s why I do.
Questioner (3):
This is a follow up question to that. Last question will come up from emerging countries. So inflammation just mentioned the importance of cybersecurity? or other continents? During the rainy nights, not?
Jason Brodsky:
Sure.
Bill Wiess:
Quickly on that one, if we could, I think we’re just about time.
Richard Gleed:
Yeah, I think it really depends on each country, some of the emerging markets have really good data quality, and there’s publicly available, some of them less so you know, the whole of the world has different availability, you need to take that into account when you’ll know which country you’re dealing with. And you’ll see that in the actual reports and information provided to you. Some of that’s going to have to be freshly investigated. And some of its going to be very comprehensive to enable you to make your decisions.
Jason Brodsky:
Can I add really quick to that? And I know we’re over time, promise, I’ll be quick. So we’ve spent Moody’s Analytics and Moody’s as an anti spent over $4 billion in the last five years on acquisitions. One of the companies we acquired actually has financial and credit information for over 400 million companies globally. And we’ve mapped all that to the parent company. So it includes all the emerging companies, start emerging countries, but it’s also all that financial statement information that we can actually update and incorporate. So there’s a lot of data that really wraps to it.
Bill Wiess:
I love all the questions. Thank you so much, both of you. And if there are more questions, these guys are gonna be hanging around for a while they’re experts, so feel free to track them down and ask away. Thank you very much.
Jason Brodsky:
Thank you.
