Now the Ball is in the Hands of the Credit Rating Agencies


The capital increase and the purchase of the shares by the Federal Government of the Federal Republic of Germany stabilize the company and make it appear less likely that it will run into difficulties. The credit rating agencies must therefore check whether the outlook must remain negative or whether it can even be turned positive. The company’s crisis was caused by political decisions – and can also be averted by political decisions.

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Local Supply Real Estate in Great Demand – But How to Invest?


A Berlin rating agency is dealing with the far-reaching change in the use of retail real estate: “The local supply sector is one of the winners. Investors appreciate its independence from economic cycles. There are still challenges – sustainability is one of them,” says the research of the Scope Fund Analysis.

Scope sees the reason for the structural change in the retail segment in the growing importance of e-commerce. “Real estate prices in this type of use have been falling for several years and are currently back at the level of 2016. The Covid 19 crisis has accelerated this trend.”

The agency is now investigating the different market behavior in the sub-segments. In principle, the following applies: “The systemically relevant local supply has separated itself from systemically irrelevant retail concepts. Especially in comparison to the textile retail trade, in which insolvencies are currently increasing, the food retail trade has recently developed well. Since many local supply companies are considered to be comparatively creditworthy and non-cyclical tenants, real estate with a focus on local supply – also due to their often long-term leases – have become significantly more attractive to investors. This has not changed in view of the current challenges. The consequences are rising prices for local supply properties such as retail parks.”

Nevertheless, according to the Scope analysts’ warning, local suppliers are also subject to change: “Not least from a sustainability perspective, issues such as organic food, regional products and animal welfare have increasingly come into focus. To what extent people’s consumer behavior is now changing again due to the high inflation will change will soon become apparent, since real losses in purchasing power will take place.”

The topic of ESG is becoming increasingly important for properties and food retailers, not least against the background of the energy crisis. According to Scope, many companies are trying to supply their properties with green electricity – often already produced with solar roof systems – because greenhouse gas emissions have been high so far. “The issue of waste and recycling also plays a major role in this segment. So there are enough tasks in this context and potential for optimization.”

“Both open and closed real estate vehicles are available to investors with a focus on the local supply segment. Scope currently has five investment vehicles for private investors: two closed and three open real estate funds. Another product has been announced.” What follows in the agency’s report of September 20, 2022 is a listing of funds such as “Dr. Peters Immobilienportfolio Deutschland I”.

The quoted report entitled “Nahversorgung – Stein der Weisen im Bereich Einzelhandel?” (i.e. “Local Supply – Philosopher’s Stone in Retail?”) does not contain any indication that interested investors not only have access to these vehicles for indirect investment in retail real estate – quite apart from direct investments. In Germany, for example, listed companies that are fully committed to investing in retail real estate have developed extremely well.

Shareholders of DEFAMA Deutsche Fachmarkt AG benefit from the many years of real estate, retail and capital market experience as well as the large network of the team at this company, which attaches great importance to lean cost structures and a clear strategy, a balanced mix of tenants and a solid financing basis. The DEFAMA share is traded in the m:access of the Munich Stock Exchange as well as on XETRA and in Frankfurt.

In addition, there is the special instrument of the listed REIT to invest in retail real estate. Deutsche Konsum REIT-AG invests sustainably in retail properties for everyday needs in established shopping locations away from the major cities. This strategy aims to achieve attractive, economically stable and income tax-exempt returns and distribute them as dividends. The company’s shares are listed in the Prime Standard of the German Stock Exchange.

New funds, new top ratings


An impressive 135 portfolios were rated for the first time by the Berlin rating agency Scope, 40 percent of which received a top rating straight away. The rating agency’s analysts were also impressed by many funds with a longer rating history, such as a bond heavyweight from Pimco and an infrastructure stock fund from DWS.

After more than five years, the PIMCO GIS Global Bond has again received an (A) rating in the peer group “Bonds Global Currencies”. Fund manager Andre Balls and his co-managers have particularly benefited from the high flexibility of the approach, which they have implemented profitably. In addition to government bonds and quasi-government paper, higher-yielding investments such as securitisations, emerging market and corporate bonds are also included. Despite high running costs of 1.39% p.a., the fund was able to outperform the peer group over all periods under review. At 2.0% and 3.8% p.a. over three and five years, it was well ahead of the peer group average of 0.1% and 1.3% p.a. At the same time, the maximum loss and the volatility of the fund increased over five years the percentages -6.9% and 6.6% versus -6.5% and 4.6% in the peer group.

The fund for global infrastructure stocks DWS Invest Global Infrastructure receives the top rating (A) for the first time. This result is based in particular on the very good performance in a peer group comparison. The portfolio is divided into shares in infrastructure companies from the four areas of transport, energy, water and communication. In terms of sectors, the portfolio is dominated by utilities with 40.4% and energy companies with 23.1%. Over three and five years, the fund was able to convince with growth of 10.8% and 9.5% p.a. compared to the peer group “Aktien Infrastructure” with 6.7% and 6.5% p.a. The key risk figures, on the other hand, were mixed. The five-year volatility was 13.8%, above the peer group average of 12.6%, but the maximum loss was lower at -18.5% compared to -20.7%.

After more than three years with a top rating, the fund for investment grade corporate bonds MS INVF Euro Corporate Bond is currently only in the middle of its peer group with a (C) rating. In particular, the short-term performance weakness of the fund, which was -11.1% behind the peer group at -10.2% over the year, led to the downgrade. Over three and five years, the performance of -2.6% and -0.6% p.a. is still slightly above the peer group average of -2.7% and -0.7% p.a. It lost due to the fund’s overall increased risk profile more than its peer group in the current downturn. Over five years, the fund’s maximum loss and volatility were -13.7% and -6.1%, respectively, while the peer group averaged -12.4% and 5.4%.

In July, almost all fund peer groups benefited from the market recovery. Of the 50 largest peer groups, 48 ​​were up. The exceptions were last month’s gainers, China equity funds and China A-share funds, falling -6.2% and -4.4% respectively. The weak China performance also had an impact on the peer group equities Asia ex Japan, which was only slightly up 0.4%. Investors in North American stocks, on the other hand, were pleased about double-digit monthly gains: Here, the peer groups North American stocks mid/small caps and North American stocks gained 12.5% ​​and 10.8%, respectively. The peer groups Equities Ecology with 12.5%, Equities Technology with 12.4% and Equities World Mid/Small Caps with 10.0% also developed excellently.

A “Security” That Loses 20% in a Single Day


Around 20% fall in the stock market in a single day – that’s the report for Samhallsbyggnadsbolaget I Norden AB Class B shares today, Thursday, July 14, 2022. Stocks with such loss potential can hardly promise the security to warrant an investment grade rating for the investment company holding those stocks.

“Scope affirm’s Ilija Batljan Invest AB’s issuer rating at BBB-/Stable”, this is what a Berlin rating agency called “Scope Ratings” wrote on May 4, 2022 about Ilija Batljan‘s investment company, Ilija Batljan Invest AB (IB Invest for short).

The risks were repeatedly warned of, but the rating agency persisted in maintaining an investment-grade rating.

Scope Ratings’ Weak Reasoning

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Incline Downwards


It came as it had to come – there is news about this rating, reported today: The credit rating agency S&P Global Ratings today announced that they are confirming Samhällsbyggnadsbolaget i Norden AB (publ)’s investment grade rating BBB- and outlook has been updated to negative from stable. SBB has BBB-rating with positive outlook from Fitch Ratings and BBB rating with stable outlook from Scope Ratings.

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Scope Relies on Political Intervention

Governance, Reviews

“Uniper withdraws its 2022 financial outlook amid Russian gas supply restrictions” – That’s the title of an action-free press release from a Berlin rating agency, called Scope Ratings, today: “This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on”

Scope had placed Uniper’s BBB+ rating under review for possible downgrade on March 14, 2022. However, five days after Uniper announced the most recent bad news, the rating agency still lacks the strength to decide on a downgrade. The uncertainty factors are well known to the rating agency: “The company [i.e. Uniper] is examining how to secure its liquidity, and it has entered into discussions with the German government on possible stabilisation measures.”

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What is the balance sheet about?

Regulations, Repairs

Ilija Batljan, CEO and Founder of Samhällsbyggnadsbolaget i Norden AB, fights for the reputation of his group.

RATING EVIDENCE has had several occasions to report on this entrepreneur and his company on this and another website, and RATING©REPAIR is the name of the virtual repair shop as a B2B service, a brand name and trademark of RATING EVIDENCE GmbH.

Viceroy claims that Samhällsbyggnadsbolaget i Norden AB (publ) (SBB) has SEK 14bn liabilities outside of its balance sheet, “which is incorrect and misleading”, this is how the suspected comments on these allegations. “The SEK 14bn of acquired debt is included in the balance sheet and there are no other liabilities outside of the balance sheet. All liabilities including liabilities in acquired companies have been confirmed by audit statements from banks and audited by EY.”

What is the quality of referring to the auditing firm Ernst & Young (EY)? The circumstances at some of the EY companies have already been reported in various blog posts. Involvement in various other scandals and a Berlin credit rating agency played a role in these reports. The rating agency, whose long-time chairman of the supervisory board was also chairman of the EY supervisory board, issued the “good” credit ratings that are so important to Ilija Batjan’s activities. To date, there has been no news from the rating agency on the case.

“To clarify note 26 in the annual report in relation to the claims from Viceroy, the purpose of the note is to clarify that the debt does not have a direct impact on the cash flow statement but has been added indirectly through the acquisition of a subsidiary. For acquired subsidiaries, SBB applies the industry standard, where acquired subsidiaries are reported on their respective rows in the cash flow statement instead of making a net reporting of all items as a single item”, that’s the argument at SBB.

In the cash flow statement, SBB has chosen to present the acquisition of properties gross. This gives rise to the following argument:

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Formerly BB, Now Under Supervisor’s Scrutiny

Repairs, Reviews

“Because the bonds purchased by the Adler Group no longer meet the requirements of the ECB, the central bank has now thrown them out of its portfolio in a move that caused a stir”, that is what the Börsen-Zeitung writes today.

Only rating reports from S&P Global Ratings are available on the Adler website, the latest reports uploaded by ADLER Real Estate AG are from September 2018.

Back in May 31, 2021 Moody’s Investors Service had withdrawn the Ba2 long-term corporate family rating (CFR), the Not Prime (NP) short-term issuer rating and the Ba2 rating of ADLER Group S.A.‘s 1.5% fixed rate senior unsecured Euronotes due in 2024. Moody’s has also withdrawn the stable outlook. Moody’s has decided to withdraw the ratings for its own business reasons and wrote: “ADLER Group S.A. is one of the largest residential landlords and property developers in Germany. The company owns almost 70,000 residential units and a €11.4 billion real estate portfolio.”

A Berlin rating agency wrote on October 15, 2021:

“Scope Ratings GmbH (Scope) has today downgraded the corporate issuer rating on German real estate company Adler Real Estate AG to BB- from BB and its senior unsecured debt rating to BB from BB+. The Outlook has been revised to Negative. The Ratings and Outlook have also been withdrawn for commercial reasons, as future capital market debt issuance will take place at the Adler Group S.A. level and there is no longer a need for a rating on Adler Real Estate AG.”

With a decision dated June 17, 2022, the Federal Financial Supervisory Authority ordered an audit of the approved consolidated financial statements as of the December 31, 2021 reporting date and the combined management report for the 2021 financial year of ADLER Real Estate Aktiengesellschaft in accordance with Section 107 (1) sentence 1 WpHG.

The reasons for the order are, firstly, indications that relationships and business transactions from this year or earlier years with related persons or companies within the meaning of International Accounting Standard (IAS) 24 may not have been fully and correctly recorded and presented in the group accounting; and secondly, the negative opinion of the group auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, for the consolidated financial statements as of December 31, 2021 and the combined management report for the 2021 financial year.

The balance sheet control audits in relation to the financial statements and management reports for 2020 and 2019 of ADLER Real Estate Aktiengesellschaft are still ongoing.

Investor concerns about the real estate group Adler Group SA are now being underscored by a sale of securities that is a rarity. The European Central Bank has sold a bond issued by the company, which it once bought as part of its corporate bond-buying programme.

““The Adler bond in question no longer fulfills the Eurosystem collateral framework eligibility criteria and is therefore no longer CSPP-eligible,” central bank spokesman William Lelieveldt told Bloomberg, referring to the ECB’s corporate sector purchase program. According to Lelieveldt, the decision to sell is in line with the legal framework for the bond purchases. After that, the ECB could sell bonds if they lose central bank eligibility, but doesn’t have to.

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Unfair, Camouflaged Advertising

Advertising, Regulations

It is a judgment with relevance for the rating industry, namely the judgment of the Frankfurt am Main Higher Regional Court on unfair camouflaged advertising when considering paid product reviews within the overall rating result of a product.

If the overall evaluation result for products offered on a sales platform also includes reviews for which the reviewer is paid a fee, albeit a small one, this constitutes unfair disguised advertising if the consideration of these paid reviews is not indicated.

With its decision announced June 9, 2022, the Frankfurt am Main Higher Regional Court (OLG) has confirmed the cease-and-desist obligation imposed by the regional court.

  • The plaintiff offers the paid mediation of customer reviews on the Internet. The plaintiff’s customers are exclusively dealers on online sales platforms.
  • The defendant operates the sales platform

The products are rated there using an overall star rating system.

The defendant also provides its sales partners with customer reviews for a fee as part of the so-called Early Reviewer Program (current version: ERP). These are reviews by foreign reviewers for a fee or vouchers for products that were previously purchased on the US, UK or Japan marketplace. These ratings are also displayed to German buyers and are included in the overall rating result.

The plaintiff objects to the publication of ERP reviews if they become part of the overall rating result and it is not pointed out that the reviews were paid for and how many of these reviews are part of the overall rating result.

The defendant’s appeal against the cease-and-desist obligation pronounced by the regional court was unsuccessful before the OLG. The Higher Regional Court confirmed that there was unfair, camouflaged advertising.

Publishing ERP reviews without indicating that the reviews were paid for and how many reviews are part of the overall rating is unfair. The fact that these ERP reviews were taken into account – and therefore not their share either – was not indicated by the defendant and also does not result from the circumstances.

Whether Internet users expect that reviews that are not factually justified will always be included in an overall rating result can remain open. In any case, this should not “be a license to use influenced reviews,” the Higher Regional Court clarified.

The consideration of ERP reviews also has business relevance here:

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It Happened the Way it Had To

Actions, Assets, Repairs

The news is not entirely unexpected, as this company became a case for RATING©REPAIR some time ago (see here). Samhällsbyggnadsbolaget i Norden AB (publ) (SBB) is now taking measures to prevent the credit rating from slipping after all.

Now the company is selling two properties in Norrtälje for an agreed property value of approximately SEK 150 million to the real estate company Genova. The properties that are sold are mixed properties containing a practical high school and light industry / warehouse. The properties have an estimated net operating income of approximately SEK 7.2 million, says the company, the average remaining contract period is approximately 4.3 years.

“Our main focus is to achieve a higher credit rating and this sale of non-core holdings in line with book values ​​further contributes to our opportunities to strengthen the balance sheet,” says Oscar Lekander, Vice President and Chief Operating Officer, Samhällsbyggnadsbolaget i Norden AB.

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Fund Managers’ Greatest Difficulty in Accessing High Quality Data


Fund managers’ difficulties in obtaining reliable data for fixed income investments offers plenty of scope for even more services from the leading credit rating agencies.

New research with fund managers in North America who collectively manage around $600 billion, reveals they are placing a growing emphasis on both the quality of the data used in their investment processes and on having access to the technological capabilities to efficiently process data. Six out of ten (60%) believe this is crucial to achieving above-average returns in the future.

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Arguments for a More Stable Outlook

Compliances, Outlooks

GRENKE AG, a global financing partner for small and medium-sized enterprises, generated net profit of EUR 20.5 million in the first quarter of 2022 (Q1 2021: EUR 14.0 million), corresponding to an increase of 46.8% compared to the first quarter of 2021. However, it is questionable whether this and the company’s results presented below are sufficient to change the negative outlook, which was determined by both rating agencies, to a stable outlook or even a positive outlook.

Standard & Poor’s BBB+ / A-2 negative, December 2021

GBB Rating A- / – negative July 2021

The compliance history, which had led to great uncertainty, still weighs heavily on the company. In particular, the confidence of the minority shareholders must be secured.

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To Say Goodbye to Russia, There Is Still an AAA


A Russian rating agency is avoiding the issue of banks withdrawing from Russia.

The Russian Analytical Credit Rating Agency ACRA affirms the AAA(RU) credit rating to SEB BANK JSC with a stable outlook: “The credit rating of SEB Bank JSC is based on the very high likelihood of extraordinary support from the parent company. SEB Bank’s standalone creditworthiness assessment (SCA) stems from its strong capital position, adequate risk profile and liquidity and funding assessments, and its adequate business profile.”

ACRA recognizes SEB Bank as one of the hundred largest Russian banks: “The Bank is wholly owned by its parent bank, which is the parent company of one of the largest financial groups in Europe (hereinafter, the Group, the Supporting Entity, or the SE). The Bank offers comprehensive services and lending to Russian subsidiaries of clients of the Group, whose parent companies are located in Sweden, Finland, Norway, Germany and other Western European countries. The Bank also operates in the interbank and foreign exchange markets.”

SEB continuously focuses on improving the Group’s rating, since a high rating over time implies lower funding costs and more business opportunities in the international capital markets. “SEB is rated by Fitch, Moody’s and S&P Global. Moody’s also rates SEB’s covered bonds”, writes SEB on its website. The following table shows the current rating of SEB as shown on

 Fitch RatingsMoody’s Investors ServiceS&P Global
Stand-alone ratingaa- (viability rating)a3 (baseline credit assessment)A
Issuer credit rating
AT1 instrumentsBBB+Baa3 (hyb) 
T2 subordinated debtABaa1BBB+
Senior non-preferred debtAA-A3 (junior senior)A- (senior subord)
Senior unsecured debtAAAa3A+
Counterparty ratingAA(dcr)Aa2/Prime-1AA-
Counterparty risk assessment Aa2(cr)-Prime-1(cr) 

There are other credit rating agencies providing credit ratings for SEB, which are currently ignored in this table provided by SEB, such as Scope Ratings. Scope rates SEB on a subscription basis. Likewise, the credit ratings of the Russian rating agency ACRA, which concern the subsidiary in Russia, are not reported.

SEB in Russia

“We provide our home market corporate banking and financial institution clients with a wide range of services from our offices in Moscow and St. Petersburg” writes SEB on its group website ( But: “Under the current conditions it is not viable for SEB to maintain operations in Russia, and SEB has therefore started scaling these down. This will be done in a responsible and orderly manner and in accordance with regulatory and legal obligations.”

Key assumptions in ACRA’s reasoning for a AAA credit rating are:

  • The current ownership structure and operational control by the Supporting Entity remaining unchanged;
  • The Bank maintaining the current business model, and its operational performance and loan portfolio quality remaining unchanged.

At best, the ACRA report makes this subtle reference to the bank’s intention to discontinue its business in Russia:

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Securitization Rating Agency of the Year


The embarrassment for European credit rating agencies is certain even before the voting has started.

US Securitzation Awards 2022 – voting now live!” This is the call from GlobalCapital, inviting market participants to vote for the best rating agency when it comes to securitization. This is the choice:

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New Political and Economic Burdens Ignored


Scope affirms Ilija Batljan Invest AB’s issuer rating at BBB-/Stable. This news must come as a surprise given the current economic and political challenges that have meanwhile added to the factors that already made an “investment grade” rating seem questionable last year.

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S&P Global Ratings and Moody’s Investors Service Both Are Feeling the Lack of Issuance Activity


S&P Global Ratings reported a revenue decrease of 15% to $868 million in the first quarter of 2022. Transaction revenue decreased 31% to $404 million. Transaction revenue was negatively impacted by a year-over-year decrease in debt issuance across all categories, but particularly within high-yield, which decreased approximately 68% year-over-year. Non-transaction revenue increased 7% to $464 million due to growth in annual fees, and in CRISIL revenue.

Revenue for Moody’s Investors Service in the first quarter of 2022 was $827 million, down 20% from the prior-year period, as geopolitical concerns, rising yields and elevated market uncertainty adversely affected issuance in all asset classes. Foreign currency translation unfavorably impacted MIS revenue by 1%.

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Never Trust Google for Credit Ratings


At first glance, it all seems like a nasty publicity ploy to lure unsuspecting savers to the website of an investment broker who wants to broker savings at risky banks.

However, a closer look reveals that the provider in question does everything possible to provide correct information about the credit ratings issued by recognized credit rating agencies.

According to the EU Regulation on Credit Rating Agencies, providers of credit ratings must be registered with the European Securities and Markets Authority (ESMA).

Click to enlarge the image!

When in Germany and using a desktop browser, type into Google’s search engine the words “Advanzia Bank Rating“. You will get the following results, as shown in the screenshot enclosed.

Google Translator translates this information above, which a user of the search engine receives in German language, as follows:

“However, the situation is not completely hopeless, because there are indicators such as the rating, deposit insurance and the coverage ratio, which we want to take a closer look at for Advanzia Bank below. … How secure is Advanzia Bank?”

Following are the AAA credit ratings as seen in the screenshot above. In reality, however, Advanzia Bank does not have any of these triple-A ratings:

S&P Global Ratings

Click to enlarge the image!

Fitch Ratings

Click to enlarge the image!

DBRS Morningstar

Click to enlarge the image!

Google’s Fault

The lack of reliability of Google’s search results and the dangerous misinformation given to investors must be particularly disappointing, since the “Kritische Anleger” website explicitly points out that there are no credit ratings for Advanzia Bank. The website writes the following text specifically for this purpose (in German, translated here):

“Advanzia Bank Rating: We currently have no rating for Advanzia Bank and therefore no assessment of its creditworthiness by a rating agency. However, this is not uncommon, since banks like Advanzia Bank have to pay for the creation of such ratings themselves, which can quickly become very expensive. Therefore, almost only larger banks can afford this luxury, because they can achieve greater savings when refinancing via the capital market through a rating. The fact that Advanzia Bank does not have a rating from Fitch, Moody’s or S&P is not automatically a sign of low security on the part of the bank.”

Also, a table is shown on the original website of “Kritische Anleger” that contains no credit ratings for Advanzia Bank. Despite this, Google assigns the bank triple-A ratings with reference to the “Kritische Anleger“:

The website also mentions a lot of other banks and gives information about the credit ratings of these banks. In the Google search, however, errors appear again and again with these banks. Google’s search results are at odds with the fact that most of the information is current and accurate. In most cases, the information of “Kritische Anleger” is up-to-date and the errors are clearly made by Google on the search page:

In the worst case, Google Search will even show triple-A ratings for an insolvent bank.

The lesson from these observations: Anyone who decides on investments based solely on the displayed search results on Google can lose a lot of money. The rating quickly shown by Google search may not correspond to reality. It is therefore advisable to visit reliable websites with well-researched information, such as RATING©WATCH or the websites of the credit rating agencies.

Top Credit Ratings from Google’s Search World

Agencies, Whistleblowing

Four US rating agencies give Triple-A credit ratings to a bankrupt bank?

On Friday 22 April 2022, the Amsterdam District Court, at the request of Amsterdam Trade Bank N.V. (ATB) and after hearing the Nederlandsche Bank N.V., declared ATB bankrupt. Declaring the bankruptcy means that a trustee has been appointed to wind up the Trade Bank and to represent the interests of the creditors and savers. The “Directie Financiële Markten” of the Ministry of Finance of the Netherlands informed about this.

If you search for this bank on Google three days later and want to know the credit rating, you will surprisingly find the following search result on Google:

“Ratings are an indicator of Amsterdam Trade Bank’s creditworthiness and security. … How secure is the Amsterdam Trade Bank?”

What follows is bound to mislead every investor, as Google consistently lists AAA (Triple A) credit ratings from all the leading US rating agencies.

Google Suche von Montag, den 25. April 2022, 14 Uhr

Google reportedly gets this information from a website in German with the domain “Kritische Anleger”, in English “Critical Investors”:

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If you continue to search for this allegedly triple-A-rated bank, encouraged by the AAA credit ratings reported by Google, you will find what you are looking for at the respected German foundation Stiftung Warentest. A message from Stiftung Warentest contributes to the confusion: “Amsterdam Trade is now called FIBR-Bank” (“Amsterdam Trade heißt jetzt FIBR-Bank“).

“Customers need to register again with FIBR”

FIBR is only a trading name of Amsterdam Trade Bank N.V. The risk of doing business with this bank, in particular giving money in the form of deposits, remains unaffected by this renaming. If you go to the FIBR website, you will not find any reference to the insolvency that has already occurred, only friendly smiling faces inviting you to deposit savings at this bank.

In fact, on October 23, 2015, the rating agency Moody’s not only downgraded the bank from an already speculative rating deeper to “junk level”, but even withdrew the rating:

Moody’s Investors Service has today downgraded Amsterdam Trade Bank N.V.’s local- and foreign-currency long-term deposit ratings to B2 from Ba3, as well as the bank’s baseline credit assessment (BCA) to caa3 from b2. The adjusted BCA was downgraded to b3 from b1. The outlook on the long-term deposit ratings is negative.

Following this rating action, Moody’s will withdraw Amsterdam Trade Bank’s ratings for its own business reasons.

Moody’s Investors Service, October 23, 2015

So the question remains why Google’s search engine shows top credit ratings from the US credit rating agencies for the Russian-run bank in the Netherlands.

Sell Pressure at S&P Global Delights DBRS Morningstar


DBRS Morningstar will benefit from LCD data and news, supporting credit analysts and credit investor workflows.

S&P Global Market Intelligence’s Leveraged Commentary & Data (LCD) combines real-time news, data, tools, and analysis on the U.S. and European leveraged loan, high-yield bond, distressed, and investment-grade corporate markets. Produced by S&P Global’s own team of experienced journalists and analysts, LCD provides investors with the market-making news and in-depth research they need for their segment.

How does Morningstar think it will make money by buying this unit from its competitor? How do they think about the justification and financial value creation from the 11-12 times sales multiple paid? It was not a voluntary sale from S&P Global. Since it was a forced divestment to fulfil merger regulatory conditions – was it a competitive process?

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Changing Lifestyles Force New Rating Criteria


The pandemic is leaving its mark on rating systems from different perspectives. Working families swap the city for country living: Changing work habits brought about by the Covid-19 pandemic and rising house prices have seen households turn their back on cities for nearby countryside locations. There are changes in real estate markets, but also in consumer profiles. All of these changes must be updated in the criteria of rating systems.

New Experian analysis reveals a fundamental change in where families and homeowners are looking to base their lives:

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Where Is the Opinion of the Rating Agency


Moody’s credit ratings for MAHLE GmbH is just below investment grade, Ba1 (LT Corporate Family Ratings, since April 7, 2021). The credit rating is not on Watch, the outlook stable. Recent news could cause this situation to change.

MAHLE and Matthias Arleth (54), Chairman of the Management Board and CEO, have decided to terminate their cooperation by “mutual agreement”, it says so in the press release. This step is due to differing opinions on the future strategic orientation of the group. It seems questionable whether the rating agency was informed of this development in good time.

Arleth had joined the technology group only in January 2022. Until a decision on a successor as CEO has been taken by the Supervisory Board, Michael Frick (55), Deputy Chairman of the Management Board and CFO, is to act as Chairman of the Management Board.

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Exploring the DeFi Ecosystem


Decentralized Finance (DeFi) presents limited risks to the mainstream financial system as, barring stablecoins, it is largely separate and not yet systemic in size. Nevertheless, alongside market and liquidity risks, fraud is a significant risk with DeFi transactions.

While a smaller rating agency is hardly able to slow down enthusiastic investors, but – on the contrary – emphasizes the opportunities, the warnings of one of the leading rating agencies cannot be ignored.

Hardly any development on the international financial markets is not commented on by one of the leading credit rating agencies. The rating agencies also provide valuable descriptions of market conditions and dependencies. It is therefore remarkable how little has been said so far about cryptocurrencies and Decentralized Finance (DeFi).

That is now changing with a comprehensive documentation presented by one of the three leading rating agencies. So far, mainly a smaller rating agency, Weiss Ratings, has dealt with the market with a certain euphoria. Now one of the heavyweights among the international credit rating agencies is following suit.

First, let’s look at recent comments from Weiss Ratings. “No matter how the crypto market is moving,” This is what the rating agency Weiss Ratings, founded in 1971, writes to its subscribers, “there are ways to earn double-digit yields in the exploding sector of decentralized finance (DeFi).”

This agency belongs to the rating agencies in the USA, which are not recognized as a National Recognized Statistical Rating Organization by the US Securities and Exchange Commission.

In the crypto segment, Financial News Anchor Jessica Borg interviews Weiss Crypto income specialist Marko Grujic, editor of Crypto Yield Hunter, about earning interest with tokens that have little to no volatility:

“Even if you’ve never invested in crypto,” says “Weiss Ratings Daily” on April 9, 2022 under the title “Sunset for the Bull”, “chances are you’re hearing about this week’s price action of the largest cryptocurrency by market cap: Bitcoin (BTC). After months of staying in the same trading range, BTC broke out surging near $48,000 and gaining 15% in just seven days. And when the market leader does well, you can expect altcoins — any crypto other than Bitcoin — to follow suit.”

The rating agency uses bold words to promote the belief that other cryptocurrencies will also benefit.

“There are a couple of reasons behind BTC’s bullish momentum”, according to the analysis of the rating agency: “One is a new wave of institutional investors. The second factor is geopolitical instability in the East. In recent weeks, Ukrainian and Russian citizens have rushed to the crypto space in hopes of protecting their wealth.”

What does one of the three leading rating agencies say about these developments?

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A Not So New New Rating From Moody’s

Agencies, Definitions, Scales

Moody’s Investors Service is seeking feedback by May 05, 2022 from market participants on proposed changes to its Banks Methodology. The key proposed revision is to introduce new ratings that exclude government support (XG ratings) in Moody’s methodology for banks. The rating agency is currently collecting comments and opinions from market participants.

Hence a remark on the one hand on the history of this approach and on the other hand on the problems that arise in practical application:

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Seal of Creditworthiness in a Changed Market Environment


Scope Ratings GmbH (Scope) has assigned a first-time issuer rating of BB/Stable to Luxembourg registered real estate developer MG RE Invest S.A. Scope has also assigned a first-time rating of BB to the company’s senior unsecured debt. It is a bold credit rating at a time when a whole range of general conditions for the industry are about to change.

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Sanctions Against Russia Not Thought Through to the End

Agencies, Investors

The exuberant regulation of the credit rating agencies is always sprouting new flowers. The instrumentalization of rating agencies for political goals is being discussed at the United Nations, although right now it is becoming clear what negative effects it has when rating agencies are used for political sanctions.

At the “High Level Meeting on the Role of Credit Rating Agencies in the implementation of the 2030 Agenda for Sustainable Development” high-ranking representatives of the United Nations Department of Economic and Social Affairs are discussing issues that are not relevant to current affairs. The meeting is about “old acquaintances”, criticism of the leading rating agencies. It’s about banalities like the fact that credit ratings play an important role in international capital markets as they provide creditors with assessments of a debtor’s relative risk of default. “Nonetheless,” writes the United Nations Department of Economic and Social Affairs, “inaccurate ratings can impact the cost of borrowing and the stability of the international financial system, as demonstrated during the 2008 global financial crisis. During the economic crisis that emerged as a result of the COVID-19 pandemic, attention has returned to the role of credit ratings on debt sustainability and stability.”

The leading international agencies have been aware of the issues raised by the debaters for many years. The problems have been addressed and systematically tackled for some time. As a consequence of the discussions, it can only be stated that the leading agencies may not have been sufficiently successful in documenting their work to date in a transparent manner and also in communicating it to the appropriate places.

In the middle of the war with Ukraine, much more urgent or questions are overlooked. Today experts from Switzerland have their say and hit the nail on the head. The main issues are as follows:

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Morningstar Takes on the Regulation

Agencies, Registrations, Regulations

Looking forward to 2022, Morningstar, Inc.’s Joe Mansueto, Executive Chairman and Chairman of the Board, and Kunal Kapoor, Chief Executive Officer, expect the Board to support Morningstar’s strategic initiatives including an initiative they call “Organizational Design Responsive to Changes in our Regulatory Landscape”.

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Investment Guidelines of German Municipalities in Practice

Agencies, Marketing, Regulations

US rating agencies remain at an advantage over their European competitors. As the practical example of regulation in Hesse shows, the investment guidelines for municipalities cement the dominant position of the US rating agencies for every rated investment.

Even the German rating agencies are out of the question for most communities. Since the ratings of the leading US agencies are prescribed in the communities, the services of the German agencies are – from this point of view – dispensable. Since the municipalities have to set their own investment guidelines and do not think about the local agencies, the smaller competitors of the US market leaders are left out.

Section 108, paragraph 2 of the Hessian Municipal Code (HGO) obliges the municipality to ensure sufficient security in the context of the careful and economic management of its assets when investing money, whereby it should bring in an appropriate return.

In doing so, the municipality has to minimize financial risks; speculative financial transactions are prohibited. They are legally obliged to do so in accordance with section 92 (2) sentences 2 and 3 HGO. The financial budget of the municipality is to be managed thriftily and economically. The community has to minimize financial risks. Speculative financial transactions are prohibited.

Deposits are compatible with Section 92 (2) HGO and Section 108 (2) HGO if the municipalities ensure that the security takes precedence over the possible return. The assets are to be managed carefully and economically and properly accounted for. Sufficient security is to be ensured for financial investments; they should bring a reasonable yield.

This principle must also be observed in times of low and negative interest rates. As of October 1, 2017, municipal deposits will no longer be protected by the voluntary deposit protection fund at private banks. Deposits existing as of October 1, 2017 are grandfathered.

The deposit protection instruments of the Savings Banks Finance Group and the cooperative banks also do not offer any protection for public sector deposits. Nevertheless, there is a lower risk here due to the institutional security. With the abolition of grandfathering, deposits at private banks have become less secure. However, they are not to be described as speculative.

The Hessian municipalities have to issue investment guidelines for investments before they are deposited. These regulate the security requirements, the administration of financial investments by the municipality and the regular reporting obligation.

The guidelines are to be decided by the local authority and are to be made known to the supervisory authority. The investment guideline of a Hessian municipality is only valid for investments that are made after the entry into force. Existing financial investments made on the basis of the investment guidelines of the Hessian Ministry of the Interior and Sports on municipal investment transactions and derivative financial transactions (StAnz. 2009, p. 701), which have expired, remain unaffected by these provisions.

As the State’s highest-ranking administrative authority, the Ministry is not only involved in government activities, but is also in charge of the legal and technical supervision of the States institutions that come under this department. The tasks of the Ministry of the Interior comprise for example the departments of security, municipal affairs and general affairs of the Interior and Sports.

Due to these requirements, the municipal statutes for investing their liquid funds are based on model guidelines, which usually contain the following provisions:

If the municipality intends to invest in credit institutions that are not subject to any deposit guarantee or institution protection, it must inform itself particularly carefully. In particular, the credit institution’s rating should be used as a guide.

When it comes to investing liquid funds, the municipality generally limits itself to the following forms of investment:

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Information from the Hessian Ministry of the Interior on Investments and Deposit Protection in a New Light


Part 2

Funds available according to the provision listed in “Information from the Hessian Ministry of the Interior on investments and deposit protection” of May 29, 2018 can be invested in shares in investment funds within the meaning of the Investment Modernization Act (Investmentmodernisierungsgesetz). The aforementioned requirements have already been reported here in Part 1.

The investment funds may:

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In further blog posts we will explore the implications for the credit rating agencies.

Information from the Hessian Ministry of the Interior on Investments and Deposit Protection in a New Light


On May 29, 2018, the Hessian Ministry of the Interior informed on investments and deposit protection in the State of Hesse, Germany. In the wake of the Greensill scandal, this legal framework is being given new life in many communities. The following article will therefore first explain the legal framework created in 2018 before examples of implementation are given in further articles on RATING©REPAIR.

Section 108 (2) of the Hessian Municipal Code (Hessische Gemeindeordnung, HGO) obliges the municipality to ensure sufficient security in the context of the careful and economical management of its assets when making investments, whereby investments should bring a reasonable yield.

In doing so, the municipality has to minimize financial risks; speculative financial transactions are prohibited (section 92 (2) sentences 2 and 3 HGO). What appears to be a clear term for laypeople, turns out to be a difficult theoretical problem here. There is no general legal definition of what is speculative. Speculation is often accepted when there is only an asymmetrical distribution of information, i.e. an investment and achievable investment success appear certain to some investors, but other investors do not have this information to recognize the security of the investment.

Deposits are compatible with Section 92 (2) HGO and Section 108 (2) HGO if the municipalities ensure that the security takes precedence over the possible return. This principle must also be observed in times of low and negative interest rates. Since even the concept of risk is not clearly defined, these formulations are also associated with a number of uncertainties

As of October 1, 2017, municipal deposits will no longer be protected by the voluntary deposit protection fund at private banks. Deposits existing as of October 1, 2017 are grandfathered. These changes should also play a role in the Greensill scandal of 2021. Later deposits at the Greensill Bank remained unprotected.

The deposit protection instruments of the Savings Banks Finance Group and the cooperative banks also do not offer any protection for public sector deposits. Nevertheless, there is a lower risk here due to the institutional security. Both banking groups have very good ratings from all leading recognized credit rating agencies.

With the abolition of grandfathering, deposits at private banks have become less secure. However, they are not to be described as speculative.

Against this background, the following information of the Hessian Ministry of the Interior was provided for the investment of liquid funds by municipalities (municipalities, towns and districts):

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This is Part 1 – read the continuation in Part 2

US Hedge Funds – US Credit Rating Agencies


A quant technology provider, SigTech, has analysed data on the global hedge fund industry and identified key trends around growth, new launches and investment strategies. According to their findings and couting 27,255 active hedge funds globally, 67% of all hedge funds globally and 70% of all new fund launches are US-based Crypto hedge funds appear for the first time in the top 10 of hedge fund strategies

USA accounts for 67% of the world’s hedge funds, followed by the UK which has 8.6%. When it comes to the cities that have the largest concentration of hedge funds, unsurprisingly New York is the clear leader with nearly 7,000 funds (25.0% of total), followed by London with over 2,000 (8.2%), and Hong Kong with nearly 1,000 (3.6%).

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Role of Credit Rating Agencies in Implementing Sanctions

Authorities, Regulations

ESMA Chair, Verena Ross, takes a look at the rating market structure today, and sees that there are 24 CRAs in the EU registered with ESMA, located in 13 different Member States. She delivered a keynote speech at the European Association of Corporate Treasurers (EACT) Summit. Verena Ross spoke, among other things, about Credit Rating Agencies (CRA) supervision – including Environmental, Social, and Governance (ESG) ratings.

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A Geo-Economic Turning Point


“Looking at the big picture, the capital markets are facing a real turning point – towards looming resource scarcity and increased inflationary pressure. The current corrections are therefore not a brief blip, but the beginning of a tectonic market shakeout,” said Dr. Heinz-Werner Rapp, board member and chief investment officer of FERI, at the digital annual press briefing.

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Switch Off Moody’s German Website


In 1991 Moody’s presented itself in full-page advertisements as the first German credit rating agency. Moody’s Investors Service now achieves an average operating margin of over 60% worldwide. However, after three decades, the German-language website of this leading international agency is still in a deplorable state. After so many years, Moody’s German website still does not live up to its claim to be the “first German credit rating agency”.

It is due to the special history of the Federal Republic of Germany after the Second World War that, in contrast to France and other neighboring countries, in Germany, practically everyone had to learn English in such a way that every German could obtain information from sources in English language. A large number of American soldiers were stationed around the financial center of Frankfurt am Main until the 1990s. The British used to be numerous in other parts of Germany. In the financial sector in particular, the English language became so established that today it is even the internal working language in some banks.

Against this background, it is more than understandable if hardly anyone at the US credit rating agency thinks about what is on the German website. Anyone who can afford a credit rating from Moody’s Investors Service is sure to speak English. The most important functions of this credit rating are in the international financial markets anyway, so that this service is closely linked to the world markets. The language of the world’s financial markets has remained English to this day.

Even if the professionals get information from English-language sources, it does matter what the German-language website of a leading rating agency looks like. This can be emphasized in particular because search engines such as Google are now structured in a user-oriented manner and take into account the language in which the browser is set or which language the user of a browser prefers. Therefore search results are also found on Moody’s German website, so that the searcher gets a corresponding impression of the website and the quality of the services of the rating agency “Moody’s Investors Service”.

The carelessness with which Moody’s Investors Service website is maintained is unworthy of a leading rating agency. The business of a rating agency is to provide reliable information to the financial markets. Like hardly any other company, every letter counts for a rating agency. The assessment results are expressed in letter codes. If a letter is missing, this can make a significant difference in the meaning of the judgment for the financial markets.

The credit rating scale is an ordinal scale, the distances of which are not to be interpreted uniformly as in the case of an interval scale. The “risk distances” can vary between one level and the other. On the credit rating scale, every letter counts. Each rating symbol on the scale has its own definition that is important to read and understand.

Therefore, if the spelling is sloppy, it shakes readers’ confidence. Do they mean A or B or maybe even C? Double A or triple A? The wrong letter can cost issuers a lot of money, just as investors can lose a lot of money by relying on the wrong letter code. Even if the databases ensure that the ratings are displayed correctly, it shakes confidence in the rating agency’s performance when a remarkable number of errors are made in Moody’s official German website.

It is believed that around 130 million people worldwide speak German as their mother tongue. German is the most widely spoken mother language in the European Union. In addition, German is the official language in four countries: Germany, Austria, Belgium and Luxembourg. German is also an official language in Switzerland and Liechtenstein. There are also German-speaking minorities in more than 40 countries around the world.

A strange gender indifference

This important position of the German language is contradicted if, after calling up, you first read about Africa and contacts for Africa:

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To be politically correct nowadays it is important how to address people. “Moody’s chooses to challenge the status quo and continuously champions gender equality through our insights, workplace programs and community partnerships. Diversity makes us stronger and we all benefit when we move forward together.” Moody’s writes that and even has a video ready. Article 21 (non-discrimination) of the Charter of Fundamental Rights of the European Union prohibits discrimination based on sexual orientation.

Therefore, it must unsettle the reader when what appears to be male employees are given female job titles. This is particularly annoying when dealing with external contacts. Should the person be addressed as a man or as a woman? Or even as diverse? Interested parties of the rating agency are embarrassed to possibly address a man as a woman or, conversely, a woman as a man. On Moody’s German website, a female position designation is assigned to the photo of a man. A person with a male name is represented as the female holder of the position. This is evident in all of the following four examples:

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Only four examples are mentioned above. It would go beyond the scope of this blog post at this point to list all other cases of doubt and errors to be found on In any case, the examples show the lack of respect for the distinction in the German language between male and female position titles and their holders.

Because the attribution of female titles to male names, female names to male titles, and portraits of men to female positions and portraits of women to male positions is so inconsistent, the viewer cannot readily identify in which cases errors are involved or the seemingly female person actually wants to be addressed as a man and vice versa.

“Moody’s continued inclusion in Bloomberg’s Gender-Equality Index is a strong testament to our ongoing work to support women in the workplace,” said DK Bartley, Chief Diversity Officer at Moody’s, when Moody’s announced that it has been included in the Bloomberg Gender-Equality Index (GEI) for the third year in a row. “As we look ahead, our actions will continue to be guided by our values – namely to foster an environment at Moody’s where all employees can thrive.”

Moody’s was recognized for ongoing leadership in promoting gender equality among its peer companies in the global business community. On the German website, however, there is no indication that the genders would be taken into account – at least if you look at the examples above.

A not very German website

For every new customer of a rating agency, it is of particular importance to learn the principles according to which he has to calculate the costs and prices of the agency’s services. Anyone who can expect high credit rating fees should be able to clarify in advance the principles according to which these fees are calculated.

There is also a button on Moody’s German website that can be used to access further information. Since it is in German, the user should assume that he will also receive information in German here. But this is not the case. Instead, a PDF file opens in English with very vague and general explanations:

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For customers from German-speaking countries, it is particularly important to know the exact regulatory conditions under which credit ratings are created in Europe. This is especially true when it comes to an international rating agency that has to meet the requirements of different legal systems at the same time. But these documents, where every word counts, are only available in English. Here, too, only an English document is hidden behind the German-language link:

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The German reader has to expect surprises everywhere. Links lead to pages in English, which the reader can expect to find in German. But that’s not all, because there are more special features. The reader has to work his way through a gibberish of German and English in some places:

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However, the reader must also be happy to find any documents at all. So every German reader will certainly prefer to download an English text than none at all, e.g. in this case – anyone who wants to obtain binding information about the products from Moody’s Investors Service and therefore clicks on the link for products ends up nowhere, depending on which page you are looking for this information from (website accessed on February 26, 2022):

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Warning about Moody’s numbers

Most Germans probably already take for granted the mistakes they find in texts that have been translated from English into German. This also applies to the translations of texts from this international rating agency. Nevertheless, the indication that the translations are wrong must be permitted here in our repair shop.

For example, quintillions appear instead of trillions. The German word for trillion is “Billion”. The German translation for “one billion” (one thousand millions) is “eine Milliarde”.

The error is not to the detriment of the rating agency, because the German reader now believes that the rating agency is 1000 times larger (see But the fact of the matter is that Moody’s has only rated one-thousandth of what it says here in German language.

Probably everyone knows the mistakes with the comma, because in English a comma is put where in German a period is made. So Moody’s doesn’t speak of one and a half analysts, but of fifteen hundred. While the error here is funny, the comma should be properly placed when it comes to money.

Overall, however, the errors show that Moody’s German website is obviously not intended to be a maintained and up to date source of information. Therefore the website could simply be switched off. This could be the safer way for the US rating agency to avoid intervention by the European Securities and Markets Authority. Due to the EU regulation on rating agencies, the following Moody’s agencies would potentially be examined if the supervisory authority were to develop general doubts about the correctness of the publication practice:

  • Moody’s Investors Service Cyprus Ltd
  • Moody’s France S.A.S.
  • Moody’s Deutschland GmbH
  • Moody’s Italia S.r.l.
  • Moody’s Investors Service España S.A.
  • Moody’s Investors Service (Nordics) AB 

Translation problems

While some of the errors above just bring a smile and can be corrected with a few clicks, greater difficulties lie in the accurate translation from English to German. Strictly speaking, this begins with the term credit rating, because Moody’s translates “credit rating” with the word “Kreditrating”, which contains the word “Kredit”. “Kreditgeschäft” is defined by the German Banking Act in § 1 KWG.

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Russia’s Credit Rating Hinges on Tougher Sanctions


Possible sanctions attract the attention of credit analysts.

Russia’s credit outlook could be adversely affected by specific Western sanctions, in the event of a failure to defuse the crisis over Ukraine, says Levon Kameryan, Senior Analyst, Sovereign and Public Sector Ratings, and looks at the cumulative impact of existing and potentially stronger future sanctions, a concern for the country’s credit outlook: “A comprehensive package of sanctions has the potential to disrupt Russian exports,” writes Levon Kameryan, “further discourage foreign and domestic investment, which the country needs for sustainable economic growth, and push up government borrowing costs – at least at the margin.”

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Moody’s Sets the Standard for Africa


When people in Africa spoke of an independent credit rating agency – independent of the three leading US rating giants – they were talking about “Global Credit Rating” from South Africa, which had made a name for itself on the entire African continent. GCR is a leading credit rating agency in Africa with offices across the continent including South Africa, Nigeria, Senegal, Kenya and Mauritius. That time is now over: Moody’s Corporation announced today that it has agreed to acquire a controlling interest (51%) in Global Credit Rating Company Limited (GCR).

“GCR’s ratings play a significant role in the growth of Africa’s financial markets by providing critical insights into credit across a range of economies and sectors,” said Rob Fauber, President & Chief Executive Officer of Moody’s. “By combining GCR’s successful domestic operations with Moody’s global expertise, we have a unique opportunity to expand Moody’s presence in a high-growth region.”

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Les Agences de Notation – The Credit Rating Agencies


Rating agencies have been the subject of a number of controversies since the late 1990s, writes Norbert Gaillard in his latest book “Les agences de notation“, published in Éditions La Decouverte, Paris 2022. The Asian crisis of 1997/98, the Enron scandal of 2001 , the debacle on the subprime market in 2007/2008 and the sovereign debt storm of 2010-2011 have impressively demonstrated the influence of the credit rating agencies on the financial markets. At the same time, however, the difficulties and limitations of the system also became apparent, as the author shows in his book.

  • A first point of criticism has long been the lack of transparency in the methods used to prepare the assessments that are so important for the financial markets. The author therefore examines the question of how the solvency of states, companies and other organizations as well as banks is assessed. Do the agencies base this on mathematical-statistical models?
  • A second point of criticism is directed at the strong concentration in the rating industry, because there are only three agencies that dominate the market. The author therefore investigates the influence this concentration of power can have on the credit ratings awarded.
  • The author sees a third point of criticism in the way in which the credit rating agencies generate income, namely mainly from fee payments by issuers, which could therefore influence the independence and neutrality of the judgments.
  • Norbert Gaillard identifies a fourth area of ​​criticism in the historical failures in various crises that the rating agencies have experienced in the course of their more than hundred-year history. In essence, this is about the damage that resulted from the fact that some imminent insolvencies were not recognized in good time.
  • The author investigates a fifth point of criticism, which consists in the accusation that the rating agencies would overreact, i.e. convert news too quickly into upgrades or, in particular, downgrades.

The book is divided into five chapters. The first chapter provides an understanding of the rating industry and the emergence of the oligopolistic structure in this market. The second chapter is dedicated to definitions, interpretations, typologies and modalities of assigning ratings. These representations of the author are of lasting value, since he meticulously processes the history of the rating agencies. Two other main chapters deal with the assessment of public and private issuers. Finally, the fifth chapter deals explicitly with the strengths and weaknesses of the rating agencies, with their conflicts of interest, their reputation, the regulations as well as the influences on rating changes.


From his diligent survey of facts, the author draws the wise conclusion that the situation of the rating agencies is paradoxical in three ways. Historical experiences with the rating systems have tarnished the reputation of the rating agencies. Nevertheless, the credit ratings continue to be used by investors and also by supervisory authorities. This kind of immunity of rating agencies has boosted their earnings (and hence their market caps). Even if the agencies have lost some of their influence, they remain more indispensable today than ever before – of all times, at a time when private and public debt is exploding.

Norbert Gaillard therefore calls for a central debate on the analysis of credit risks. He laments the lethargy of politicians, supervisors and institutional investors who are neglecting the “dizzying debt boom” (Norbert Gaillard). He appeals to the rating agencies not to let themselves be taken over by the debt euphoria, but to show market participants the limits of debt growth.

Disclosure Requirements for Initial Reviews and Preliminary Credit Ratings Discussed

Agencies, Authorities, Other, Regulations

The European Securities and Markets Authority (ESMA) published its “Final Report” with “Guidelines on Disclosure Requirements for Initial Reviews and Preliminary Ratings“. The purpose of these Guidelines is to deliver guidance that will address inconsistencies in the application of these requirements by Credit Rating Agencies (CRAs), and by extension reduce the risks that are posed by rating shopping to the extent it is possible under the existing provisions of the CRA Regulation.

ESMA has conducted a public consultation on these Guidelines in order to gather the views of CRAs and other relevant stakeholders. A number of amendments and clarifications have been introduced into the final guidelines in order to take account of the views expressed during this consultation.

In one of the answers it was noticed that ESMA’s proposal assumes good behavior on the part of the issuer, although it is precisely about the cases in which an issuer hides a poorer rating. The rating can refer to a shelf registration or any other vehicle with a different LEI or an instrument with a different ISIN, which can be legally differentiated, but represent the same economic risk. These cases are particularly difficult to grasp when the greedy rating agency also collaborates on behalf of the issuer against competing agencies.

“However,” writes ESMA, “a number of respondents raised specific concerns over the provision of an LEI or ISIN for each disclosed instance. Specifically, one respondent outlined that not all entities currently have an LEI/ISIN and that this can depend on the maturity of the entity seeking a rating, its industry, or the stage of the considered transaction.” To address this issue, it was advocated to replace a missing LEI by the “reporting company’s unique key“ or unique rating identifier, as reported to ESMA under Commission Delegated Regulation (EU) 2015/23, while other respondents advocated for the exclusion of initial assessments for which an LEI and/or ISIN had not been provided from the proposed disclosures. This was on the basis that it would be difficult to monitor other CRAs’ public disclosures to assess whether that CRAs provided an initial review or preliminary rating for that same transaction.

Concerning the LEI or ISIN, ESMA now considers that it is not a point that needs to be populated in the disclosure if that information is not available to the CRA at the time of making the disclosure. “However, the CRA should back-fill this data point on subsequent publications when this data becomes available to the CRA”, writes ESMA.

In its public consultation, ESMA asked whether respondents agree that ESMA’s proposed timing of disclosures would better enable investors and the market to identify where rating shopping may have occurred. The wise choice of the timing of publications is a differentiating factor between the rating agencies. Investors and issuers prefer agencies that know how to choose their publication times sensibly. Rating agencies compete with each other to choose the wisest possible time for publication, for example before or after the market closes, before, after or at the same time as other notifications, etc. It takes many years of experience to understand the complex constraints and interests of issuers (and their boards and shareholders), banks, law firms, auditors, rating advisors, institutional and private investors, etc.

According to ESMA’s evaluation of responses, one respondent agreed that the proposed timing of these disclosures will better enable investors and the market to identify where rating shopping might have occurred, on the basis that “since all CRAs will publish an updated list on the same day of each month, it should enable investors to check the issuers and issuances”. Another respondent questioned whether the uniformity of dates would create a risk of a race to the bottom in terms of timing.

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Gender Equality as a Competitive Advantage

Agencies, Analysts

The Bloomberg Gender-Equality Index (GEI) is including Moody’s Corporation for the third year in a row. Moody’s was recognized this year again for ongoing leadership in promoting gender equality among its peer companies in the global business community.

The rating agency is not just following a fashion trend here. Since questions about gender equality play a role in ESG ratings and are also mentioned by the United Nations as part of the Sustainable Development Goals, which have only been determining the actions of economic actors worldwide since 2015, this impression could arise. In fact, the agency has been able to gain an advantage for many years by being an attractive employer for women. Women are often the better analysts for a variety of reasons that cannot be explored here.

“Moody’s continued inclusion in Bloomberg’s Gender-Equality Index is a strong testament to our ongoing work to support women in the workplace,” said DK Bartley, Chief Diversity Officer at Moody’s. “As we look ahead, our actions will continue to be guided by our values – namely to foster an environment at Moody’s where all employees can thrive.”

The GEI is a reference index that measures and tracks the performance of public companies across five pillars: female leadership and talent pipeline, equal pay and gender pay parity, inclusive culture, anti-sexual harassment policies, and pro-women brand. The index is designed to help investors direct capital to companies committed to supporting gender equality through proactive policies and transparency.

What Moody’s is working on

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Economic Emergency Braking in the USA and Surprising Recovery in Germany


At the beginning of January, the US economy was still the world’s economic engine, while Germany – after negative growth in the fourth quarter – was heading for a very weak first quarter.

“However,” says Carsten Mumm, Chief Economist at Privatbank DONNER & REUSCHEL, “the current flash estimates of the Markit purchasing managers’ indices paint a different picture.” With an unexpected dynamism in economic activity both in industry and among service providers, Germany has exceeded the expansion threshold of 50 points again for the first time.

The tense supply chains in the industrial sector appear to be gradually easing, allowing for a significant expansion in production. In addition, new orders rose again in all Sectors, while cost pressures remained high.

In the USA, on the other hand, the picture is quite different, depicts Carsten Mumm: corporate sentiment in the manufacturing sector fell slightly and the services index fell to just over 50 points. The background was the combination of lower demand, worsening supply chain problems and the shortage of workers.

The managers surveyed are still reporting sharply rising costs and the resulting significant increase in sales prices. The problems faced by companies are mainly related to production and are primarily due to the rampant omicron wave.

However, given the currently falling number of new cases in the USA, the Chief Economist hopes that the infection peak has already been passed and that the number of new cases, based on experience from Great Britain, for example, is likely to fall quickly in the short term.

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DEXTRO’s New Risk Class Methodology

Definitions, Symbols

A new risk class methodology with seven risk classes (RK1 to RK7 similar to MiFiD II or SRRI) and at the same time emancipation from the dogma of “historical volatility” should determine the risk ratings of the DEXTRO Group in the future, which will continue to be based on the pillars of forecast risk / return volatility, capital loss probability and total loss probability.

The current concept of the SRRI (Synthetic Risk and Reward Indicator) provides for seven risk classes. The SRRI provides the risk and reward indicator for mutual funds and is a helpful metric for investors.

According to the requirements of the small investor protection and the European legal regulations, fund companies have to show the risk indicator. In Germany, this is usually done in the sales prospectus or other sales documents of a fund, especially in the so-called “key investor information” (“WAI” or “KIID”).

This approach is considered sensible and welcomed by the DEXTRO Group. The DEXTRO Group is adapting the risk classification accordingly. The new regime from January 2022 offers a differentiated view with seven levels compared to the previous WpHG standard with five risk classes.

The process of risk classification of financial investment products (e.g. AIF participation, equity ETF, bond or subordinated loan) is analogous to the rating process and is based on its results. In contrast to the rating determination, however, the risk classification focuses on the consideration of the risk components of an investment product and subjects these to a comparison with the typical financial investment products of the respective risk classes.

Previously: WpHG risk classes RK1 (very low) to RK5 (very high)

New: DEXTRO Group’s risk indicator in risk classes RK1 (lower risk to 7 (higher risk).

In the new regime of the DEXTRO Group, the classification for funds without historical data is not limited to risk classes RK5 to RK7. In particular, the characteristics of the categories of capital loss and total loss probability can be significantly differentiated between different investment products in the new RK regime with seven levels. Blind pool concepts without a track record of the asset manager are primarily to be expected in risk class RK6.

Various variables form the core of the risk classification as criteria and have an influence on the end result:

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Liability of Credit Rating Agencies for Issue Ratings


A new article discusses a dissenting verdict on the rating of a cruise ship bond.

The numerous decisions of the Berlin courts have brought the issue of the liability of rating agencies back into focus, writes lawyer Dr. Sunny Kapoor, Frankfurt a. M., in his article “Haftung von Ratingagenturen für Emissionsratings” (WM 2021 Heft 50-52, 2420). “They are of particular interest because they highlight the liability of rating agencies for allegedly incorrect issue ratings,” says Dr. Sunny Kapoor, “whereby the judgments available so far concern liability for issuer ratings. The judgments of the Regional Court of Berlin and the District Court of Berlin Mitte are in line with the previous overall evaluation and deny any liability on the part of rating agencies to investors.”

The question of the liability of rating agencies has been preoccupying the courts for several years. In the judgments issued so far, however, the claims of investors have always been dismissed and the question of third party liability of rating agencies has been answered in the negative. A common feature of the judgments known so far is that they focus on liability for allegedly incorrect issuer ratings. With the judgment of the 11th Civil Chamber of the Berlin Regional Court on May 5, 2020, a court decision has become known for the first time, which concerns the question of liability for issue (and not issuer) ratings.

This judgment is noteworthy for two reasons, according to Dr. Sunny Kapoor:

  • On the one hand, as far as can be seen, a German court has for the first time affirmed the liability of a rating agency to an investor for an allegedly incorrect rating.
  • On the other hand, the judgment emerged from a number of otherwise largely unsuccessful investor lawsuits that were brought against a European rating agency in connection with a bond it rated for the luxury cruise ship “MS Deutschland”.

Even though the judgments in this case are not yet final, it is nevertheless of interest to highlight the main reasons for rejection and, above all, to work out the first milestones for liability for issue ratings with a view to the differing judgment of the 11th Civil Chamber.

The only different decision of the 11th Civil Chamber should, however, have to be provided with some legal question marks, believes Dr. Sunny Kapoor. In any case, his evaluation of the judgments concludes that when it comes to the question of whether rating agencies are liable to investors for an allegedly incorrect rating, proof of the causality of the transaction should be decisive.

“Accordingly,” reasons Dr. Sunny Kapoor, “the investor must have taken note of the rating report and used it as the basis for his investment decision. Since the rating report usually also contains risk information or enables the investor to assess his own risk, it would be difficult to argue that the investor still assumed that the investment would be highly secure.”

In addition, an extension of liability on the basis of the contract with protective effect in favor of third parties should also have to be dealt with restrictively, in his opinion. Because in individual cases it should not only be doubtful whether the rating agency can actually identify and narrow down the group of investors to be included in the rating agreement.

“The question also arises as to whether the issuer commissioning the rating agency has a serious interest in including a large number of investors in the rating agreement. Ultimately, such a far-reaching extension of liability is likely to lead to a considerable increase in the cost of rating services.” Likewise, the extension of liability is likely to reduce the attractiveness of the issue rating for rating agencies.

However, if rating agencies shy away from creating issue ratings, an important point of reference for investment decisions would be lost, which, conversely, could not have a negligible effect on the entire capital market.

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US Agencies’ Market Shares Remain a European Debacle


The excessive regulation of rating agencies in the European Union (EU) has failed to achieve its goal.

The dominance of US rating agencies remains. Their ratings are practically the only decisive factor for the allocation of the economic resource “capital” in Europe. The three leading US agencies S&P Global Ratings Europe, Moody’s Investors Service and Fitch Ratings now account for 92.19% of turnover – and that even after “Brexit”, although the US agencies in the Anglo-Saxon region have natural advantages and these turnover shares are no longer included in new calculations.

The market share of these three agencies, S&P Global Ratings Europe, Moody’s Investors Service and Fitch Ratings, is, for example, 87.02% after 2012 and 91.07% in the last year 2019, now 92.19% in 2020. Politicians in Europe once thought they could use the opportunity of the global financial crisis to put the US agencies in their place.

It should also be noted in these figures that a number of credit rating agencies took steps to ensure the continuity of their rating activities before the UK’s exit from the EU was completed on December 31, 2020. Rating agencies, which – like the US market leaders – have a significant presence in the UK, have taken different approaches to restructuring their businesses. These changes impacted rating agencies’ applicable trunover from EU credit rating activities in 2020 and are reflected in the changes in rating agencies’ market shares in this year’s market share report.

Against this background, the changes in market share at S&P Global Ratings Europe and Moody’s Investors Service, but also at DBRS Ratings, can be seen in particular. With the new allocation, S&P Global Ratings Europe increases its market share in 2020 to 51.77% (from 40.40% in 2019), while Moody’s Investor Service keeps more sales in the United Kingdom (market share in the EU in 2020 only 30.12% after 33.12% in 2019). DBRS Ratings (1.11% 2020 after 2.99% 2019) as well as AM Best Europe-Rating Services (market share 2020 only 0.41% after 0.95% in 2019) lose market shares. All agencies that have given up market share have in common that they have their parent companies on the American continent and their main focus of activity in the most important European financial center, London, which was affected by Brexit.

Against the background of the effects mentioned, the increase in the market shares of the rating agencies remaining in the EU moves in the cosmetic area. CERVED Rating Agency (increase to 1.18% 2020 after 0.84% ​​2019), Scope Ratings (increase to 1.00% 2020 after 0.62% 2019) and CreditReform Rating (increase to 0.84% ​​after 0.53%). From the calculation mechanics of the market share calculation it follows that the other agencies can also show market share gains, although the dominance of the US agencies has not been broken.

The table published today by the European Securities and Markets Authority (ESMA) contains a list of all CRAs registered in the EU under the CRA regulation. For each rating agency, ESMA provides the applicable total market share. Finally, ESMA provides an indicator of whether a rating agency has an overall market share of less than 10%.

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Parthenon Capital Partners Bets on KBRA


KBRA, a full-service global rating agency committed to innovation and integrity, announced today it has entered a deal with leading growth-oriented private equity firm Parthenon Capital Partners who will acquire a majority stake in the company.

KBRA is a global credit rating agency found­­ed in the wake of the global financial crisis. “When KBRA was founded,” says KBRA CEO, President, and Co-Founder Jim Nadler, “our mission was to provide the market with timely, valuable, and transparent ratings and research. Over the past 11 years, KBRA has set the standard for engagement with investors, which has led to our leadership position across many markets. This investor engagement and outreach has also led to KBRA’s acceptance and reliance among issuers, policymakers, and key opinion leaders. As we continue to expand both domestically and abroad, we are excited to partner with Parthenon to accelerate our future growth.”

There are more rating agencies around the world fighting to break even than those that, like the leading agencies Moody’s and S&P Global, can offer top returns. In order to consolidate the rating industry, there is speculation as to how credit rating agencies could be merged or taken over in order to oppose the two leading agencies with another competitor with a global presence.

KBRA counts more than 400 employees across its five offices in the U.S. and Europe. The company has issued over 51,000 ratings with nearly $3 trillion in rated issuance since its inception in 2010. KBRA provides ratings and research across all sectors from its Corporate, Financial, and Government (CFG) and Structured Finance units. The company also delivers high-quality data, information, and tools to the market through innovative technology across its KBRA Analytics platform, including corporate and financial sector credit information and data and analytics.

“KBRA has quickly become a leading voice among the major global rating agencies. The market clearly relies on KBRA for holistic, transparent and thoughtful credit ratings and research” said Zach Sadek, a partner at Parthenon Capital.

“KBRA’s strong culture valuing integrity, ratings quality and customer service positions the firm for continued growth and success” said Brian Golson, Co-CEO of Parthenon Capital. “We look forward to partnering with KBRA’s passionate team to support their next chapter.”

Parthenon Capital’s financial advisor was Newbold Partners LLC and its legal advisor was Kirkland & Ellis LLP. KBRA received legal advice from Gunderson Dettmer LLP and Shearman & Sterling LLP.

Third Bond from Photon Energy N.V.

Actions, Reports

The third bond from Photon Energy N.V., a family-run, listed Dutch developer and operator of solar power plants for its own electricity production and for third parties, is new to the URA observation.

“In addition,” adds Jens Höhl, Managing Director of URA Research GmbH, “there have recently been activities such as electricity storage and water treatment.” Photon III – like the partially exchanged 2nd bond (2017/2022, still EUR 24 million outstanding) – received 1 “URA Check”.


The analysts at URA Research see the following strengths:

  • The main source of sales is electricity generation: a stable cash flow with mostly government-guaranteed long-term terms.
  • Unusually detailed quarterly financial reports (but only in English) and increase of the interest coupon by a high 1% if the self-chosen transparency obligations are violated.
  • It is a “green bond”: the sustainability in the sense of a conformity of the use of funds and reporting with the green bond principles of the ICMA was confirmed by imug rating GmbH in a second party opinion with “very good”.
  • Bonds significantly oversubscribed (green bonds strongly supported by regulatory requirements) and increased by EUR 5 million to EUR 55 million.
  • Quarterly interest payments and commitment to a minimum equity ratio (a supporting capital increase took place in 2021).


The URA Research analysts see the following weaknesses:

  • Comparatively small providers in a market with low entry barriers; broad regional presence (head office in NDL, bond in DEU, operational, mainly in Eastern Europe and Australia).
  • Great dependence on the weather as well as on government regulations and subsidies (most recently in some countries retroactive deterioration).
  • However, increased development of countries like Australia, in which solar power is competitive even without subsidies.
  • EBITDA interest coverage and net debt / EBITDA only sufficient due to low returns (e.g. rising personnel costs as advance payments in project development) as well as high financial debt and interest expenses typical of the industry.
  • The balance sheet equity was only positive as of September 30, 2021 due to a high revaluation reserve for property, plant and equipment (IFRS); the latter can also melt away quickly in the event of operational problems or rising discount rates.
  • In the last 5 years always a negative free cash flow including interest income (negative earnings after taxes in 8 of the last 10 years, very high investments in new solar power plants, especially in the last 3 years); this is unlikely to change much due to ambitious growth plans (including seven-fold increase in the output of their own power plants by the end of 2024) despite the planned five-fold increase in Group EBITDA.
  • The issuer is a pure holding company with no operational business. In order to serve the bondholders, it is therefore dependent on the interest payments for the shareholder loans granted (and their repayment) as well as on distributions from the around 120 subsidiaries. The latter have high bank liabilities with numerous “financial covenants” (in some cases including distribution limits); most of their assets are pledged to banks.

New On-Chain NFT Art Platform

Agencies, Uses

A leading online art marketplace, art market data and analytics provider, and global newswire, announced “ArtNFT”: this is Artnet AG’s launch of its on-chain NFT platform, its NFT Advisory Board, and ‘Artnet NFT 30’ report.

Artnet AG is listed in the Prime Standard of the Frankfurt Stock Exchange, the segment with the highest transparency standards. The majority of operations are run through its wholly-owned subsidiary, Artnet Worldwide Corporation, a New York based entity founded in 1989. Artnet Worldwide Corp. owns a London based subsidiary, Artnet UK Ltd.

Artnet’s marketplace connects leading galleries and auction houses with artnet’s global audience, offering a curated selection of over 250,000 artworks for sale worldwide. Artnet Auctions, the pioneering online-only auction platform, offers unprecedented reach, liquidity, and efficiency.

“As a pioneer of the online art industry, artnet is perfectly positioned to embrace the NFT space. Our goal is to bridge the gap between the crypto community and the traditional world of fine arts,” said Colleen Cash, Vice President of Artnet Auctions.

Artnet has an unparalleled 60 million unique users annually, making it the largest global platform for fine art. Founded in 1989, Artnet has revolutionized the way people discover, research and collect art today.

ArtNFT, Artnet’s first, on-chain NFT platform will launch on December 15, 2021, with a curated selection of works from the community’s top NFT artists. As an on-chain platform, Artnet’s goal is to provide collectors with a transparent, efficient, trustworthy, and integrated experience in their discovery and purchase of NFTs.
In order to provide the best possible works and user experience, Artnet also established an NFT advisory committee, bringing together industry experts and market and opinion leaders in the field.

Alongside the ArtNFT platform, Artnet will also publish its ‘Artnet NFT 30’ report, sponsored by ApeNFT. Harnessing the expertise of the Artnet News team and market data, the report shall provide a deep analysis of the NFT space and the people shaping its future. The development must be observed by everyone who deals with art ratings. Artnet’s data is a mission critical resource for the art rating industry, with a database of more than 15 million auction results and AI and ML driven analytics providing an unparalleled level of transparency and insight into the art market.

With the simultaneous release of the ArtNFT auction platform, the ‘Artnet NFT 30’ report, and supporting interviews with key players, Artnet is poised to become a destination for NFT artists, collectors, and professionals – continuing the company ethos of spearheading transparency, innovation, and positive change for the art industry. “The NFT world has built a multi-facetted community, and we are excited to introduce ArtNFT as a space to discover and engage with these cutting-edge works. With this launch, we are combining artnet’s global reach, knowledge and expert curation to deliver an integrated experience for the digital art world,” explained Artnet CEO Jacob Pabst.

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Scoring And Being Scored


Moody’s Corporation announced today that it has received an ‘A’ score from CDP on climate action for the second consecutive year. The top score recognizes Moody’s as one of a small number of high-performing companies out of nearly 12,000 that are leading actions to cut emissions, mitigate climate risks and develop the low-carbon economy.

It is the business of rating agencies to judge other companies. Rating and being rated – that is the practice at Moody’s. Not all rating agencies follow this model.

“As a member of CDP’s Reporter Services and Supply Chain programs, Moody’s Corporation has demonstrated environmental leadership and commitment to curb climate change within their business, as well as among their suppliers. Looking ahead, we are excited to see their continued dedication to transparency and prolonged effort to securing a net-zero, sustainable world,” said Simon Fischweicher, Head of Corporates and Supply Chains for CDP North America.

In 2021, Moody’s accelerated its commitment to achieve net-zero emissions by 2040, bringing its original target forward by ten years, and advanced its validated, interim net-zero science-based targets. Progress on these targets can be viewed in the following reports:

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Moody’s Updated Investor Presentation


Moody’s Corporation posted an updated management presentation for investors on its website,, reflecting certain information regarding the Moody’s results for the three months ended September 30, 2021, as well as updated full-year 2021 guidance as of October 28, 2021, and its posting is provided pursuant to Regulation FD. Senior management is expected use this updated presentation during meetings with analysts and investors.

According to the new presentation, Moody’s no longer sees itself as just a credit rating agency, as it was once split off from Dun & Bradstreet. Moody’s sees itself equally as a provider of financial intelligence and analytical tools supporting our customers’ growth, efficiency and risk management objectives and therefore as a global integrated risk assessment firm providing credit rating opinions, analytical solutions and insights that empower organizations to make better, faster decisions.

With Adjusted Operating Margin for Moody’s Investors Service of 61.5%, the rating agency is still the main cash cow, while Moody’s Analytics operates with a margin of 29.7%. Moody’s complete investor presentation can be downloaded here.

Use of ESG Rating Agencies Will Increase Dramatically


Nearly one in three (30%) pension funds and institutional investors say their use of ESG rating agencies will increase dramatically over the next three years, and a further 38% believe it will increase slightly. This is according to new research from quant technologies provider SigTech, who surveyed institutional investors across North America, Europe and Asia that collectively have around $935 billion of assets under management (please see the attached press release).

However, the findings reveal that 66% of professional investors interviewed said they struggle with ESG rating agencies because they can provide wildly divergent ESG scores at a company level.

Over the next three years, 14% of institutional investors surveyed by SigTech said they expect investor activism to increase dramatically, and a further 52% anticipate a slight rise.

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German Authority Restricting the Number of Bank Customers

Registrations, Regulations

The state specification of the number of customers and the limitation of the number of customers who – regardless of market demand – are allowed to use certain services, are typical features of a central administration economy in times of financial repression.

On October 5th, 2021, the Federal Financial Supervisory Authority (BaFin) ordered N26 Bank GmbH to take measures to restore proper business organization and to contain risks to operational resilience. A special representative appointed by BaFin will monitor the implementation of the measures ordered.

Specifically, BaFin has ordered the elimination of deficiencies, particularly in risk management in the areas of information technology and outsourcing management. The implementation must take place within a specified period.

The shortcomings in risk management are due to the strong growth of the bank, writes BaFin. In accordance with Section 45b (1) sentence 1 of the German Banking Act (KWG), BaFin has ordered risk minimization measures that limit customer growth and certain risk positions.

The growth in new customers of N26 Bank GmbH will be materially reduced and will be limited to 50,000 new customers per month. In addition, the exposure value on risk positions secured by real estate may not exceed EUR 500,000,000. This limit includes all countries in which N26 Bank GmbH is active.

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Assumptions of Implicit Government Support

Authorities, Criteria, Regulations

Why is it not wise to ignore an important dimension of the bank rating, not even for capital adequacy purposes?

According to the Basel Framework as it will appear in the future on January 1, 2025, banks incorporated in jurisdictions that allow the use of external ratings for regulatory purposes will assign to their rated bank exposures the corresponding “base” risk weights determined by the external ratings according to the following table:

External Credit Risk Assessment Approach

External rating of counterpartyAAA to AA–A+ to A–BBB+ to BBB–BB+ to B–Below B–
“Base” risk weight20%30%50%100%150%
Risk weight for short-term exposures20%20%20%50%150%
Risk weight table for bank exposures

“Such ratings must not incorporate assumptions of implicit government support, unless the rating refers to a public bank owned by its government. Banks incorporated in jurisdictions that allow the use of external ratings for regulatory purposes must only apply SCRA for their unrated bank exposures, in accordance with CRE20.21.”

This requirement contradicts the longstanding practice of leading rating agencies. Moody’s said in their banks’ rating methodology “our approach to incorporating our expectations related to various forms of external support, from affiliated entities, or from governments, based upon our Joint Default Analysis (JDA) framework.”

The requirement, that “such ratings must not incorporate assumptions of implicit government support, unless the rating refers to a public bank owned by its government”. The demand not only implies a disadvantage for private banks, which, due to their successful development and importance for the economy, can also count on political support. From an investor’s point of view, too, it is important to assess the default risk, including all aspects that are relevant for the classification of the probability of default. This also includes the assessment of the actions of politicians.

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Clear Rating Target Defined


Samhällsbyggnadsbolaget i Norden AB (publ) (“SBB”) has entered into a binding agreement to divest eight non-strategic properties with commercial tenants for approximately SEK 400m. This exceeds the latest external valuations (as of 30 September 2021) by 60 percent.

“We are selling the properties considerably above our most recent quarterly valuation and will use the proceeds to further strengthen our balance sheet with the aim of achieving a BBB+ rating,” says Oscar Lekander, Head of Business Development, Samhällsbyggnadsbolaget i Norden AB.

The company currently reports on its ratings as follows:

S&P Global Ratings

Long-term RatingDateOutlook
BBB-March 1, 2021Positive
Short-term RatingDateOutlook
A-3 November 30, 2020

Fitch Ratings

Long-term RatingDateOutlook
BBB-November 25, 2020Positive
Short-term RatingDateOutlook
F3November 25, 2020

Micro and Macro Location Rating Tools Managed by New CEO


Heike Gündling will take up the position as the new CEO at the Berlin software house 21st Real Estate on November 1, 2021. Gündling has many years of expertise in the real estate industry and digitization. Most recently she was Managing Director Real Estate at the global data specialist Eucon. She held previous positions as COO of the Berlin PropTech Architrave and the asset and property manager Bilfinger Real Estate as well as a long-standing member of the management team at Corpus Sireo.

“With Heike Gündling we have been able to win a proven digitization expert for 21st Real Estate and are convinced that she will successfully develop 21st Real Estate in her role as CEO”, says Antoinette Hiebeler-Hasner, Chairwoman of the Advisory Board at 21st Real Estate. “In addition to her real estate business background, we benefit in particular from her experience in the areas of digital processes and products based on artificial intelligence. This combined know-how is the ideal prerequisite for the further development and future success of 21st Real Estate. “

Sascha Klaus, CEO of 21st investor Berlin Hyp AG, comments: “Alongside climate change, digital transformation is one of the greatest challenges of our time. As Berlin Hyp, we want to actively shape this change and, in the process, fundamentally optimize our valuation process. 21st Real Estate provides us with valuable comparative rents as well as infrastructural and socio-demographic data for every micro-location. In addition, the tool from 21st Real Estate offers the possibility of calibrating micro and macro location ratings. This brings noticeable time savings with simultaneous data security for object assessment. We wish Heike Gündling every success and look forward to working with her. “

Moody’s Extends Pole Position with Bogard


Moody’s Corporation has acquired Bogard AB, a leading provider of data and information on politically exposed persons (PEPs) in the Nordic region. The acquisition advances Moody’s ability to help customers perform Know Your Customer (KYC) screening and research to address financial crime.

Bogard covers over 17,000 PEPs, relatives, and close associates across Sweden, Norway, Denmark, and Finland. The company collects, refines, and updates its data using various sources, including tax authorities, business and real estate registries, and other directories in the Nordic region.

The EU’s Fourth Money Laundering Directive entails an extension of the PEP concept, which now also covers domestic PEPs. This means that more resources are used for the activities affected by the law and that the importance of an efficient KYC process increases. With the help of Bogard’s practical experience of AML, Bogard has developed services that help customers in the Nordic market to easily and smoothly meet the requirements for PEP identification.

“Access to accurate, up-to-date information on politically exposed persons is vital for banks, corporations, and other market participants seeking to prevent money laundering and other forms of corruption,” said Keith Berry, General Manager of Moody’s KYC business unit. “Bogard’s sophisticated technology and local expertise further expands Moody’s integrated risk assessment capabilities to address financial crime, and deepens our presence in the region.”

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Rating Oligopoly Persists


“The EU requirements for providers of credit ratings have not broken the dominance of the three big agencies S&P, Moody’s and Fitch”, says a story published in Germany’s only stock exchange daily, Börsen-Zeitung. in Frankfurt on October 28, 2021. The author, Detlef Fechtner, reports on a speech deliverd by Steffen Kern, Chief Economist and Head of Risk Analysis at the EU’s financial market regulatory and supervisory authority ESMA, in Paris (France).

According to his presentation, the EU requirements for providers of credit ratings have not broken the dominance of the three big agencies S&P Global Ratings, Moody’s Investors Service and Fitch Ratings. “Hardly anything has changed in the past five years,” reported Steffen Kern on the occasion of the symposium of the Center for Financial Studies and the Institute for Banking and Financial History in cooperation with Moody’s. As Kern emphasized, “a more even distribution of market shares would be desirable”.

Kern recalled that the market share of the Big 3 – the two heavyweights S&P and Moody’s as well as number 3 Fitch by far – was 92% six years ago and is now 91%. The figures show that the many small rating agencies fail to put competitive pressure on the trio – despite regulatory support. The EU regulation from 2013 stipulates that issuers who have at least two ratings created should “consider” commissioning a small agency.

His findings show that there are apparently no market forces that would cause the leading agencies to be replaced. The often invoked “failure” of these rating agencies during the financial crisis did not lastingly break the trust in their judgments.

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Bureau Veritas Helps to Find More Truth About ESG

Products, Raters

Bureau Veritas has an interesting and promising position to support companies on their way to more sustainability. Bureau Veritas helps companies, governments and public authorities reduce their risks in terms of health, quality, safety, environmental protection and social responsibility. Those challenges are central to societal aspirations.

Bureau Veritas is a world leader in laboratory testing, inspection and certification services. Created in 1828, the Group has close to 78,000 employees located in more than 1,600 offices and laboratories around the globe. Bureau Veritas helps its 400,000 clients improve their performance by offering services and innovative solutions in order to ensure that their assets, products, infrastructure and processes meet standards and regulations in terms of quality, health and safety, environmental protection and social responsibility. Bureau Veritas is listed on Euronext Paris and belongs to the Next 20 index.

In addition to the actions deployed in its own operations, through its BV Green Line of services and solutions, Bureau Veritas is empowering organizations – both private and public – to implement, measure and achieve their sustainability objectives. The BV Green Line scope of expertise covers ESG topics in 5 specific areas:

  • Resources & Production;
  • Consumption & Traceability;
  • Buildings & Infrastructure;
  • New mobility;
  • Social, Ethics & Governance.

Being a Business to Business to Society company comes with a duty: to be exemplary in terms of sustainability internally, and to be a role model for industry in terms of positive impact on people and the planet.

The group’s commitment is to act responsibly in order to “Shape a Better World”.

This commitment was again recognized by several non-financial rating agencies during the third quarter. This is a testament to Bureau Veritas constant efforts regarding sustainability. Since September 17, 2021, Bureau Veritas joined the Euronext CAC 40 ESG Index, which identifies the 40 companies that demonstrate the best Environmental, Social and Governance (ESG) practices.

The non-financial ratings updated during the third quarter are as follows:

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Amongst other non-financial ratings of the Group: MSCI AA rating; CDP B rating, and Gold Class and Industry Mover membership in the S&P Global – Dow Jones Sustainability Indices (DJSI) 2021 Sustainability Yearbook.

S&P Global Ratings’ Revenue Increased 14%


S&P Global reported third quarter 2021 results with revenue of more than $ 2 billion, an increase of 13% compared to the same period last year.

  • Every segment was delivering revenue growth.
  • Net income increased 75% to $797 million.
  • Diluted earnings per share increased 75% to $3.30 primarily due to the debt tender premium and fees associated with the senior notes tender offer in the prior period.
  • Adjusted net income increased 24% to $855 million.
  • Adjusted diluted earnings per share increased 24% to $3.54 primarily due to very strong revenue growth.
  • The largest adjustments in the third quarter of 2021 were for costs related to the pending merger with IHS Markit and deal-related amortization related to previous acquisitions.

“The strong global economic growth, elevated M&A activity, strong stock markets, and increased volatility realized in the third quarter created a solid underpinning for our businesses. In this environment, S&P Global delivered an exceptional quarter of financial results as we continue to provide our customers with the essential intelligence they need to navigate rapidly changing markets,” said Douglas L. Peterson, President and Chief Executive Officer of S&P Global. “After delivering very strong results in a difficult 2020, we expect to meaningfully surpass those results in 2021.”

S&P Global continues to make progress on the merger with IHS Markit as the regulatory path to closing is becoming clearer:

  • The UK and European regulators have now announced their views on the transaction.
  • S&P Global and IHS Markit have committed to divest S&P Global’s CUSIP Global Services and Leveraged Commentary and Data, together with a related family of leveraged loan indices, as well as IHS Markit’s Oil Price Information Services (OPIS), Coal, Metals & Mining (CMM), PetroChem Wire, and Base Chemicals businesses.
  • Based on the regulatory feedback and these divestitures, the management now anticipates closing during the first quarter of 2022.

The Company’s operating profit margin increased 80 basis points to 51.9% due to higher incremental profits on additional revenue partially offset by merger-related costs. Adjusted operating profit margin increased 250 basis points to 55.4% primarily due to higher incremental profits on additional revenue.

During the third quarter, the Company returned $186 million to shareholders in dividends. There were no share repurchases during the quarter due to the pending merger with IHS Markit.

S&P Dow Jones Indices LLC

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S&P Global Ratings

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S&P Global Market Intelligence

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S&P Global Platts

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ECB Sidelines Private Investors


In a research piece titled “Covered bonds at a turning point?” published by Scope Ratings the dominate role of the European Central Bank (ECB) for credit rating agencies becomes once more very obvious.

“The covered bond market is in upbeat mode. But while issuance has picked up significantly, public supply will remain well below the EUR 100bn mark of previous years”, says the report. The grim news for the relevance of the rating agencies for private investors lies in the following insight of Scope Ratings’ analysts: “Private investors remain sidelined as the market remains firmly in the grip of the ECB.”

The economies of scale of a rating agency come into full effect for investors when a large number of investors are confronted with a large number of issuers. In this case, the rating agency bundles analytical competencies in such a way that it makes the results of its research accessible through independent and easily understandable rating symbols. In a market full of investors and issuers, the rating agency acts as a true agent between these two sides of the market and helps to get to know each other better.

However, if the purchase of securities was mainly carried out by the central bank, it is crucial for the development of the rating agency to be recognized by the central bank. This is exactly where the problem is with all the rating agencies that are domiciled in Europe with their headquarters, because none of the European rating agencies has so far achieved the status of being recognized by the European Central Bank. Only the ratings of American agencies are relevant for the decisions of the European Central Bank.

Every rating agency operating in Europe must be registered or certified by the European Securities and Markets Authority (ESMA), according to the EU regulation on credit rating agencies. Only those who meet a large number of qualitative and quantitative requirements can afford an application for recognition. However, this effort does not guarantee recognition by the ECB.

But what are the factors behind the development of the covered bond market in Europe? “The key factor behind the increase has been the pickup of inflation,” said Karlo Fuchs, head of covered bonds at Scope. “Changes in the yield curve mean that positive-yielding covered bonds are again possible for tenors above seven to eight years. A year ago, investors had to buy long-dated maturities and significantly increase credit risk to get positive-yielding covered bonds.”

Fuchs notes that while EUR 28.3bn of new issuance since September is positive, it remains the tip of the iceberg. “As in previous years, publicly placed covered bonds will remain net negative this year so volumes need to be taken into the context of total market activity,” he said.

The ECB now holds more than 45% of covered bond benchmarks; more than EUR 710bn throughout all monetary operations. As such, changes to monetary policy can have significant repercussions on market activity. From a credit quality perspective, the most important impact will come from the orderly transition of retained covered bonds.

Asset and liabilty matching remains the most decisive factor for the risk profile and credit quality of covered bonds. We hope that the market’s largest investor is using its influence to encourage issuers to provide additional information on the share of retained covered bonds and the way and pace in which issuers are managing them to avoid a deterioration in programmes’ credit quality,” Fuchs said.

Although the term “covered bond” has established itself in the market and covered bonds are seen by investors as a separate asset class, the term conceals a large number of different securitisations. Therefore, the services of an independent rating agency are valuable to understand the differences between the instruments and, in particular, to recognize differences in creditworthiness. Covered bond harmonisation remains theoretical, as only five countries met the 8 July 2021 deadline.

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Little Risk of Systemic Contagion from the Evergrande Crisis


“China’s ghost cities” have become a familiar trope in Western media. Beyond Kangbashi, with its other-worldly stadiums and museums, there is Chengchong in southern Yunnan province; Binhai, outside the central city of Tianjin; and Tianducheng, in the Hangzhou suburbs, with its very own replica of the Eiffel Tower.

China’s ghost cities are in the news again because of the financial travails of Evergrande Group, China’s second-largest property developer which, teetering on the brink of default with outstanding debts of more than $305 billion. What effects the crisis can have and how German developers compare requires further analysis. Therefore, in the following some insights into this.

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Olaf Scholz Did Not Care to Visit FIU


The raid on the German Ministry of Finance was the subject of a special meeting of the Bundestag Finance Committee this week.

The background to the search are investigations into employees of the Financial Intelligence Unit (FIU), who are said to have failed to forward information on terrorist financing to the judiciary and the police in good time.

The FIU is assigned to the Ministry of Finance. The statement by Federal Finance Minister and SPD candidate for Chancellor Olaf Scholz that he had never been to the FIU in Cologne caused a surprise.

According to State Secretary for Finance Wolfgang Schmidt, the Federal Ministry of Finance has no specialist supervision over the FIU, but only legal supervision. According to a report by WirtschaftsWoche, there is also a different assessment of this. Schmidt’s statement applies to operational business, but the ministry also has specialist supervision in strategic issues.

“The myth that the BMF has no technical supervision over the FIU has been refuted,” said FDP financial expert Frank Schäffler to WirtschaftsWoche. “Olaf Scholz is responsible for the organizational deficiencies of the FIU.”

A German Real Estate Price Affordability Index


A new study shows the most expensive and cheapest neighborhoods in Germany. It contains an evaluation of the current real estate prices, the minimum income that is necessary to avoid financial overload due to housing costs. The study shows an overview of the median income in the respective city as well as an exemplary calculation. The calculation shows how many years an average earner needs to pay off a property in the respective city.

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Rating Agency Violates Disclosure of Transparency Reports and More

Agencies, Authorities, Compliances, Registrations, Regulations

CRA Transparency Reports 2021

“Transparency Reports” of credit rating agencies (CRAs) are published in accordance with Article 12 and Annex I, Section E.III of the EU Regulation on Credit Rating Agencies:

  • (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies, as amended by Regulation
  • (EU) No 513/2011 of the European Parliament and of the Council of 11 May 2011 and as amended by Regulation
  • (EU) No. 462/2013 of the European Parliament and of the Council of 21 May, 2013.

Rating agencies are therefore obliged to disclose their transparency reports in order to enable everyone to obtain certainty about the functioning of the rating agency. Unfortunately, the reports are not always easy to find. Therefore, the following lists can be found with all links to the current reports.

In one case, the report cannot be found by normal search engines, but it is stored in such a way that the supervisory authority, the European Securities and Markets Authority (ESMA) can be shown a link which, however, is normally not found by internet users. The link to the missing report can be found in the following lists.

Missing transparency report

With one of the registered credit rating agency, however, there is a clear violation of the CRA Regulation in the European Union:

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There is a page that lists transparency reports, but all the links are broken and do not allow the alleged transparency reports to be downloaded. It makes no difference whether you search in German or in English. The mandatory reports are not available in neither German nor English. The violation relates not only to the most recent report, but also to previous years and other mandatory reports of the same credit rating agency. The reports, which are so important for investors and issuers, are permanently unavailable. The lack of reports is not due to temporary maintenance.

In this case it is again evident that the European supervisory authority is apparently working too slowly to punish such violations. The deficiency could be remedied by simply uploading the reports. It has been shown that it can sometimes take ESMA several years to punish a violation of the EU regulation on rating agencies. That is too late to allow market participants an up-to-date insight.

Incorrect file name

A leading American rating agency has its transparency reports ready with confusing labels. The “Transparency Report 2020” shows what is actually a transparency report for 2019. The right Transparency Report 2020 is also available, but in a different place and with a different link. This can lead to the erroneous use of this data in statistical evaluations. We have an example of this.

The following documentation proves the incorrect and misleading designations. Here is the wrong link first:

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The following links led to the correct files – with the one exception mentioned above – on Friday, September 17th, 2021:

Sorted alphabetically

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Sorted by country

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Green Light for Greensill Was Legitimate

Governance, Regulations

A Berlin rating agency remains as a scapegoat

Now it is official: In the city of Mohnheim no failure of the administration could be determined before and in the insolvency of Greensill Bank in Bremen. The responsibility is put on the “investment grade” rating, which was issued by a local rating agency in Berlin. In politics, efforts are made to limit the damage. The top German overseer, responsible for the biggest losses since World War II, is running for the Chancellery.

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After the Raid on the Ministry of Finance


SPD candidate for Chancellor Olaf Scholz is under pressure

The “governance” criterion plays an important role in ESG ratings for states. Not only credit ratings are influenced by good governance. Finance ministries have a crucial role in this.

The Osnabrück public prosecutor’s office searched the Federal Ministry of Finance in Germany this week. The Federal Ministry of Justice was also in the sights of the investigators. The background to this is an investigation against those in charge of the Financial Intelligence Unit (FIU), a special unit of customs against money laundering.

As “Spiegel” reports, German weekly news magazine published in Hamburg, there is a suspicion of thwarting punishment in the office. The FIU allegedly failed to properly forward money laundering reports from banks to law enforcement authorities.

“The FIU is a bunch of chaos. Finance Minister Olaf Scholz has not got the business under control in the past four years. That is his responsibility,” said FDP financial expert Frank Schäffler, commenting on the events.

The conditions are alarming and particularly relevant in light of the fact that the Federal Minister of Finance is currently applying for chancellorship in Germany in the federal election campaign.

A Supermarket Portfolio Not so Super

Actions, Reports

A B (Single B) is shown on the Expo rating scale. In his Investmentcheck-News KW 36/2021, Stefan Loipfinger comes to a different conclusion, mainly due to the lack of willingness to provide information.

The Exporo classification measures the relative risk using important criteria that are of great importance when making an investment decision in the real estate sector. Points are awarded for six criteria – the more points, the higher the assessed risk. “It should be noted”, warns Exporo, “that the Exporo class represents a strong simplification of complex relationships and under no circumstances can all the risks that a property or a real estate project entails be considered. Investors should therefore not use the Exporo classification as the basis for their decision.”

“The supermarket portfolio” are securities without sales prospectus (WIB according to §3a WpPG or PRIIP). The capital is passed on to Wohninvest Holding GmbH. The project company 1, the WI Objektgesellschaft 100 GmbH & Co. KG, the project company 2, the WI Objektgesellschaft 82 GmbH, the project company 3, the WI Objektgesellschaft 84 GmbH & Co. KG and the project company 4, the WI Objektgesellschaft 98 GmbH & Co. KG the borrower to the Wohninvest group of companies. The project companies are planning to carry out renovation measures on the respective properties.

Exporo sees a “very experienced developer (Wohninvest Group) with whom Exporo has already successfully financed 12 projects, 6 of which have already been repaid.” Here are more of Exporo’s “keyfacts:

  • The traditional food retailing market is stable and, according to the Retail Real Estate Report, properties with a focus on local supplies are in great demand.
  • Established and strong tenants with constant cash flow who did not suffer any losses during the pandemic.
  • Rents are at market level and the leases are indexed; average lease term is 8 years.
  • Well-maintained condition of the portfolio; Necessary maintenance measures on the objects are factored in.
  • Abstract acknowledgment of debt in the amount of the loan.

In Stefan Loipfinger’s view, the documents provided are not sufficient for a qualified investment decision. In the opinion of Investmentcheck, in addition to the investor information sheet in accordance with Section 13 of the VermAnlG, further documents with the information of a sales prospectus as defined in Section 7 of the VermAnlG should be made available.

Investmentcheck transparency rating:

Rating: 3 out of 5.

Investmentcheck has published the company’s answers: “Thank you for your request. When presenting the existing properties and financing projects on our platform, we attach great importance to transparently providing all information that investors need for their investment decision. This information can be found publicly for each project on the respective detail page on our platform. I would therefore like to ask for your understanding that we cannot answer the standardized inquiries due to the considerable additional work involved ”.

Accordingly, “willingness to provide information” and “placement numbers” did not receive a single star at

ESG Ratings: The Good, the Bad, the Ugly

Agencies, Methodologies

Headline ratings no longer enough

Prof. Dr. Nils Stieglitz gave a welcome address to the conference “ESG Ratings: The Good, the Bad, the Ugly” of the Corporate Governance Institute (Prof. Dr. Julia Redenius-Hövermann) at the Frankfurt School of Finance & Management, followed by Prof. Dr. Zacharias Sautner, showing data of Hartzmark and Sussman, 2019, proving that investors value sustainability. He introduces the subject “ESG Ratings in the Investment Process”.

“Corporate ESG ratings are the most unseful source of information”, says Zacharias Sautner. This is confirmed by various studies. ESG ratings provide data material to investment performance, supplement organization’s other research of corporate ESG performance/risk.

SustainAbility, an ERM Group company, is a think tank and advisory firm that works to inspire and enable business to lead the way to a sustainable economy. In 2010, SustainAbility undertook its first “Rate the Raters” project to better understand the environmental, social, and governance (ESG) ratings landscape and provide perspectives to help companies, investors and other stakeholders make sense of and derive more value from ESG ratings.

In general, investors recognize that ESG ratings and rankings are not going away any time soon. When
asked what changes and solutions they would like to see in the next five years the leading responses
from the survey were the following:

  • Improved quality and disclosure of methodology
  • Greater focus on relevant/material issues
  • Better linkage to company financial performance
  • Greater consistency and comparability across
  • rating methodologies
  • Greater engagement of rated companies in the
  • evaluation process
  • Consolidation of ratings

These expectations were reiterated in the interviews along with a desire for more timely coverage, more data, integration of ESG into financial reporting and the ability to evaluate corporate societal impact vs. just operational performance.

Dr. Florian Berg, Massachusetts Institute of Technology, spoke about the divergence of ESG ratings. Correlations of the varios raters’ ratings range from 38% to 71%. Based on data from six prominent rating agencies namely, KLD (MSCI Stats), Sustainalytics, Vigeo Eiris (Moody’s), RobecoSAM (S&P Global) the divergence into three sources. “We do not even know the truth, therefore we only can compare”, argues Florian Berg. “We describe ESG ratings in three elements.

  • Scope: which attributes are included?
  • Measuremaent: how ar e these attributes measured?
  • Weights: how are indicators aggreagted into one score?

Aggregation and mesurement are the biggest sources of differences. See Aggregate Confusion: The Divergence of ESG Ratings, 2019.

What are the implications for investors? According to Florian Berg, the following two tasks have to be accomplished: Clarify ESG preferences, scope and weights, and investors have to answer the question: What measurement methodology do you agree with most?

Ingo Speich, Head of Sustainability and Corporate Governance, Deka Investment, points to the fact that investors no longer look only at headline ratings, but dig deeply into the data. He outlines the problem that the regulator requires financial service providers to report on ESG criteria. However, the data required for this are not sufficiently reported by the companies concerned, so that the financial service providers are faced with the difficulty of collecting, processing and passing on this data.

Rating Agency Accused of Using Original, Then Rewritten Data

Agencies, Data

Refinitiv ESG’s rewriting not a one-time event

Prof. Dr. Kornelia Fabisik, Assistant Professor of Finance, Frankfurt School, reports on some discoveries at one of the ESG rating agencies at the conference “ESG Ratings: The Good, the Bad, the Ugly” of the Corporate Governance Institute (Prof. Dr. Julia Redenius-Hövermann) at the Frankfurt School of Finance & Management.

Refinitiv ESG is a key Environmental, Social, and Corporate Governance rating provider offering “one of the most comprehensive ESG databases in the industry”, and its ESG scores have been used (or referenced) in more than 1,500 academic articles since 2003. The scores were initially constructed by ASSET4, a company acquired in 2009 by Thomson Reuters, which became Refinitiv in 2018. Refinitiv ESG data are employed by major asset managers, such as BlackRock, to manage ESG-related investment risks.

“We document large rewriting of ESG ratings of Refinitiv ESG.” The same set of firm-year observations downloaded September 2018 and September 2020 provides evidence. For the full sample Kornelia Fabisik observerd a rewriting of 21% on average, 18 % median.

“Rewriting is not a one-time event”, warns Kornelia Fabisik. “Refinitv ESG continues to adjust the data ex-post, unannounced.”

“In April 2020, Refnitiv ESG changed the methodology used to determine the ratings.” There were two key changes: Treatment of boolean metrics and introduction of a propietary materiality matrix.

The ESG score deviations are related to firm characteristics, especially past stock returns. Firms that performed better in the past experienced rating upgrades. The ESG score deviations strongly affect the classification of firms into different ESG quantities.

“Has data rewriting stopped post methodology change? No,” ist the answer of Kornelia Fabisik, “the database changes on a weekly basis.” She shows concrete examples.

“ESG ratings industry follows an investor-pay model, whereby the data vendors compete on how useful their ratings are for ESG investments.”

“44% of carbon emission obsesrvations (Scope 1 CO2 emissions) have in some way been altered.” Specifically, 23.6% firm-years were added (i.e., data were missing in the 11/2019 download, but filled in for the 02/2021 download), 1.6% were deleted, and 18.4% were modified. The data rewriting affects all years and not just those closest to the end of the sample period.”

Prof. Dr. Kornelia Fabisik’s conclusions, as presented at the Frankfurt School conference:

  • The large differences in results that we document have implications for empirical test strategies using Refinitiv ESG data. Moving forward, researchers and investment professionals need to verify whether the original or rewritten ESG scores are needed to perform their tests.
  • For example, if the practitioners are unaware of the changes, asset managers could erroneously be benchmarked against the rewritten data that were unavailable at the time of portfolio formation (look-ahead bias).
  • She argues that the results reflect the incentive of the data provider to introduce a positive relationship between ESG scores and returns in the data, in order to demonstrate that their ESG scores are useful for data users developing ESG-related investing strategies.
  • Given that ESG research and ESG-related investment strategies are likely to grow even furhter, this is an important caveat for adhering to the status-quo.

Finance Working Paper N° 708/2020, August 2021, Abstract:

The explosion in ESG research has led to a strong reliance on ESG rating providers. The article documents widespread changes to the historical ratings of a key rating provider, Refinitiv ESG (formerly ASSET4). Depending on whether the original or rewritten data are used, ESG-based classifications of firms into ESG quantiles and tests that relate ESG scores to returns change. While there is a positive link between ESG scores and firms’ stock market performance in the rewritten data, the authors fail to observe such a relationship in the initial data. The ESG data rewriting is an ongoing rather than a one-off phenomenon.