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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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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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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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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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.

ACRA partners with EDB and Armenia

Agencies, Authorities

Challenge of maintaining independence

The Analytical Credit Rating Agency, Eurasian Development Bank (EDB), and the Ministry of Finance of the Republic of Armenia have entered into a Memorandum of Understanding that establishes areas for cooperation between the aforementioned parties, the key goal of which is to stimulate economic growth in the Republic of Armenia and the Russian Federation. The document was signed by Minister of Finance of the Republic of Armenia Tigran Khachatryan, Chairman of the Management Board of EDB Nikolai Podguzov, and ACRA CEO Mikhail Sukhov.

The Memorandum, among other things, provides for the creation of conditions for assigning a sovereign credit rating to the Republic of Armenia, increasing the availability of rating services, and expanding the rating coverage of companies that are residents of the Armenian financial market. In addition, in accordance with the Memorandum, ACRA will assign ratings to bonds issued by Armenian issuers within the framework of projects involving the EDB. A separate area of partnership will be cooperation in the field of sustainable development in the Republic of Armenia, including through the use of green finance instruments.

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The obligation to register for rating agencies, which has now been implemented in almost all parts of the world, especially in Europe, America and Asia, has sparked an academic discussion as to whether a registration obligation already hijacks dependency relationships that could influence the independence and neutrality of the rating agency in its ratings. Through close partnership relationships, the rating agency becomes a virtual external department of ministries or banks. If the partnership is abandoned, this may have consequences for the rating agency, which could pose an existential threat to the agency.

“Using money from our Technical Assistance Fund, the EDB intends to allocate a grant on an irrevocable basis, at the expense of which ACRA will carry out actions to assign a sovereign rating to the Ministry of Finance of the Republic of Armenia. This will encourage the development of ties within the Eurasian Economic Union and with other EAEU member states and pave the way for providing rating services to companies that are residents of the Republic of Armenia and have an interest in entering the Russian financial market,” commented Chairman of the Management Board of EDB Nikolai Podguzov.

“Credit ratings are an integral part of the market economy and help ensure the formation of a stable financial market with a broad base of investors. Our cooperation with the Ministry of Finance of the Republic of Armenia and the EDB will contribute to unlocking investment potential and the expansion of trade and economic ties within the EAEU,” commented ACRA CEO Mikhail Sukhov.

Billion Dollar Brand Name Given Away

Advertising, Agencies, Consulting, Histories

Rework requested

Just a few years ago, a cereal was linguistically associated with Kellogg’s. Anyone who spoke of Kellogg’s in Germany thought of cornflakes and vice versa, anyone who thought of cornflakes would also think of Kellogg’s.

In the meantime, discount chains – from Germany for example – such as Aldi and Lidl have revolutionized the world of brands. Lidl in particular attacked the big brand names directly in a spectacular advertising campaign. In 2016, Lidl began to directly compare famous branded products with its own brands and explicitly give the customer the choice of choosing the more expensive branded product or a much cheaper comparable product. The customers have made the choice, some branded products are still around today, others have completely disappeared from the shelves.

Perhaps unnoticed by many, a brand name that had been known for decades in almost every American household and even worldwide – at least among bond issuers and professional investors – disappeared. The curious thing about this story is that the brand is still being talked about even though it no longer exists. Anyone looking for this company has to use an intelligent search engine that remembers the story and therefore directs to the right page. If you search under the old name among the official registrations, you will no longer find what you are looking for. The valuable brand name appears in a footnote at best.

For the company of a rating agency, the most valuable thing is its history. The ability to correctly forecast the solvency of companies and other bond issuers can only be demonstrated over a long period of time. Trust in a rating agency develops very slowly; in the case of the leading agencies, it developed over a century. Trust in the rating agency is inextricably linked to its name. Analysts and computer models can also be quickly bought by other agencies and put on the greenfield. However, the history and corporate culture of a credit rating agency cannot simply be reproduced and is therefore a valuable asset.

For supervisory authorities such as the European Securities and Markets Authority (ESMA) as well as for the European Central Bank (ECB), the history of a rating agency is of decisive importance for the recognition, be it as a registered or a certified credit rating agency. Renaming in the agency does not play a role for the purely legal recognition. However, expectations of market participants and users of credit ratings are associated with the age of the name.

If a rating agency abandons its name, it can continue to protect the abandoned trademark if necessary. From a purely legal point of view, the old brand name may still be protected, but economically it has been given away.

2016 was also a memorable year for the US rating agency Standard & Poor’s

Standard & Poor’s Corporation was an internationally known credit rating agency. It was created in 1941 from the merger of the American companies H.V. & H.W. Poor Co. and Standard Statistics Bureau. As an abbreviation, S&P quickly caught on. Until the 1970s, the agency’s business activities could be compared to a publishing house rather than to the research and credit departments of banks.

In the 1990s, almost all of the agency’s products were also offered on paper and not primarily electronically. A parent company like McGraw-Hill, which is itself a publishing group, fits such a “publishing company”. McGraw-Hill was an American publisher founded in 1909 and based in New York City, known for textbooks and school books and financial information services.

In 1959 they had sales of $ 100 million. In 1961 they took over F. W. Dodge Corporation (which had its focus on the construction industry) and in 1963 the Webster Publishing Company, with which they entered the market for textbooks for elementary schools and high schools, which they expanded in 1965 with the takeover of the California Test Bureau. With the takeover of Shepherd’s Citations in 1966, they moved into the field of legal books and with the takeover of Standard & Poor’s in the same year in the field of financial information services. In 2011 it was split into S&P Global and McGraw-Hill Education (taken over by Apollo Global Management in 2012).

5 years after the break-up of the group, the famous brand name finally came to an end. S&P Global had hired a global brand transformation company to develop a unified branding strategy: Landor, founded in 1941 by Walter Landor, who pioneered some research, design, and consulting methods that the branding industry still uses. Landor has also advised Coca-Cola and Kellogs.

Landor belongs to the WPP group of companies: WPP plc is a British multinational communications, advertising, public relations, technology, and commerce holding company headquartered in London, England. WPP’s brand consultancies Landor and FITCH have now grouped under one entity named “Landor & FITCH”. Since January 2019, FITCH has been part of the Landor family under new stewardship. FITCH should not be confused with rating agency Fitch Ratings.

While the consultancy itself kept its 1940s name, they recommended Standard & Poor’s to abandon the 1940s name. Landor was founded 1941, Standard & Poor’s formed in 1941. In 2016, the year in which the discounters started their massive attacks on the established brand names, the brand name Standard & Poor’s was abandoned, while Landor continued to use his famous name. The renaming took place at a time when the defense of brand names was particularly important.

The addition “global” is particularly old-fashioned and out of date: As early as the turn of the millennium, the internet economy made it clear that practically every company can claim to be globally active. Even the information that is held by the smallest companies is accessed worldwide, as the example of RATING EVIDENCE GmbH from Frankfurt am Main, Germany, shows. The map traces the countries from which the website was able to record visitors (as of September 4, 2021):

As the following retrieval from September 4, 2021 shows, the name “Standard & Poor’s” can no longer be found on the agency’s website itself in all documents since 2016. If you search for the old company name, you will find documents from 2015 or older:

The famous name of the rating agency is no longer written out anywhere. If the old documents are deleted one day, the name will even disappear entirely from their own website. Anyone looking for the name “Standard & Poor’s” will one day no longer find what they are looking for at the agency.

Although the internet has grown exponentially in the last 5 years and the number of information offers and bloggers has increased significantly, there are still many more sites that speak of “Standard & Poor’s” and not of “S&P Global Ratings”.

An estimate of how many pages the term “S&P Global Ratings” is used on can be determined using the Google search engine. In terms of search results, it must be taken into account that tens of thousands of pages have already been published by the rating agency itself and may be part of these search results.

Despite the dramatic growth of the Internet in the last few years, there are still more pages quoting “Standard & Poor’s” than “S&P Global Ratings”. Anyone who thinks that these are just old pages that have not yet been updated can be convinced of the opposite:

The agency is also still listed under its old name in the popular Internet reference works:

Google Scholar provides a simple way to broadly search for scholarly literature. Search across a wide variety of disciplines and sources: articles, theses, books and so on. Students and scientists from all over the world use this database. Here, too, it becomes very clear how the attempt to establish the new brand name has failed:

Standard & Poor’s is one of the few companies that has made a name for itself in school textbooks. Anyone who studies investment and finance at one of the business schools will sooner or later hear from the credit rating agencies and, among them, in particular from the two market leaders Moody’s Investors Service and Standard & Poor’s. In the United States, the CFA Institute is one of the most important educational institutions beyond the business schools. The CFA Institute plays a role similar to that of the German Association for Financial Analysis and Asset Management in Germany. The CFA Institute is a leading organization for the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society. There can hardly be a greater honor for a rating agency than being a name that is part of the examination knowledge for professionals, the knowledge relevant to the exam for professional competence.

Even this important institution did not get the name change. All documents on the website can only be found under the old name “Standard & Poor’s”, but not under the new name “S&P Global Ratings”:

All of this leads to a sober balance: the rebranding has not been successful in the last 5 years. As has already been shown earlier, there is no mention of the new name even in specialist circles. For companies like Apple or Coca-Cola it is clear that the brand name is a valuable part of the company.

Who would think of renaming Coca-Cola to “CC Global Drink”?

The following world map of “Google Trends” shows in which countries Standard and Poor’s was searched for for the last 12 months up to September 4, 2021. Such a map can only be displayed on Google Trends if a sufficiently high number of search queries have been registered. The world map speaks a clear language, because it shows that many Internet users still make the effort to type in the long company name “Standard & Poor’s” into the search engine in order to find the rating agency. Judging by the number of search queries, the renaming does not seem to have arrived in these countries in particular: Germany, Sweden, Portugal, Switzerland, and United Kingdom.

A famous and traditional brand name became a senseless combination of letters and words. If the name “Standard & Poor’s” is no longer used anywhere and is not cultivated as a brand, it is completely forgotten where the name came from. With the renaming without history, the memories of the story also end. In this credit rating business in particular, it is all about showing off many years of experience and expertise.

The credit rating agencies have gone through many ups and downs over the decades of their activity. In the dot-com bubble, promises made by companies that promised new markets and “a new economy” were lightly believed. In the global financial crises, rating agencies were blamed for overly optimistic ratings. All of these events left deep wounds that have long healed. Hence there is no need to give up a good name for a “letter salad”.

With the keywords: “Would you like your ratings poor, standard or OK?Willem Okkerse went on business trips about the risks of AEX listed companies. Even these puns by the deceased rating expert could do no harm in the brand name.

The rating agency “Standard & Poor’s” had demonstrated that it could learn from mistakes and draw conclusions. The undesirable developments were cracked down on. The rating agencies were subjected to even stricter regulation in the USA and comprehensive legal control in Europe. Laws have also been passed in Africa and Asia which give rating agencies a special status in many countries.

The services of a rating agency are not like an app from an “AppStore” that was only invented a few years ago, in 2007. In the dynamic environment of apps and webs, name changes may correspond to changed user needs in quick succession. The strength of the leading agencies lies in the fact that they have used comparable rating symbols and scales for decades, which promise comparability and continuity. The renaming of the agency did not reflect the nature of the agency’s activities.

Four businesses unite as one financial powerhouse“: The renaming appears to follow from a disregard for the meaning of names. A name always stands for visions and demands on the future. If you chop up the name beyond recognition, you also violate the identity of the company. The names “S&P Global Market Intelligence”, “S&P Global Ratings”, “S&P Dow Jones Indices” and “S&P Global Platts” suggest a comparability of the diverse activities, which is not given in reality. On the one hand there are companies that provide factual market information, on the other hand there is a rating agency that draws up analysts’ opinions.

Again questions arise about the brand names

Recent corporate development events raise the question of how the corporate group’s branding should be structured. The experiences from the unsuccessful relaunch of 2016 must be taken into account. Brand names alone can be worth billions. To destroy a brand name means to destroy value for the owners. The owners of the brand names do not sit in the consulting firms, but in the general meetings of the shareholders.

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Standard & Poor’s. But “S&P Global Ratings”, Who?

Advertising, Agencies, Marketing

Standard & Poor’s gave away a strong name

“Landor announced that it has provided brand strategy and design services to McGraw Hill Financial for the company’s bold new brand identity as S&P Global. Landor partnered with the company to create a new name and design system that confidently marks S&P Global as the leader in delivering essential intelligence to companies, governments, and individuals.” The press release of May 3, 2016 introduced the text about the rebranding. What about the acceptance of the new brand name five years later?

Despite owning Standard & Poor’s, the S&P 500, the Dow Jones Index, and Platts – some of the most iconic benchmarks and market intelligence brands in the world – McGraw Hill Financial (MHFI) was commonly perceived as a textbook publisher. With a clearly established business strategy, Landor helped MHFI “define its true value and claim its unique position in the market. As S&P Global, the brand tells a new story and opens an auspicious chapter in its impressive history.”

Founded by Walter Landor in 1941 and today a global leader in brand consulting and design, Landor helps clients create agile brands that thrive in today’s dynamic, disruptive marketplace. Their work shall enable top brands—from Barclays to BMW and Tide to Taj – “to stand for something while never standing still”.

Benchmarks and essential intelligence form the backbone of the financial ecosystem, with credit ratings and indices constantly referenced to bring context and clarity to investment decisions. Landor focused the new brand on the pivotal role S&P Global plays as the common denominator in the world of finance, providing this essential intelligence to investors.

There was a sophisticated argument behind the renaming of the group of companies. In practice, however, the new company name is still a long way from establishing itself. For the credit rating agency in particular, S&P is still struggling globally to enforce the new name, even though it is actually to be used in a legally binding manner. The rating agency is regulated in many jurisdictions around the globe.

Ratings and rating agencies are quoted by many issuers and named on their websites. Here are some examples of how the agency’s new name is still ignored after half a decade (access to all of the websites below from September 3, 2021):



Deutsche Lufthansa

Fnac Darty 


Merck KGaA






The selection of these issuers was purely random, regarding the question of how S&P Global Ratings is presented. In the sample, none of the issuers gave correct information about the agencies by which they were assessed. All of them used the old name and not the new brand identity developed by Landor.

The European issuers would actually be obliged to name the credit rating agency correctly, as the rating agency is subject to regulation by the European Securities and Markets Authority (ESMA). The correct name of the European subsidiary of the US rating agency is not “Standard & Poor’s”, but “S&P Global Ratings Europe Limited“.

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Moody’s Work With Revenue Grid

Advertising, Agencies, Procedures, Technology

Revenue Grid, a Mountainview, California-based revenue platform, raised $20 million in Series A funding. “800,000 sales pros use Revenue Grid to win faster and with more confidence”, says the website. The company is proud to have Moody’s as a customer.

W3 Capital led the round and was joined by investors including ICU Ventures. W3 Capital is a family owned Private Equity investor seeking partnerships with other founder and family owned companies, facilitating ownership transition and enabling management teams to lead their businesses into the future. W3Capital seeks control investments.

Revenue Signals are contextual, actionable notifications that tell a whole sales org what is going well or poorly throughout the whole sales process. These alerts and notifications are called “Signals”, because they are designed to signal the sales team about the next best step they should take now, or about anything that doesn’t go according to plan in the pipeline, process, or performance. They are the driving force behind guided selling because they give sales teams an instrument to remove guesswork, control each point in the sales process, and set a unified sales approach.

Pipeline visibility provides understanding into the actual state of the sales pipeline at any particular moment. For sales leadership, it means being able to track key deals, numbers, and thresholds in real time, and understanding why the situation is the way it is and where to move to get to the numbers a company needs.

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Which Rating Agencies The World Is Looking For In Germany


Some surprising observations

Many Internet users do not bother to memorize the exact domain of a website, but simply enter a clear keyword into the Google search engine in order to be able to simply click on the desired result and visit the desired website. The displayed search results are therefore of great importance for the impression that a user receives from the respective rating agency.

As reported in an earlier post (“The Only Credit Rating Agency Recognized by BaFin“), an agency recognized by the European Securities and Markets Authority (ESMA) uses this function in order to present itself with a unique differentiating feature from all other agencies, namely with recognition by the German Federal Financial Supervisory Authority (BaFin). The catch is that BaFin has not been responsible for overseeing rating agencies for almost a decade, since 2012. Today, BaFin no longer gives its own recognition to rating agencies, which the rating agencies would allow to refer to in their advertising. The key to the rating business is the authorization according to the EU regulation.

Against the background of the ban on advertising with BaFin’s recognitions, the question arises of what significance the search results have in practice. How often could it happen that people are misled due to incorrect information in the search results? How often are rating agencies searched for that give false information?

Since search engines such as Google display their search results depending on the location, it must be taken into account that Google will most likely display rating agencies in the search results that are located in the vicinity or at least in the country of the searcher.

Only the following registered credit rating agencies are based in Germany:

Name of Credit Rating AgencyRegistered
Scope Hamburg GmbH (previously Euler Hermes Rating GmbH)2010
Creditreform Rating AG2011
Scope Ratings GmbH (previously Scope Ratings AG and PSR Rating GmbH)2011
GBB-Rating Gesellschaft für Bonitätsbeurteilung GmbH2011
ASSEKURATA Assekuranz Rating-Agentur GmbH2011
Moody’s Deutschland GmbH2011
Rating-Agentur Expert RA GmbH2015
DBRS Ratings GmbH2018
Source: European Securities and Markets Authority (ESMA), last updated list of May 7, 2021

Further below are the results from Google Trends, shown by snippets of screenshots. The information was accessed on August 27, 2021 on Google Trends. For the assumptions, requirements and interpretation of these results, please refer to their website.

Google Trends provides access to a largely unfiltered sample of actual search requests made to Google. It’s anonymized (no one is personally identified), categorized (determining the topic for a search query) and aggregated (grouped together). This allows Google to display interest in a particular topic from around the globe or down to city-level geography.

Here are a few notes on the study design:

  • The searches here were carried out with the shortest possible search term that unmistakably leads to the respective rating agency. For example, if you enter the word “Assekurata“, the rating agency you are looking for is already at the top of Google’s search results. “ASSEKURATA Assekuranz Rating-Agentur GmbH” is the correct full name of the agency. However, it can be assumed that most users do not bother to type in the full name including the legal form (“GmbH”), but are content with the word “Assekurata“. By the way, that is also the website’s domain name,
  • Entering the word “Creditreform” does not land you directly on the website of the rating agency, “Creditreform Rating AG“, but on the website of the group of companies to which the agency belongs. In addition, there are no other confusing results among the first search results. All search results for the keyword Creditreform lead to the right group of companies.
  • But if you search for the word “Scope”, you will likely get a translation of the word or a lexicon entry for “scope”. Who searches for this word “scope”, often searches for the following words as well, writes Google: Vortex, Scope statement, Zoom lens, C-Programming language, Carbon dioxide, and more. All of these search terms are not at all related to the EU-registered credit rating agencies in Berlin and Hamburg. Only those who want to be sure to find one of these rating agencies will find it under the following entries: “Scope Ratings” or “Scope Hamburg“. It is therefore imperative to add the word “Ratings” or, in the case of the Hamburg-based agency, to add the word “Hamburg”.

The more German federal states are marked in a shade of blue and the darker the blue, the more inquiries Google was able to record.

ASSEKURATA Assekuranz Rating-Agentur

12 months as of August 27, 2021. Klick on it for update!

Creditreform Rating

12 months as of August 27, 2021. Klick on it for update!

DBRS Ratings

12 months as of August 27, 2021. Klick on it for update!

GBB-Rating Gesellschaft für Bonitätsbeurteilung

12 months as of August 27, 2021. Klick on it for update!

Moody’s Deutschland

12 months as of August 27, 2021. Klick on it for update!

Rating-Agentur Expert RA

12 months as of August 27, 2021. Klick on it for update!

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Interest in rating agencies from all over Germany

As the figures show, there is keen interest in most rating agencies domiciled in Germany. So these rating agencies are searched again and again: Assekurata, Creditreform, DBRS, and, last not least, Moody’s. It also shows that the important financial centers in Germany are obviously relevant for the number of searches for these agencies. The city of the headquarters of the rating agency also seems to play a role, as does the industry or international orientation.

It should be emphasized once again that the searches are only made for those agencies that are also based in Germany. Rating agencies such as S&P Global Ratings or Fitch Ratings, which also have offices in Germany, but rather have their registered company domiciled in another country, are not taken into account. This search restriction is not associated with any judgement of the services provided by these agencies, but serves better comparability of the search results.

On the basis of the evidence shown above, the following hypotheses could be discussed:

  • Assekurata is based – and therefore searched there – at the insurance location Cologne, but is also wanted in the financial center of Frankfurt.
  • Creditreform is sought after all over Germany, as the company group also enjoys a reputation as an information bureau or credit agency.
  • In the case of DBRS, the connection to Morningstar and the fund rating might have led to a high number of searches.
  • With its international reputation as a US market leader, Moody’s is sought in the internationally important financial centers of Germany.

Now, however, the question arises why there are not a lot of search queries to be observed with the other agencies that would allow Google Trends an overview of the whole of Germany with blue coloring. Why do these agencies find less interest? The following facts and assumptions can be put together for this purpose. However, these can only help to understand the results, but cannot replace more detailed investigations.

The financial services industry specialist

As an independent European rating agency, GBB-Rating offers clients a portfolio of services encompassing rating, risk analysis, scoring and benchmarking. GBB-Rating’s credit assessments focus on banks, building societies and leasing companies. GBB-Rating is a subsidiary of Prüfungsverband deutscher Banken e.V. (Auditing Association of German Banks).

As an independent credit rating agency registered with the European Securities and Markets Authority (ESMA), every year it analyzes the credit standing of private commercial banks in Germany and numerous European institutions. Since 2012 the ratings produced by GBB-Rating have been one of the factors used to calculate the contributions payable by the banks to Entschädigungseinrichtung deutscher Banken GmbH (EdB), the subsidiary of the Association of German Banks that guarantees savers’ deposits.

Most of the ratings from this agency are not published at all, but rather communicated directly to the banks assessed. The rating is primarily important for the relationship between banks and the deposit guarantee system.

The Compensation Scheme of German Private Banks (EdB) was entrusted by the German Federal Finance Ministry with the task of running the statutory deposit guarantee and investor compensation scheme for the private banks in Germany. The EdB’s job is to compensate the creditors of a bank assigned to it where the bank is unable to repay deposits. Liabilities arising from securities transactions conducted by a credit institution (i.e. bank) as defined in the EU Capital Requirements Regulation (CRR) are also deemed to be deposits.

Comparatively few experts are concerned with these very special questions. They are also supplied directly by the rating agency via distribution lists. An explanation for the low search volume on Google might be sought in these circumstances.

The continental specialist with roots in Russia

Rating-Agentur Expert RA GmbH is the legal entity of RAEX-Europe, affiliated with the international group RAEX. The group has more than 20 years of experience in rating and analytical industry. RAEX-Europe assigns classic credit ratings according to the international scale as well as non-credit ESG ratings (environmental, social & governance). In December 2018 together with the leading Chinese rating agency CCXI, the Pakistani VIS Group and the Islamic rating agency IIRA, RAEX-Europe signed a memorandum dedicated to the preparation and publication of analytical products for the Silk Road countries.

The agency doesn’t even run a German website. Their orientation is international and the domiciliation in Germany is a decision for Germany as a location in the European Union, since EU-registered rating agencies must have a seat in the European Union. The services of this rating agency are aimed at a special professional audience such as those with interests in the post-Soviet states.

The all-rounder with a claim to market leadership

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The Graveyard of Authorized Credit Rating Agencies in the European Union

Agencies, Authorities, Certifications, Registrations

Rating agencies have been registered in the European Union since 2010 in order to operate in accordance with the EU regulation on rating agencies of 2009 (CRAR). Dozens of agencies have therefore made use of the option, but also the obligation, to register or get certified. Rating agencies are only allowed to operate in the European Union after authorization, namely registration or certification.

A public list is kept at the European Securities and Markets Authority (ESMA) on the registered or certified agencies. This list is an important reference for all market participants in order to find out about the approved agencies.

In order to make it easy to find it, the list of authorized credit rating agencies was linked e.g. from the website from the beginning. Since 1998, long before the word “blog” found its way into the German language, the website has been dealing with credit rating issues and the statutory or voluntary regulation and self-regulation of credit rating agencies.

It is less well known that a number of rating agencies have now returned their licenses. The return of licenses was particularly evident through brexit, when all those rating agencies that are based in Great Britain and were registered there could no longer be recognized by ESMA.

The following is a complete list of 16 de-registered or de-certified credit rating agencies as of May 7, 2021:

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Credit Rating Agency Authorisation 2021

Agencies, Authorities, Certifications, Registrations

Links to websites of the Credit Rating Agencies authorized in the European Union.

The credit rating agencies listed below have been registered or certified by the European Securities and Markets Authority (ESMA) in accordance with the Credit Rating Agencies Regulation. Domains of websites are added. According to ESMA, the list was last updated on May 7, 2021.

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GlobalCapital Celebrates KBRA


2021 Securitization Awards.

Kroll Bond Rating Agency (KBRA), a global full-service rating agency, was named “Securitization Rating Agency of the Year” by GlobalCapital at its U.S. Securitization Awards 2021.

“KBRA was founded in 2010 to set a standard of excellence and integrity, and we have been loyal to this notion since then,” Eric Thompson, Global Head of Structured Finance at KBRA, said. “It is an honor to be recognized by key market participants as the Securitization Rating Agency of the Year, proving that our founding principles and innovative approach have led us here. I’m proud to be part of a company that focuses on providing best-in-class service to investors—a common goal shared across all sectors.”

In 2011, KBRA issued its first rating in the CMBS sector. The company’s Structured Finance Group has since rated over 2,000 transactions. KBRA considers itself also a thought leader for its unique environmental, social, and governance (ESG) approach, setting them apart in the credit rating agency space.

“We look forward to continuing our engagement with the market and providing comprehensive, timely analysis,” Thompson said.

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Kickers Don’t Hit


URA Research GmbH is once again coming up with new insights into bonds.

After reviewing and analyzing the financial reports published in 2021, the URA ratings for 13 bonds were confirmed. For 2 bonds (FC Schalke 04 III and Katjes III) the assessment has deteriorated. The 4th bond from Schalke 04 and the 1st bond from Werder Bremen were newly included in the URA monitoring. In the case of follow-up bonds, the coupon usually falls due to the overall lower interest rate level.

“External ratings have almost not been obtained for a long time,” writes Jens Höhl, Managing Director of URA Research GmbH. When his company started as URA Unternehmens Ratingagentur AG in 1997, the prospects for external ratings on the bond markets in Germany were still different. While competitors continued and are now embroiled in scandals such as at the Greensill Bank, the URA wisely withdrew from this business of publishing credit ratings years ago and has since been working as a specialist with the company “URA Research GmbH“.

“Because of the frequent private placements, fewer and fewer securities prospectuses are published. At least the bond conditions improve in individual cases “, Jens Höhl continues, and at least there is no deterioration overall: e.g. obligation to publish financial reports after a certain period of time, sometimes also linked to interest rate step-ups, or limitation of financial debt or minimum equity ratio, involvement of trustees, e.g. for bonds based on the Nordic bond format.

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Ernst & Young No Longer Has Any Equity On Its Balance Sheet


Auditors have been making double-digit million losses for years.

At Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (EY) in Germany, “equity” is on the assets side, namely as a “deficit not covered by equity” in the amount of € 62,715,000. The provisions, liabilities, deferred income as well as deferred taxes and fiduciary obligations exceed the company’s assets by an eight-digit amount in euros within a year. Receivables against this company are therefore no longer fully covered by assets on the balance sheet.

The trend line that had to be shown here for equity and equity ratio for EY on March 3, 2021, continues as expected. According to the consolidated financial statements and group management report as of June 30, 2020 of the Stuttgart-based parent company, the company no longer has any equity. Turnover was weaker than that of the other large auditors in Germany.

Under the chairman of the supervisory board, Georg Graf Waldersee, the German company has only made losses for years. This is also the case in the current reporting period. In the consolidated income statement for the financial year from 07/01/2019 to 06/30/2020, the consolidated net loss for the year is stated at € 49,608,000.

The billions in damages from the Wirecard scandal are not included: “In connection with the Wirecard case before and after the balance sheet date, claimants attempted to assert civil claims against us with out-of-court letters. On June 30, 2020, we were served complaints from investors that were judged to be unfounded both internally and by the law firms commissioned to defend us.”

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The Role of Ratings in Greenwashing

Agencies, Criteria, Read

Austria’s Financial Market Authority (FMA) warns consumers against “greenwashing” in the new edition of their consumer information series “Let’s talk about money”.

“Greenwashing” means that a financial product is advertised as environmentally friendly, green or sustainable – i.e. colored green – even though it does not actually meet these standards. In this way, potential investors are to be tempted to make investments that they would not have made or would only have made at a different price with knowledge of the actual effects of the financial product.

“Greenwashing” is carried out in particular through misleading or false information in advertising, consultations and product documentation. It is often associated with a corresponding optical design, for example through the use of the color green and through representations of unspoiled nature.

Furthermore, terms such as “ecological” or “green” are often used, or a certification that does not even exist is advertised, reports the FMA. The FMA report could be supplemented by a warning about sustainability ratings that were either developed in a fast-track process and thus ignoring a number of important aspects, or even applied without any technical expertise.

Environmental, Social, and Corporate Governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. Some rating agencies are providing investors with its ESG analysis through a digital platform, comprising more than 1,600 companies in the MSCI world stock market index. They claim to have methodology that is applicable to the whole universe of corporates, from small and medium-sized companies to large listed multinational enterprises.

Such claims are a clear indication that the complexity of the analysis is being underestimated, especially when a team of analysts who is only very small in relation to the number of companies assessed and overwhelmed by the size of the task is involved in the acquisition and evaluation of the data.

Therefore, investors should heed the regulatory warnings: “Sustainable investments are not per se safer than comparable conventional investments. Always ask questions and be critical,” warns the FMA Board of Directors, Helmut Ettl and Eduard Müller. Particular caution is required on the so-called “gray capital market”, that is, the unregulated capital market.

Investments in “green real estate”, wind and solar parks or hydropower plants are often offered in the “gray capital market”. If such projects are designed as qualified subordinated loans, company investments, bonds or profit participation rights, one should be aware that if the company becomes insolvent, all the money invested can be lost.

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Two Are On The Supervisory Board Of Greensill Bank. Then Why Scope Ratings And Not GBB-Rating?


A Complicated Choice Between Conflicts of Interest.

The rating of an independent credit rating agency is a valuable source of information also for the supervisory board of a company, especially for the supervisory board of a bank. The thoroughness of the analysis by credit rating analysts helps to understand the external view onto the company or onto the bank and to follow up on indications that work towards a deterioration in creditworthiness.

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Scope’s Greensill Bank Rating Tragedy

Agencies, Authorities, Governance, Read, Regulations

The Federal Financial Supervisory Authority (BaFin) filed criminal charges Against The Bank’s Board Members.

The Federal Financial Supervisory Authority (BaFin) in Germany received monthly reports from Greensill Bank AG (Greensill Bank) about the bank’s balance sheet data from January 2019 on. This is evident from the answer given by Parliamentary State Secretary Sarah Ryglewski on March 12, 2021 to written questions from members of the German Bundestag (Drucksache 19/27704). Greensill Bank’s total assets increased rapidly in 2019 from EUR 763 million at the beginning to EUR 3.8 billion.

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On March 3, 2021, BaFin finally issued a ban on the sale and payment of the bank due to the threat of over-indebtedness. The bank had to close for business with customers. BaFin prohibited it from accepting payments that were not intended to repay debts to the bank (moratorium). In addition, the BaFin filed criminal charges against the board members of Greensill Bank.

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Clever Commission From the City of Münster in Westphalia

Agencies, Analysts, Authorities, Experts

An automated safety net for municipal investments has not existed since 2017.

If municipalities do not want to set up extensive bond research departments themselves, in which financial analysts examine thousands of qualitative data and annual financial statements from issuers of financial products, the municipalities depend on the independent judgments of reliable credit rating agencies and specialists. The scandal of the Berlin rating agency Scope around the Greensill Bank in Bremen shows the billions in consequences of an embellished credit rating (see Börsen-Zeitung).

The city of Münster in Westphalia did not rely on the judgment of a rating agency registered in the European Union – the process in itself is a disgrace not only for the local rating agency Scope Ratings in Berlin, but also for the European Securities and Markets Authority in Paris, because far away in Paris are the supervisors, who already had internal compliance reports, transparency reports and notifications about the processes in Berlin. There was no lack of information.

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Relatives Are Relative

Agencies, Whistleblowing

The scandal with the Greensill Bank brings back earlier scandals by the same rating agency to mind.

How close can relationships be without being a problem for the rating and for the rating agency? What degree of kinship could influence the independence of judgment?

The story of the fund initiator Interlife Management GmbH seems like a penny dreadful: The company belonged to the father of the business scheme initiator and major shareholder of today’s Scope SE & Co. KGaA. Scope not only gave the first Interlife fund a good rating: A company owned by Scope manager Martin Passenheim took over sales. Ratings with a bitter aftertaste are not a recent phenomenon, but part of the gene code of this rating agency.

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human teeth

Scope Ratings Game of Corporate Law

Agencies, Authorities, Whistleblowing

The “Scope Group” is a bunch of constant changes under company law.

As a result of the Scope Ratings GmbH billion Euro scandal about Greensill Bank in Bermen, which was rated as “investment grade” for the first time in 2019 and is now insolvent, the precise activities of this local rating agency in Berlin have gained public attention. Therefore, the background to the recent Berlin takeover of Euler Hermes Rating GmbH (EHRG) is being researched.

The world-famous brand name “Euler Hermes” was not acquired by Scope. Even back then, when Scope took over FERI EuroRating Services AG, a credit rating agency registered by the European Securities and Markets Authority (ESMA) and headquartered in Bad Homburg, on August 1, 2016, Scope did not care about continuing the good name of the acquired credit rating agency.

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TELOS ESG Fund Check Professional Launched


An engine room of ESG fund management is in the making.

EccoWorks GmbH, known in Germany for their sustainability consulting, and the long-standing specialist for fund ratings in the institutional sector, TELOS GmbH, have bundled their know-how in the field of sustainability to develop an ESG fund rating product as part of a cooperation.

The “TELOS ESG Fund Check Professional” rating product developed in the course of the cooperation is supposed to support professional investors in finding suitable asset managers who are qualified in the field of sustainability. With the help of the ESG rating offered at fund level, institutional investors, for example, can gain confidence that the managers they hire have the necessary experience and qualifications to integrate ESG within the funds they offer.

With an innovative approach, the focus is on the “engine room of fund management” and rounded off by an analysis of the fund’s financial performance. “The integrated rating based on qualitative and quantitative factors as well as the addressing of institutional investors clearly distinguishes us from other ESG fund ratings on the market”, emphasizes Prof. Dr. Henry Schäfer, managing partner of EccoWorks GmbH.

The TELOS ESG Fund Check Professional aims at all asset classes, including liquid as well as illiquid assets. Areas of investigation are the integration of ESG criteria within the investment approach itself, among other things, quality management as well as the responsible fund manager or the team behind the fund and their embedding in networks. The knowledge gained in the rating process is summarized in a meaningful certificate and the rating (platinum / gold / silver …) is also summarized in a rating seal and thus made transparent to the market and thus to investors. The fund management also receives a strengths / weaknesses analysis.

With the TELOS ESG Fund Check Professional, the two partners also want to build a bridge between asset managers and professional investors.

Secured Income by Securing Deposits

Agencies, Clients, Regulations

The system of deposit insurance in the private banking industry makes GBB-Rating almost indispensable.

Cologne-based GBB-Rating, a company of the Auditing Association of German Banks, offers credit ratings with a price / performance ratio challenging its US peers. It is approved by the European Supervisory Authorities (ESAs) as an External Credit Assessment Institution (ECAI) for commissioned and unsolicited ratings for the calculation of capital requirements according to BASEL III / IV, CRR and Solvency II Directive. GBB-Rating is supervised by the European Securities and Markets Authority (ESMA) in Paris, which is responsible for all credit rating agencies in the European Union (EU).

The following graphic shows how GBB-Rating (i.e. GBB-Rating Gesellschaft für Bonitätsbeurteilung mbH) is embedded in the relationships between the associations and their subsidiaries:

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The following graph shows active relations and historic relations of managing directors, authorized officers, shareholders and the number of ative or historic relations to other companies:

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Since 1996, GBB-Rating has been active on the German market and increasingly also internationally in other European countries for ratings and credit assessments. With more than 20 rating analysts and around 220 ratings and benchmarking of financial services institutions every year, GBB-Rating is one of the local agencies in Germany and Europe. In the 2018 financial year, an average of 35 employees – excluding managing directors – were employed. The focus of their work is in the financial services sector with particular expertise in assessing banks, building societies and leasing companies. They have also been offering Pfandbrief ratings since 2020.

Assigned ratings and rating reports provide a decision-making basis for management and shareholders, a strengths / weaknesses analysis as a basis for determining the position, starting points for improving opportunity / risk management and monitoring the success and risk factors. The credit rating serves as a negotiating argument for business and refinancing partners as well as an image-promoting marketing tool.

Medium-sized and smaller leasing companies in particular can benefit from a recognized rating when opening up new sources of refinancing at credit institutions and, if necessary, realize advantages or savings potential in the (future) calculation of equity requirements (“leasing risk weight”) through more favorable risk weights.

GBB-Rating offers many years of expertise in the development, backtesting and validation of risk classification procedures (scoring) and data analysis and methodological support for risk management.

Among their services are:

  • Credit assessments: Drawing on many years of experience, detailed knowledge of the relevant processes and risk systems within enterprises, and of clients’ industry and company-specific requirements, GBB-Rating has originated a series of customized rating procedures. Credit assessments focus on banks, building societies, leasing companies and SMEs.
  • Review and validation of risk classifications: The independent support in the review of rating and scoring models in accordance with the requirements for risk classification procedures (MaRisk AT 4.1), quantitative and qualitative validation of the stability, selectivity and failure probability of the models and processes used.
  • Development of risk classification procedures: Development and implementation of individually optimized score cards and rating models as part of risk classification procedures in accordance with MaRisk BTO 1.4.
  • Data analysis: Well-founded portfolio and benchmark analyzes to support decision-making, implementation of various data analyzes to increase transparency and to optimize overall bank management
  • Technical support for risk management: The GBB platform is a tailor-made system solution for optimized information, credit management and credit assessment processes.
  • Service provider for deposit insurance schemes: In addition to designing and supporting the implementation of risk-based contribution systems, GBB also offers backtesting and validation. The design of early warning indicators (e.g. traffic light system, stress tests, reporting, benchmarking) is also one of their areas of responsibility.

Funds are maintained by the banks in such a way that all banks belonging to the deposit protection fund pay in a certain amount annually. The contribution to be made by each bank depends on the company’s turnover and creditworthiness. In Germany, GBB-Rating is commissioned to assess the risk in the private deposit insurance fund. In the statutory deposit insurance scheme, regulatory ratios and external ratings are used as scalar factors.

The voluntary deposit protection fund of the Federal Association of German Banks was founded in 1976 and today exists alongside the statutory compensation scheme of German banks that has existed since 1998.

With the voluntary security fund of the private banks, there was a security limit until December 31, 2014, which is 30% of the relevant liable equity of the respective bank per creditor. In the case of a bank’s liable equity capital of, for example, 100 million euros, the assets of each individual customer are secured with up to 30 million euros, provided the fund has the appropriate funds. The protection limit will be gradually reduced: From January 1, 2015, the protection limit per creditor will be 20%, from January 1, 2020 initially 15% and from January 1, 2025 then 8.75% of the bank’s liable equity capital, which is relevant for deposit protection.

It is crucial for bank customers that banks must inform their customers before opening an account whether or not they belong to the deposit protection fund, Section 23a of the German Banking Act. Today this query can also be carried out online at the Association of German Banks.

The protection of the voluntary deposit protection fund begins where the statutory protection of the compensation scheme of German banks ends. In the event of the insolvency of a participating institution, the deposit protection fund takes over the parts of the deposit that exceed the EUR 100,000 limit up to the respective protection limit.

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First crypto fund ratings in Germany

Agencies, Assets, Methodologies

TELOS GmbH, known for their fund ratings in the institutional sector, and DLC Distributed Ledger Consulting GmbH announce a strategic cooperation in the field of crypto fund ratings.

The aim of the cooperation is to connect two worlds – that of classic asset management and that of digital asset management. On the one hand, the partners want to create more transparency in the crypto market, which is still new and relatively unknown for institutional investors. On the other hand, the qualitative rating should give investors security about the know-how of the fund providers in the management of this asset class.

“In the first step, crypto values ​​such as Bitcoin or Ether will probably find their way into multi-asset strategies, after the inclusion of illiquid assets, among other things, one can speak of ‘multi-asset 4.0’. Many investors are already indirectly already today invests in Bitcoin without knowing it – for example, if they hold shares of Tesla, MicroStrategy or the parent company of Twitter, Square, in their portfolio “, says Alexander Scholz, Managing Director of TELOS GmbH.

The expertise of TELOS as an established rating agency, even in complex fund products, and the in-depth expert knowledge in the field of crypto assets from DLC Distributed Ledger Consulting should complement each other: “We take on the role of technical specialists in the cooperation and also advise on innovative incentive models for digital assets. Specifically, for example, we carry out smart contract audits of the tokens in a fund and in this way significantly increase security for the respective asset manager and, of course, the investor,” says Dr. Sven Hildebrandt, who was employed by a capital management company before DLC was founded.

Both cooperation partners assume that the universe of crypto funds, which is attractive for institutional investors, will increase exponentially. As market participants understand the asset class and its attractiveness in the overall portfolio context (correlation effects, improvement of the Sharpe ratio), questions about practical portfolio implementation and risk management will come to the fore, especially when choosing the right investment product and asset manager.

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How to Celebrate Best Asset Manager Ratings


Firstfive AG is Germany’s leading rating agency for assessing asset managers in wealth management.

The best asset managers are honored annually. Based on the Sharpe ratio, i.e. the risk-adjusted performance, the results from three risk classes are combined using a score. The best Sharpe ratio receives 33.33 points and is the benchmark for the following places. They receive points according to the percentage of the top result achieved. The winner is the bank / asset management company with the highest total number of points (out of a maximum of 100). The winner must show outstanding performance in three different investment strategies.

For three evaluation periods, firstfive AG honored the best asset management companies in a digital ceremony in the Villa Bonn in Frankfurt am Main. Despite the pandemic, the award ceremony took place again in a dignified setting, which is a good contrast to video conferences and webinars. The recording of the gala event was broadcast live on February 22nd, 2021 and is available here as video.

The winner in the 12-month rating is Rhein Asset Management S.A. The top placement in the 3- and 5-year rankings is again occupied by ODDO BHF Trust GmbH, which with a total of 3 podium places – as in the previous year – also achieved the best overall result of all participants. The best asset management companies have to show top performance in three different risk classes in order to achieve top positions. This demanding task gives the firstfive Awards a particularly high priority.

“Our evaluations are made on the basis of real depots. The firstfive AG database of around 180 depots is unique and we distinguish ourselves from performance projects or depot contests from other institutions not be identical”, emphasizes Jürgen Lampe, CEO of firstfive AG.

The award-winning duo Liisa Randalu (viola) and Erik Schumann (violin) provided top-class accompanying chamber music. The members of the Schumann Quartet played Duetto No. 2 by F.A. Hoffmeister in C major and songs by Franz Schubert, including the Erlkönig.

Another highlight was the tasting of award-winning St. Kilian whiskeys from Germany’s largest distillery, in which the digital guests were able to participate in real life thanks to samples sent in advance. Not the risk / return ratio but look, smell, taste and run down are the evaluation criteria for a whiskey. Mr. Andreas Thümmler, founder and managing director of St. Kilian Distillers GmbH, explained the pot still process for the production of single malt whiskey according to Scottish tradition. He also showed investment opportunities in premium whiskey with exceptional return opportunities, which you can look at again here.

This year in the 12 month rating, Rhein Asset Management S.A. was just ahead of the game. 1st and 2nd place in the dynamic risk classes and a good 6th place in the balanced class were enough for the Luxembourgers to win the overall ranking. Mainly technology stocks from the USA made above-average performance contributions. Volksbank Kraichgau eG had to be content with second place, just beaten. With a slightly larger gap, ODDO BHF Trust GmbH reached 3rd place

Results overview – 12 months

  1. Rhein Asset Management S.A., Wasserbillig [81.2 pts.]
  2. Volksbank Kraichgau eG, Wiesloch. [79.8 pts.]
  3. ODDO BHF Trust GmbH, Frankfurt a. M. [68.1 pts.]
  4. LIQID Asset Management GmbH, Berlin [52.0 points]
  5. DJE Kapital AG, Pullach [47.2 pts.]

“We are very happy about the award for first place in the 1-year ranking in this very moving and demanding year 2020! The pandemic with all its effects presented us with unforeseen challenges in the past year. It is precisely in such phases that we as asset managers need keeping a cool head and making intelligent decisions. We are all the more proud that we were able to increase the assets entrusted to us by our clients even in this difficult phase. The early identification of global trends in connection with our risk-adjusted strategy was again the basis of our success”, said Mark Bügers, Managing Partner, Rhein Asset Management S.A.

“The second place in the 3-year rating and 3rd place in the 5-year rating also show that our investment strategy is sustainable and successful regardless of short-term market trends”, continued Bügers. “The Covid-19 crisis in particular has strengthened our investment process once again. The selection of stocks that benefit from global growth issues and meet our criteria is the foundation of our philosophy. At this point, it is particularly important to us to thank our customers for their loyalty and trust.”

In the 3-year ranking, top placements in the moderately dynamic and dynamic class gave ODDO BHF Trust GmbH 1st place with a clear lead. Rhein Asset Management S.A. took second place, followed by Hauck & Aufhäuser Privatbankiers AG.

Von links: Jürgen Lampe (firstfive), Tilo Wannow (Oddo BHF Trust), Mark Bügers (Rhein Asset Management), Prof. Jan Viebig (Oddo BHF Trust), Antje Erhard [Fotomontage firstfive AG]

Results overview – 36 months

  1. ODDO BHF Trust GmbH, Frankfurt a. M. [97.4 pts.]
  2. Rhein Asset Management S.A., Wasserbillig [85.7 pts.]
  3. Hauck & Aufhäuser Privatbankiers AG, Frankfurt a.M. [76.2 points]
  4. LIQID Asset Management GmbH, Berlin [70.0 points]
  5. Hypo Tirol Bank AG, Innsbruck. [69.0 pts.]

In the supreme discipline, the 5-year evaluation, ODDO BHF Trust GmbH from Frankfurt a.M. was able to defend last year’s victory with a very narrow lead. Successful stock picking in Europe and North America remains the basis of success. LIQID Asset Management GmbH, the digital asset management company from Berlin, has to be content with second place. Rhein Asset Management S.A. from Wasserbillig secured another place on the podium.

Results overview – 60 months

  1. ODDO BHF Trust GmbH, Frankfurt a.M. [96.7 points]
  2. LIQID Asset Management GmbH, Berlin [95.2 points]
  3. Rhein Asset Management S.A., Wasserbillig [92.1 points]
  4. Hauck & Aufhäuser Privatbankiers AG, Frankfurt a.M. [81.8 points]
  5. DJE Kapital AG, Pullach [75.0 points]

“Due to the corona pandemic,” said Joachim Häger, partner and board member, ODDO BHF AG, “2020 was an extraordinarily challenging year on the stock market. Nevertheless, our asset management can come up with excellent performance figures. This is primarily thanks to our proven quality approach with an active country, sector and individual stock selection. We are pleased that we were able to secure assets for our customers in all risk classes and achieve significant added value in the equity-heavy custody accounts.”

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Role of the ICM Outreach Support Team at a Rating Agency


Integrated Content Marketing (ICM) at a rating agency is key to ensuring that the rating agency’s brands meet business goals, communicate messages in an engaging way, and accurately assess their performance.

An integrated content marketing strategy helps ensure that a rating agency is broadcasting a clear, consistent message across all marketing communication channels by collaborating with other departments and digital marketing teams.

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New Rating Approaches for Crypto Exchanges and Crypto Custodians

Agencies, Models, Read

It was not just Tesla’s spectacular entry into the world of bullish cryptocurrencies that attracted the attention of investors to this young asset class. Thousands of crypto currencies are now part of a universe that ranges from outright fraud to serous applications. Keeping an overview here is hardly possible for individual private investors in particular – hence a typical market situation in which rating agencies are required. Classifications by rating symbols are easy to understand and therefore reach many investors.

The need has already been recognized internationally in various countries. Correspondingly, websites like, which aim to give investors orientation with ratings and rankings, catch the eye among the search results. Like the cryptocurrencies, the rating agencies have also emerged from different motivations that need to be carefully considered.

Finanz Verlag GmbH is now commissioning DLC ​​Distributed Ledger Consulting GmbH to carry out crypto ratings. Initially, tests are planned with regard to crypto exchanges and crypto custodians, an expansion to other products in the digital asset environment is planned.

Two evaluations are planned for 2021

  • The first test – with a focus on crypto exchanges – is published in the investor magazine “BÖRSE ONLINE”.
  • Another test follows – with a focus on crypto custodians – in the publication “Trends in Asset Management (TiAM)”, which is aimed at professional investors.

Dieter-Thilo Fischer, Managing Director of Finanzen Verlag GmbH, explains: “Crypto assets are already on the agenda of many investors – and they almost certainly have a great future ahead of them.” Nevertheless, for many it is a “cryptic” asset class with new challenges, in which an independent source of information is particularly important. “We are therefore pleased to have gained an extremely experienced blockchain specialist consultancy for our planned ratings with DLC.”

Dr. Sven Hildebrandt, managing partner of DLC Distributed Ledger Consulting, adds: “Of course we are pleased to be able to work for such an established publisher in the financial market environment. And you certainly feel confirmed when our company’s assessment is so widely spread. We are very much aware of the responsibility that this entails. After all, over 300,000 people read the publications of the Finanzen Verlag. “

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Reach and Scope of Scope Ratings

Agencies, Read

Google Trends provides access to a largely unfiltered sample of actual search requests made to Google.

It’s anonymized, because no one is personally identified. It is also categorized, i.e. determining the topic for a search query, and aggregated, i.e. grouped together. This way it displays interest in a particular topic from around the globe or down to city-level geography.

Google Trends normalizes search data to make comparisons between terms easier. Search results are normalized to the time and location of a query by the following process: Each data point is divided by the total searches of the geography and time range it represents to compare relative popularity. Otherwise, places with the most search volume would always be ranked highest. Different regions that show the same search interest for a term don’t always have the same total search volumes.

Many people don’t bother typing in an address like in full to get to this website. If you use a Chrome browser, all you have to do is write “scope ratings” and then go to the website you are looking for with one click. That is why the data from Google Trends is interesting to find out in which countries the Berlin rating agency is searched.

As the evaluation on February 5, 2021 shows, Scope Ratings are mainly sought in Hungary.

Scope Ratings is commissioned by the Hungarian Central Bank to carry out the ratings of the applying issuers and the bonds to be issued.

That was back in 2019. “Scope successfully prevailed in the bidding process and convinced the central bank with its expertise,” said the then COO of Scope Group, Torsten Hinrichs. “The added value lies in a differentiated approach that opens up a new perspective – for example by taking regional characteristics into account.” Torsten Hinrichs left Scope Group by end of 2019.

The structure of the bond purchase program presented by the Hungarian Central Bank under the name “Bond Funding For Growth Scheme (BGS)” is similar to that of the European Central Bank (ECB). The total volume of 300 billion Hungarian forints (HUF) corresponds to around 921 million euros, which is 0.7% of Hungary’s gross domestic product. Bonds from Hungarian companies that do not come from the financial sector are purchased, denominated in HUF with terms between three and ten years. A rating of at least B+ is required for an award. The ratings for bond issues that have taken place are published. The bond purchase program was launched on July 1, 2019.

The background to the program is the intention of the central bank to diversify the financing alternatives for Hungarian companies, i.e. to open up other possibilities for raising capital in addition to traditional bank loans, including a liquid market for corporate bonds. The central bank will buy up to 70% of a single bond.

In the two years since the program was introduced, the demand for Scope Ratings is mainly in Hungary, as the Central Bank of Hungary buys bonds from Hungarian companies with a Scope rating under the conditions mentioned. Since the Hungarian central bank buys the overwhelming majority of corporate bonds, the interest in scope ratings is likely to exist primarily among Hungarian companies that are interested in their refinancing by the Hungarian central bank.

This graphic from Google is therefore also interesting, as it shows as of February 2021 that Google received search queries for scope ratings mainly from Berlin over the last year in Germany.

From the federal states with the financial centers of Germany, where most of the institutional investors and family offices with large assets are located, above all in Frankfurt and Munich, but also in Düsseldorf or Hamburg, Google was unable to register any search queries worth mentioning.

In order to answer the question of the importance of scope ratings for investors, the following facts arise:

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Green Bubbles and Adverse Selection Based on Sustainability Criteria

Agencies, Investors

Why can ESG scores lead to unsustainable portfolios and “green” bubbles?

Louis Larere, Portfolio Manager SRI, Zadig Asset Management, investigates this question.

Sustainability is currently the most important trend in asset management and the integration of sustainability criteria in investment processes is already considered an “operating license” for many. Asset managers primarily use what are known as ESG scores, i.e. scores that are created according to ecological and social criteria as well as those for the appropriateness and correctness of corporate governance. A handful of rating agencies are in this business.

Louis Larere
Louis Larere

“But such an ESG integration should not be equated with sustainable investing,” warns Louis Larere, pointing out the following weaknesses in ESG ratings:

ESG rating providers differ greatly in their assessments of the same company. The ratings are only correlated to an average of 61 percent. In the banking sector, on the other hand, the assessments of the creditworthiness of different providers for a company are 99 percent correlated.

The peer group approach of rating agencies leads to biased results. If companies are only compared with their industry or their sector, this leads, for example, to the Portuguese oil company Galp Energia receiving an MSCI ESG rating of “AAA”, while Fresenius is only awarded “BBB” and thus in the health sector belongs to the bottom 50 percent.

These flaws in the system make it theoretically possible to put together a portfolio that consists exclusively of oil, gas and tobacco companies and that would also receive an MSCI ESG rating of “AA”. Good ESG ratings do not mean that a company is also a sustainable investment. There is also the risk that the focus on ESG ratings will create a “green bubble” and that the same companies will always be added to the portfolios by investors. The resulting overvaluation reduces the potential returns on such “sustainable” portfolios.

Louis Larere’s criticism is remarkable, as it shows the fine balancing act that rating agencies have to walk. When it comes to credit ratings, the agencies are often accused of having too similar ratings because – as Louis Larere correctly observes – even when different methods are used by different analysts, the rating agencies come to the same conclusions for most debtors.

The supervisory authorities that watch over the credit rating agencies are meticulous to ensure that the activities of the competitors remain strictly separate in the credit rating and that as many agencies as possible are in tough competition with one another. However, the consequence of this supervision of credit ratings has not yet been that the agencies have come to significantly different judgments, so that many smaller competitors of the leading agencies are redundant. The situation is different with ESG scores, for which there is no supervision in either the USA or Europe.

Zadig Asset Management, one of the partner boutiques of iM Global Partner, is therefore moving away from the schematic application of ESG ratings and focusing on companies that are in a transition phase to a more sustainable business model and will achieve radical improvements in two or three years and whose turnover contributes at least 10 percent1 to achieving the United Nations Sustainable Development Goals (SDG). Across the portfolio, the SDG share of sales is currently around 40 percent. With this anti-cyclical view of the market, Zadig is able to create portfolios that differ significantly from those of the competition.

How To Run A Credit Reporting Agency In China

Agencies, Authorities, Bureaus, Compliances, Governance, Read, Registrations, Regulations

The People’s Bank of China issued a Draft for comments on “Measures for the Administration of Credit Investigation Services“. It is intended to regulate the credit investigation business and related activities, and promote the healthy development of the credit investigation industry. This is formulated in accordance with the “Civil Code of the People’s Republic of China”, “The People’s Bank of China Law of the People’s Republic of China”, “Regulations on the Administration of Credit Investigation Industry” and other laws and regulations.

Who is affected?

These Measures shall apply to individuals, enterprises, institutions and other organizations that carry out credit investigation services and related activities within the territory of the People’s Republic of China, but these Measures are also applicable to the credit investigation business and related activities of residents of the People’s Republic of China (natural and legal persons) outside the People’s Republic of China.

The term “credit information” refers to various types of information used to determine the credit status of individuals and enterprises by providing services for financial and economic activities. Personal and corporate identity, address, transportation, communication, debt, property, payment, consumption, production and operation, fulfillment of legal obligations and other information, as well as analysis and evaluation of the credit status of individuals and companies based on the foregoing information information are all considered to be “credit information”.

When engaging in credit investigation business and related activities, the lawful rights and interests of information subjects shall be protected in accordance with the law, information security shall be protected, and the leakage and abuse of credit information shall be prevented. Engaging in credit investigation business and related activities shall follow the principles of independence, objectivity, and impartiality, and shall not make discriminatory arrangements that violate social public order and good customs, and shall not provide exclusive services with the help of an advantageous position.

The collection of credit information by credit reporting agencies in China shall follow the principle of “minimum and necessary” and shall not collect excessively.

Credit reporting agencies shall not collect credit information in the following ways:

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When collecting credit information, credit reporting agencies shall review the business legitimacy, information sources, information quality, information security, and authorization of information subjects of the information providers to ensure the legality, accuracy and sustainability of the collection of credit information.

Credit reporting agencies in China shall clarify their respective rights and obligations with information providers in terms of data correction, objection handling, and information security. The People’s Bank of China expects credit reporting agencies operating personal credit reporting services to formulate plans for collecting personal credit information, and report to the People’s Bank of China on matters such as the collected data items, the correlation with credit, and the protection of information subjects’ rights and interests.

The collection of personal credit information by a credit reporting agency shall obtain the consent of the information subject, and clearly inform the information subject of the purpose, source and scope of the collection of credit information, as well as the possible adverse consequences of not agreeing to the collection of information. Where a credit reporting agency obtains personal consent through an information provider, the information provider shall clearly inform the information subject of the name of the credit reporting agency. When collecting non-public corporate credit information, credit reporting agencies shall adopt appropriate methods to obtain the consent of the enterprise. The collection of credit information related to the performance of duties by corporate directors, supervisors, and senior executives by credit reporting agencies shall not be regarded as personal credit information.

Credit reporting agencies shall follow the principle of objectivity in sorting, storing, and processing credit information and shall not tamper with the original data. If a credit reporting agency finds information errors in the process of sorting, storing, and processing credit information, if the information provider reports an error, it shall promptly notify the information provider to correct it; if it is an internal processing error, it shall promptly correct it, and improve the internal processing flow.

5 Years Retention Period

The retention period of bad personal information collected by credit reporting agencies in China shall be 5 years from the date of termination of bad behavior or incident. When bad credit information expires, the credit reporting agency should delete it. If it is used as sample data, it should be de-identified and moved to a non-production database for storage to ensure that personal credit information is not directly or indirectly identified. The People’s Bank of China encourages redit reporting agencies to separate personal identification information from other credit information, and implement physical isolation.

Credit reporting agencies shall take appropriate measures to conduct necessary review of the identity, business qualifications, and purpose of use of information users. They shall conduct necessary review of the network and system security and compliance management measures of information users who access the credit reporting system through the Internet, monitor the inquiries, discover violations, and stop services in a timely manner. Credit reporting agencies shall conduct necessary review of information users to ensure that information users obtain the consent of the information subject when inquiring about personal information and use it for the agreed purpose. The use of credit information provided by credit reporting agencies by information users shall be used for lawful and legitimate purposes and shall not be abused.

Information users shall use personal credit information for clear and specific purposes, and use them in accordance with the purposes agreed upon with the information subject. If they exceed the agreed purposes, they shall obtain separate consent. Information subjects can inquire about their own credit information from credit reporting agencies. If the credit reporting agencies have not collected the information subject’s information, they should clearly inform them that if they have collected the information subject’s information, they should provide the information subject with the collected information content.

Credit reporting agencies in China shall provide personal information subjects with free credit report inquiry services twice a year through various methods such as the Internet, business premises, and entrusting other institutions. If a credit reporting agency entrusts other agencies to provide free credit report query services to information subjects, it shall review the qualifications, service capabilities, safety protection facilities, and compliance requirements of the entrusted agency, and be responsible for the entrusted agency’s inquiries and leaks by joint and several liability.

The subject of personal information in China has the right to request a complete credit report from the credit bureau. The content of credit reports provided by credit reporting agencies to individuals shall not be less than the content of credit reports provided to information users. Credit reporting agencies in China shall not charge information subjects for the reason of deleting bad information or not collecting bad information.

Where credit reporting agencies provide credit information inquiry products and services such as credit reports, they shall objectively display the content of the inquired credit information, and explain the content of the inquired credit information and professional terms. If a credit reporting agency provides a credit report product, the content of the report shall include the information user’s inquiry records, objection marks, and information subject statement. Credit reporting agencies that provide evaluation products and services such as portraits, scoring, rating, etc., shall establish evaluation standards, and must not use elements that are not related to the credit of the information subject as evaluation standards. Where a credit reporting agency provides personal credit evaluation services, all data used for evaluation shall be displayed in the credit report provided to the information subject. Credit reporting agencies shall disclose the scoring methods and models used in personal credit evaluation products, and the degree of disclosure shall be limited to reflecting the credibility of the evaluation.

If credit reporting agencies provide corporate entities or debt credit rating services, they shall comply with relevant management regulations on credit rating businesses. Where credit reporting agencies provide anti-fraud products and services, they shall establish standards for identifying fraudulent credit information.

Credit reporting agencies providing credit information inquiry, credit evaluation, and anti-fraud services shall report the following matters to the People’s Bank of China or its branches above the provincial capital (capital) city center branch (hereinafter collectively referred to as the branch):

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Credit reporting agencies shall not provide the following credit reporting services and products:

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Credit reporting agencies shall formulate safety management systems involving all business activities and equipment and facilities, and adopt effective protective measures to ensure the security of credit information.

Individual credit reporting agencies and corporate credit reporting agencies that store or process the credit information of enterprises of more than 500,000 enterprises shall meet the following requirements:

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Credit reporting agencies shall ensure the safety of the operating facilities and equipment of the credit reporting system, security control facilities and APPs and other mobile internet terminals, do a good job in daily operation and maintenance management of the credit reporting system, and ensure the physical security of the system, network security, and host security, application security, data security and client security, prevent data loss and destruction, and prevent illegal intrusion into the credit investigation system.

The credit reporting agency shall do a good job in personnel safety management in terms of personnel recruitment, personnel leaving, personnel assessment, safety awareness education and training, and external personnel visit management. Credit reporting agencies shall strictly limit the authority and scope of staff who inquire about and obtain credit information, and they shall establish operating records for staff inquiring and obtaining credit information, and clearly record the time, method, content and purpose of staff inquiring and obtaining credit information.

Credit reporting agencies shall establish an emergency response system. When major credit information leaks occur or are likely to occur, they shall immediately take necessary measures to reduce the harm and report to the People’s Bank of China and its local branches.

For credit reporting agencies to carry out credit reporting services and related activities in China, the production database and backup database shall be located in China. Credit reporting agencies that provide personal credit information abroad shall comply with the provisions of national laws and regulations. Credit reporting agencies providing corporate credit information inquiry services overseas should review the identity and purpose of information users, ensure that credit information is used for reasonable purposes such as cross-border trade and financing, and provide it in a single inquiry. Credit reporting agencies shall not transmit the credit information of batch enterprises in a certain region or industry to the same information user overseas. Credit reporting agencies that provide corporate credit information overseas should file with the People’s Bank of China. If a credit investigation agency cooperates with an overseas credit investigation agency, it shall file with the People’s Bank of China after the cooperation agreement is signed.

Credit reporting agencies shall disclose the following matters to the public and accept social supervision:

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Six UK-Based Credit Rating Agencies Lost Their Registrations

Agencies, Read

The European Securities and Markets Authority (ESMA), the supervisor of European Union (EU) credit rating agencies (CRAs), has withdrawn the registrations of CRAs based in the United Kingdom (UK). ESMA’s decisions follow the end of the transition period of the UK’s withdrawal from the EU, which occurred on December 31, 2020. UK credit ratings will need to be endorsed for EU use.

The CRA Regulation requires ESMA to withdraw the registration of a firm where it no longer meets the conditions under which it was registered, including being a legal person established in the EU.

AM Best Europe-Rating Services Ltd, DBRS Ratings Ltd, Fitch Ratings Ltd, Fitch Ratings CIS Ltd, Moody’s Investors Service Ltd, and The Economist Intelligence Unit Ltd are no longer on ESMA’s list of CRA authorisation.

The ratings issued by the above mentioned CRAs cannot be used for regulatory purposes in the EU unless endorsed by an EU CRA. ESMA, in a previous communication on October 27, 2020, confirmed that all UK-based CRAs except the Economist Intelligence Unit Ltd took steps to ensure that an EU CRA is willing and able to endorse its credit ratings.

Why Art Rating Criteria Need To Be Repaired

Agencies, Criteria, Read, Repairs, Reports

The Artprice Report, covering 20 years of Contemporary Art auction history, is a basis for understanding why evidence-based “art rating” is more important and urgent today than ever before. The complexity and global nature of the art market has never been greater.

In the last two decades, decisive impetus came from China. “In 20 years,” writes Thierry Ehrmann, CEO and founder of Artprice by, “the growth of Chinese turnover in the Contemporary Art segment has been phenomenal: multiplied by 65. Including Hong Kong (10%), China generated 33% ($659 million) of the global market in 2019) versus 35% ($695 million) for the United States.”

Thierry Ehrmann sees a multitude of sociological, geopolitical and historical factors, all of which contributed to the rapid rise of Contemporary Art in the global Art Market: “A marginal segment until the end of the 1990s, Contemporary Art now accounts for 15% of global Fine Art auction turnover, and is now its primary growth driver, having increased +2,100% over 20 years.”

Undergoing profound structural changes, with evermore artists (from 5,400 artists to nearly 32,000 today) and evermore artworks (from 12,000 lots offered to 123,000) the 2000 to 2019 numbers show an expansion also geographically, from 39 to 64 countries active in auctions.

“One of the primary factors in its growth was the relatively sudden accession of Chinese buyers to the market, whose arrival also fundamentally transformed it. With the explosion of the Chinese economy, wealthy entrepreneurs began taking an interest in art collecting, while others started buying artworks to diversify their investments.”

The increasing resemblance of the art market to the capital market leads to calls for agencies that – similar to rating agencies like S&P Global or Moody’s on the capital markets – provide investors with market data and data on risks as reliable data providers and opinion leaders.

“The emergence in China of an ‘art business’ sector was both rapid and impressive,” says the Artprice Report, “and it included the appearance of specialized art investment funds. Mimicking stock market practices, ‘shares’ in works were offered with a view to making significant capital gains, quickly if possible.”

“Meanwhile, China began to play a much more active role in the global market. Driven by frenetic economic growth,” goes the simple causality, “it became the new counterbalance to the United States (which it overtook for the first time in 2010). The Chinese eldorado became more and more attractive to international investors, including the world’s leading auction operator, Christie’s, which decided to focus its sales on Shanghai.”

China not only has an impact on market conditions, but also on Contemporary Art itself. In 2019, Jeff Koons’ status of world’s most expensive living artist was reconfirmed thanks to a sculpture which sold for $91 million. The object of the new record was “兔子” (Rabbit, 1986) – considered the most iconic of his works and, by extension, one of the most iconic works in the entire canon of Contemporary Art.

Art rating criteria need to be reconsidered. As the Artprice Report shows, the top positions of the internationally most sought-after artists are taken by the Chinese. This fact shatters, for example, the image of the People’s Republic of China that is widespread in the West as a hardly democratic state with restricted freedom of artistic expression. These restrictions should theoretically have a negative effect on ratings. According to evidence provided, free market conditions in China mobilized more capital and more artistic talent in such a short time than any other country in the world. The economically liberal working environment for cutting-edge artists in China seems to be more inspiring than for their peers in highly state-subsidized art sectors in the West. However, the relevance and siginificance of rating factors and the relationships with other rating criteria require further research.

Companies such as (changing its name to and are benefiting from these developments. For the latter, listed company, the share price has more than doubled in the last six months alone.

How A Credit Rating Agency Should Determine the Weights of ESG Criteria

Agencies, Criteria, Definitions, Methodologies, Read

Moody’s “General Principles for Assessing Environmental, Social and Governance Risks” relate to issues which may have greater downside risk than upside potential for rated issuers. The introduction of these principles is perceived by many issuers as an additional pressure that weighs on them in order to prove their sustainable management. This pressure is unsettling, especially since eco-activists seem uncessantly to come up with new ideas about what additional requirements companies should meet. However, Moody’s methodology shows what rational consideration is all about.

As an example, a company with a track record of health and safety violations may face litigation risks that pressure its operating income, whereas another company that demonstrates outstanding health and safety practices may not see a comparable credit benefit.

Environmental, Social and Governance (ESG) considerations are not always negative; they can be credit strengths. A company or government that has outstandingly strong governance is more likely to have a management culture of 360-degree risk assessment and informed decision-making, which support long-term creditworthiness. Due to the relatively low incidence of ESG strengths that are meaningful to credit profiles, they are also more likely to be considered in other rating considerations outside of a scorecard, but there are exceptions. An example is the business profiles and cash flow stability of renewable energy developers. They may benefit from supportive government policies.

The term ESG refers to a broad range of qualitative and quantitative considerations that relate to the sustainability of an organization and to the broader impact on society of its businesses, investments and activities. Examples include a company’s carbon footprint, or the accountability of a company’s management or a nation’s government.

The criteria used by ESG rating agencies vary widely. Investors as well as issuers complain about the different assessments. In particular, there are no standards by which the correctness of ESG ratings can be objectively checked. The arguments ultimately remain tautological: If arms production is deemed unethical, then companies receive a poor ESG rating if they manufacture weapons. The “performance” of the ratings of an ESG rating agency is good if it has correctly identified companies that manufacture weapons. But whether the underlying dogma is correct is not discussed.

The classification of ESG considerations across financial markets is imprecise, due largely to the multiple and diverse objectives of various stakeholders. Ethical judgments differ massively, even if they have common roots, as in the case of the three world-leading religions of Abraham. Leading credit rating agencies like Moody’s therefore do not get involved in the moral discussion. Instead, they are focused on the aspects of ESG that can have a material impact on the credit quality of an issuer.

Several institutions, notably the Principles for Responsible Investment and the Sustainability Accounting Standards Board, have sought to establish voluntary definitions for ESG, but at this point there is no single set of ESG definitions or metrics that is comprehensive, verifiable and universally accepted. It is not just Jewish, Muslim and Christian approaches that differ. There are thousands of differences among Christians alone. Arbitrary definitions of human rights, fundamental rights, etc. are the result. Legal definitions are therefore only the result of political negotiation or enforcement processes in a political trial of strength and should not be confused with something scientifically observable in nature.

Therefore, the definition of ESG issues is also dynamic because what society classifies as acceptable evolves over time, resulting from new information (e.g., the impact of carbon dioxide emissions) or changing perceptions (e.g., what constitutes privacy). The only way for serious credit rating agencies is therefore to provide transparency into their assessment of ESG risks and benefits by developping an ESG classification nomenclature that includes

  • components (E, S and G) and, for each component,
  • categories and
  • subcategories of the ESG considerations that rating analysts view as most likely to have credit implications across sectors.

“For the E component, the categories are the same for public- and private sector issuers,” writes Moody’s in its updated cross-sector methodology, “and for S and G components, there are different categories for public and private sector issuers.” The materiality, time horizon and credit impact of ESG risks vary widely. Issuers’ fundamental credit strengths or vulnerabilities can mitigate or exacerbate ESG credit impacts. In some cases, ESG-related benefits can be a credit strength. ESG considerations may inform forward-looking metrics or scenario analyses, or they may be incorporated qualitatively.

Given this background, a credit rating agency should seek to incorporate all material credit considerations, including ESG issues, into ratings and to take the most forward-looking perspective that visibility into these risks and related mitigants permits. An ESG rating methodology should only discuss the general principles underpinning the analysis of current and developing ESG risks that can affect credit quality for issuers and transactions in all sectors, because only defaults can be statistically recorded and counted and can thus prove the objectivity of the standards. In this way, credit rating agencies secure the trust of investors who expect rating analysts to provide clear assessments of default probabilities. Moody’s “General Principles for Assessing Environmental, Social and Governance Risks” delivers an example of this approach to ESG considerations.

Future Divisional Structure of S&P Global

Agencies, Read

S&P Global (NYSE: SPGI) and IHS Markit (NYSE: INFO) announced the future divisional structure of the combined company, effective upon completing their pending merger:

Divisional Structure

  • S&P Global Ratings will be led by Martina Cheung, currently President of S&P Global Market Intelligence, upon close. Effective immediately, Martina Cheung will also lead the
  • S&P Global ESG team, consolidating cross-divisional ESG assets with a leadership group designed to scale quickly and accelerate growth.
  • S&P Global Market Intelligence will be combined with IHS Markit’s Financial Services business upon close and led by Adam Kansler, currently President of Financial Services at IHS Markit.
  • S&P Global Platts will be led by Saugata Saha, currently CFO of S&P Global Market Intelligence and Platts, effective January 2021. After close, Mr. Saha will continue leading Platts, combined with the Energy & Natural Resources business of IHS Markit. S&P Global Platts is the provider of information, benchmark prices and analytics for the energy and commodities markets.
  • Martin Fraenkel, currently President of S&P Global Platts, will work closely with Mr. Saha to ensure a smooth transition. Mr. Fraenkel will become Vice Chairman of Platts and continue to serve on the Board of CRISIL until his retirement in September 2021.
  • S&P Dow Jones Indices will continue to be led by Dan Draper, CEO of S&P Dow Jones Indices.
  • S&P Global Transportation will be led by Edouard Tavernier, currently EVP, Transportation with IHS Markit.


Ewout Steenbergen will serve as Chief Financial Officer of the combined company. He will also continue to lead Kensho and upon closing will expand his responsibilities to include Consolidated Markets & Solutions (CMS), a division of IHS Markit.

Integration Management Office

S&P Global and IHS Markit have also formed an Integration Management Office (IMO), which prior to close will be co-led by Martina Cheung and Jonathan Gear, currently Chief Financial Officer of IHS Markit. Following closing, the IMO will be led by John Berisford in partnership with Ewout Steenbergen. Comprising leaders from S&P Global and IHS Markit, the IMO will develop and execute plans to bring together the two companies.

Lloyd Howell

Agencies, Directors, Read

On December 18, 2020, Moody’s Corporation announced that Mr. Lloyd Howell has been elected as a member of the Company’s Board of Directors, effective as of March 15, 2021. Lloyd Howell also has been elected to serve on the Board’s Audit, Governance & Nominating and Compensation & Human Resources Committees, effective as of March 15, 2021. With the election of Lloyd Howell, the Company’s Board will consist of eleven directors. Lloyd Howell is currently an executive vice president and the chief financial officer and treasurer of Booz Allen Hamilton. Since rejoining the firm in 1995, Lloyd Howell has served in a variety of leadership roles, including Civil and Commercial Group leader and Executive Vice President of Client Services.

As said in Form 8-K Current Report dated December 15, 2020 Llyod Howell will be paid in accordance with the Company’s director compensation plan for non-employee directors, an annual cash retainer of $105,000, payable in quarterly installments. In March 2021, he will receive an annual restricted stock unit award under the 1998 Moody’s Corporation Non-Employee Directors’ Stock Incentive Plan equivalent in value to $180,000 based on the fair market value of the Company’s common stock on the effective date of the grant, which award vests on the first anniversary of the date of grant.

Mr. Howell, 54, joined Booz Allen Hamilton in 1988 and is the firm’s Executive Vice President, Chief Financial Officer and Treasurer. He previously led the firm’s Civil and Commercial business from 2013 to 2016, was Executive Vice President of Client Services from 2009 to 2013 and was Vice President of Strategy and Organization from 2000 to 2009. In 1991, he took a leave of absence from the firm to receive an M.B.A. from Harvard Business School and worked at Goldman Sachs in its investment banking division from 1993 to 1995. He is also a Trustee at the University of Pennsylvania and a member of their Board of Overseers of the School of Engineering and Applied Science.

CoStar: A Star Rising Higher

Agencies, Data

The Washington based CoStar Group (WKN: 922134 / ISIN: US22160N1090, Symbol: CSGP), with a staff of over 4,300 worldwide, is a company to watch in the rating industry, since CoStar is a leading provider of commercial real estate information, analytics and online marketplaces. In addition to its importance to the rating industry, it is also rated “investment grade” by leading credit rating agencies (Moody’s, Fitch Ratings).

Founded in 1987, CoStar conducts expansive, ongoing research. The claim of the company is to produce and maintain the largest and most comprehensive database of commercial real estate information. CoStar bought Thomas Daily in Germany, which was already well known among rating analysts not only in Germany. Thomas Daily became a subsidiary in 2016.

CoStar offers a significant suite of online services enabling clients to analyze, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities.

  • Along with Thomas Daily, CoStar comprises a number of strong brands, such as
  • STR, which provides premium data benchmarking, analytics and marketplace insights for the global hospitality sector.
  • Ten-X provides a leading platform for conducting commercial real estate online auctions and negotiated bids.
  • LoopNet is the most heavily trafficked commercial real estate marketplace online with over 7 million monthly unique visitors.
  • Realla is the UK’s most comprehensive commercial property digital marketplace.
  • Westside Rentals,
  • and
  • form the premier online apartment resource for renters seeking great apartment homes and provide property managers and owners a proven platform for marketing their properties.
  • By December 17, 2020, the US Federal Trade Commission (FTC) has cleared CoStar Group’s acquisition of Homesnap, Inc., an industry-leading provider of technology solutions to the real estate industry. CoStar and Homesnap submitted the proposed merger for FTC review in late November 2020.
  • CoStar announced its acquisition of, setting the stage for its entry into residential real estate marketplaces.

Homesnap powers the nation’s most productive agents who regularly rely on having its accurate, real-time MLS information and enhanced productivity features at their fingertips. Supported by a consortium of hundreds of the country’s largest multiple listing services (MLSs), more than 1.1 million real estate agents have access to Homesnap’s free professional product, Homesnap Pro, representing over 90% of the residential real estate agents and listings in the United States. Homesnap’s public residential real estate portal showcases 1.3 million active property listings and tens of millions of home shoppers use the Homesnap website and app to look for a home.

“Adding Homesnap to CoStar Group’s network provides significant complementary value to our existing arsenal of broker and agent-centric tools, directly benefiting the entire industry,” said CoStar Group founder and CEO Andy Florance. “We are proud to join CoStar Group and leverage their more than 30 years of knowledge and experience in property data, software and marketing to take advantage of this significant growth opportunity,” said John Mazur, CEO of Homesnap.

CoStar Group’s websites attracted an average of approximately 69 million unique monthly visitors in aggregate in the third quarter of 2020.

Moody’s Heatmap Shows Heightened Environmental Credit Risk

Agencies, Criteria, Models, Read

Moody’s analysts have revised their environmental classification to reflect evolving environmental, social and governance standards, disclosure frameworks and market conventions among issuers and investors.

Environmental risks can arise from regulatory and policy issues, hazards or a combination of both. The five environmental categories Moody’s considers most material to credit are

  • carbon transition,
  • physical climate risks,
  • water management,
  • waste and pollution and
  • natural capital.

Moody’s identified these categories, which apply to both public and privatesector issuers, based on their alignment with evolving market standards and conventions.

These changes represent a reclassification and/or renaming of Moody’s previous environmental categories. The previous environmental categories were featured in an earlier, 2018 environmental heat map report. The analysts underline that it is not a change in the specific environmental issues being considered. It is important to understand that rating changes can result from changed criteria, models and weightings as well as from changed framework conditions and new data from the organizations to be assessed.

Each of the five categories has been cited as a material consideration in their rating actions. Environmental considerations are becoming more relevant to the credit quality of Moody’s rated issuers. Moody’s points out that environmental credit risk will continue to grow.

In their “sector in-depth” report “Heat map: Sectors with $3.4 trillion in debt face heightened environmental credit risk” Moody’s identifies sixteen sectors with $4.5 trillion in rated debt having very high or high inherent exposure to carbon transition risk. Eighteen sectors with $7.2 trillion of debt have high inherent exposure to physical climate risks and again eighteen sectors with $5.2 trillion in rated debt have very high or high inherent exposure to waste and pollution risk.

Eight sectors with $747 billion in debt face heightened inherent exposure to natural capital risk. Six sectors with $925 billion in debt have very high or high inherent exposure to water management risk, according to Moody’s.

ESG – Global: Heat map: Sectors with $3.4 trillion in debt face heightened environmental credit risk (53 pages).

S&P And Moody’s Are Losing Market Share in the EU

Agencies, Certifications, Read, Registrations, Regulations

For the first time, the European Securities and Markets Authority ESMA has reported a decline in market shares in Europe for both of the major US rating agencies. The authority thus discloses a remarkable development. Never before have the two market leaders, who have been issuing their credit ratings worldwide according to recognized standards and criteria for around 100 years, had to give up market shares in favor of agencies that have their headquarters in Europe.

In addition to European agencies, the winners include competitors of the two market leaders Standard & Poor’s and Moody’s in the USA, namely Fitch Ratings with a market share that has increased from 16.62% to 17.55%, and DBRS Ratings, with a market share of 2.46% which increased to 2.99%. The Canadian DBRS Ratings was taken over by Morningstar, a US rating agency that is the undisputed leader in the rating of mutual funds. The insurance specialist A.M. Best Rating Services could also increase its market share, from 0.82% to 0.95%. A.M. Best Rating Services shows, how the decades-long focus on the insurance industry pays off in order to be increasingly perceived in the market as a Credit Rating Agency (CRA). All five agencies named are controlled by parent companies in the United States.

According to the European Securities and Markets Authority ESMA, the largest rating agencies domiciled in Europe still do not each have a full percentage point market share of the European rating market. The largest rating agencies with roots in Europe are the Italian-based Cerved Rating Agency and The Economist Intelligence Unit, which belongs to the Economist Group in London. While the Italian agency, which also offers its services in the European Union, improved from 0.81% to 0.84%, The Economist Intelligence Unit suffered a market share loss from 0.87% to 0.79%. However, this should be understood against the background that The Economist Intelligence Unit shows a clear focus on micro and macroeconomic research and is known for country ratings, i.e. not for ratings for issues and issuers from the group of industrial companies, financial service providers – i.e. banks in particular and insurance companies – and does not compete in the rating of asset-backed securities, etc. The bottom line is that practically nothing has changed in the market shares of the two largest European agencies in the overall European market.

Among the five types of credit ratings distinguished by ESMA, The Economist Intelligence Unit only offers ratings in the “Sovereign and Public Finance” sector. In the other four market segments this agency does not compete with competitors within the European Union. A.M. Best Europe Rating Services achieves its market share only through the activities of this agency in the “Corporate Non-Financial” and “Corporate Financial” market segments (the latter includes the insurance industry). The market share of Cerved Rating Agency must also be analyzed against the background that this agency only reports ratings in the “Corporate Non-Financial” segment and is not in direct competition with other competitors in the other four market segments.

Remarkable changes – if you disregard the reduction in the market shares of S&P Global Ratings Europe and Moody’s Investors Service – there are only among the “further ran”. For example, a rating agency in Berlin superseded Creditreform Rating, ranking 8th. This is remarkable because Creditreform Rating, as a subsidiary of Creditreform AG in association with the Verband der Vereine Creditreform e.V. in Germany, has a very strong brand name and can rely on over 158,000 members of the association worldwide. While Creditreform Rating only has a market share of 0.53%, previously 0.55%, the Berliners now make it to 0.62%, previously 0.49%. This corresponds to a growth in market share of more than a fifth within a year. It remains, however, that of the agencies based in Germany, the one with the largest market share only occupies eighth place in the European Union.

In contrast to A.M. Best Europe Rating Services, Cerved Rating Agency, The Economist Intelligence Unit and Creditreform Rating, Berlin’s Scope Ratings accepts rating orders from any type of issuer, including in the “Corporate Insurance” market segment that is not served by Creditreform Rating, for example. Through so-called “rating shopping”, issuers look for the agency that is best able to serve their interests. If an agency does not even offer certain ratings, the rating agency concerned cannot benefit from this earnings effect from “rating shopping”.

In contrast to all other agencies, the Berlin agency sees itself as – quote – “the leading European provider of independent credit ratings” with a market share of 0.62%. This claim is due to the tireless work over the past 20 years, which was not discouraged by the bankruptcy of the previous agency FondScope, from which today’s agency Scope Ratings emerged. Over the past two decades, the agency has not yet been able to generate profits in any year, but annual deficits have accumulated. The permanent losses are borne by a small group of well-known personalities, financially strong institutional investors and strategically motivated shareholders of rated companies.

There are no really noticeable movements among the other agencies, if one also takes into account that some agencies have given up in the meantime and thus also have given up market share. The dynamic growth of Kroll Bond Rating Agency Europe deserves special mention, as the agency increased its market share tenfold from 0.03% to 0.34%. With this market share, Kroll Bond Rating Agency Europe is now the largest rating agency ahead of all the other 17 names in the last places in Europe.

If one measures the market share not in terms of the sales achieved, but in terms of the sheer number of financial instruments for which ratings were given, an even more differentiated picture emerges. The market shares in the “Structured Finance” segment, which is so important for rating agencies, have shifted significantly in favor of Scope Ratings: While the Berlin agency only achieved a market share of 1.2% in the previous year, it was up 1.5% in 2019, while Moody’s market share fell from 59.5% to just 55%. In this market, Fitch Ratings is in second place with 44.5% (after 45.0%), S&P with a slightly increased 37.5% (after 35.8%) and DBRS with 14.3% also better than before (13.9%). According to this statistic, the market shares do not add up to 100% since the same financial instruments can be assessed by several agencies.

Anyone who already has a rating from Moody’s or S&P can afford to add the rating of a lesser-known, local agency without having to expect any disadvantages when placing the bond, especially not if a smaller agency delivers an even more favorable credit rating. An example of this is given by the issuer Grenke, who received a long-term rating of BBB+ from Standard & Poor’s, but A from GBB Rating, domiciled in Germany.

According to Article 8d of the EU Regulation on Credit Rating Agencies, the European Securities and Markets Authority ESMA is only required to calculate the market shares of the rating agencies it supervises. Therefore, there is no information in the authority’s document on the absolute basis on which the figures were calculated. Since the market shares in the EU are only calculated on the basis of the figures that must be reported to ESMA, the relevant world market shares are actually considerably lower than the EU market shares calculated by the EU authority.

If, for example, the 57 Chinese rating agencies or even the more than 200 other rating agencies worldwide based outside Europe and with no activities in the European Union market were included in the calculation, the world market shares for the 27 agencies recorded in the EU in 2019 would naturally be considerably lower.

According to Section 267, the German Commercial Code describes the size classes of companies that are exempt from certain disclosure obligations. Small corporations are those that do not exceed at least two of these three criteria: total assets of € 6 million, sales of € 12 million in the twelve months prior to the reporting date or an annual average of fifty employees; medium-sized corporations are those that exceed at least two of the three characteristics specified in paragraph 1 and do not exceed at least two of the three following characteristics: € 20 million balance sheet total, € 40 million revenue in the twelve months before the reporting date or an annual average of two hundred and fifty employees.

The agencies based in Germany – even the ones describing themselves as “leading” – do not exceed these thresholds, so that, unlike the US agencies, they are not obliged to disclose their financial statements. From this fact it can be concluded that these German agencies are located at most in the range of one thousandth of the sales volume of the market leaders S&P Global and Moody’s, especially since the German agencies – unlike the US American giants – are almost unknown in Africa, Asia and America. Moody’s, for example, has a global presence with more than 11,400 employees in 33 offices around the world and serves customers in more than 100 countries.

Moody’s Corporation recorded TTM (Trailing Twelve Months) sales of US $ 5.3 billion in the third quarter of 2020 with an operating profit margin of around 45%. S&P Global achieved even higher total sales, with a large part being generated by services beyond credit rating services. For example, S&P has secured market dominance by taking over IHS Markit for US $ 44 billion. All agencies established in Europe are far from being able to participate in these business arenas, which are important for institutional investors as well as for public and private issuers. Moody’s secured e.g. In 2017, with the takeover of Bureau van Dijk, information on around 375 million companies, so Moody’s can be considered the most important point of contact for company data.

In this respect, S&P Global Ratings with a market share of 40.40% in the EU alone (previously 42.09%) and Moody’s Investor Service with a market share of 33.12% (previously 33.39%) are unlikely to see the market share gains of the small agencies as a dangerous “game changer”, even if Scope Ratings has already collected data on hundreds of companies and has formed its own opinions on many issuers. Especially since these rating classifications from the Berlin agency hardly differ – if available – from the ratings of the market leaders, there is no disruptive effect and no reason for investors to concern themselves with these ratings. More than 70% of all sales in the recognized ratings business in the European Union remain on the books of Moody’s and S&P, and if you add Fitch Ratings, more than 90% of all payments from Europe go to these three US agencies alone .

Hardly any professional investor knows to enumerate smaller rating agencies supervised by ESMA, let alone report on their current ratings. In the practice of the financial markets, most of these small agencies really do not play any role. With a combined market share of more than 90%, the importance and role of the three leading US agencies S&P, Moody’s and Fitch Ratings are therefore still significantly underestimated, because the sales do not reflect the interests of investors, who mainly rely on the opinions of these experienced rating agencies. If a smaller credit rating agency is commissioned by an issuer to develop and disseminate a rating, this says nothing about the effectiveness of this mandate. Because of the small number of ratings issued, there is no statistical, scientifically based evidence that ratings from these small agencies bring the assessed issuer a significant cost advantage.

Since the fees charged to rating agencies by the European Securities and Markets Authority are calculated based on their business volume, the leading US agencies have an interest to report low sales volumes to ESMA. Thus their market shares in the EU appear as low as possible. Additional fees for other services are charged by their other subsidiaries. Accordingly, the market shares of the smallest agencies are overestimated, because they are not burdened with proportionally higher administrative fees from their supervisory authority when reporting higher sales. This is due to the fee table applicable to the smaller agencies. In addition, the mini-agencies have an interest in being reported with high market shares to comfort their partners or shareholders, who are plagued by ongoing losses of their rating enterprise.

The highly complex EU regulation of rating agencies, which was launched in 2009 with the aim of breaking the US oligopoly, has not changed the fact that only the leading agencies provide issuers with the required “entry ticket” to the world financial markets. Nothing has changed in their dominance – on the contrary: the market share of these three agencies, S&P, Moody’s and Fitch Ratings, was 87.02% in 2012, and now is 91.07%, even higher than it was when politicians in Europe believed that the opportunity of the financial crisis could be used to restrict the power of US credit rating agencies. After a lost decade, it is time to think about deregulation and finally to abolish the privileges granted to all agencies registered or certified in the EU.

SME Rating Dilemma

Agencies, Models, Read, Regulations

Small and medium-sized companies have difficulties communicating their creditworthiness credibly. Recognized credit rating agencies concentrate their services on companies that go through a committee-based rating process. The legal framework in Europe offers no alternative to this. Only those who meet all the requirements of the EU regulation on credit rating agencies can be recognized as a rating agency. These requirements provide for an assessment process for which analysts are responsible, which leads to a decision by a rating committee. The agency’s supervisory and control bodies must be filled accordingly. Recognized rating agencies must have at least two independent non-executive directors on their board, provide a review function, etc.

Only personalities with many years of professional experience, academic training and aptitude of character are considered as rating analysts. Analysts are not allowed to perform sales functions for the rating agency at the same time. It is therefore necessary to appoint additional employees who are responsible for business development. All these requirements mean that the operation of a recognized rating agency is associated with considerable costs. Accordingly, the supervisory authority responsible in the EU, the European Securities and Markets Authority (ESMA), requires the rating agency to have sufficient capital to ensure the agency’s continued existence. All of these requirements mean that the traditional rating process, as required by law, is too expensive for small and medium-sized companies.

The rating process is too expensive for small and medium-sized companies, as the financial requirements are much lower than in large corporations. That already results from the definition of small and medium-sized companies. The costs of the rating process must be put in relationship to a significantly smaller financing volume.

However, the rating process is not necessarily easier for small and medium-sized companies than for large companies. Sometimes the opposite is even true: large companies are often organized similarly as corporations, have diversified business activities and compete with comparable companies with their products.

Small and medium-sized companies, on the other hand, often have specialists who offer unique products for a relatively small market. Often these companies are “hidden champions” who occupy a niche market. Their special expertise protects them against competitors. Due to the specialization and special expertise, the best small and medium-sized companies in terms of creditworthiness are often not easy to identify. For rating agencies that work in accordance with the restrictions of the EU regulation on rating agencies, there is hardly any team of analysts who have the necessary specialist knowledge in all specialist areas.

Credit bureaus therefore intervene in the movement of goods with customers and suppliers. These collect data from court registers and other public sources. However, due to the applicable disclosure requirements in the EU, this data is of limited topicality. Ratings calculated using such data are correspondingly outdated. Ratings are often determined on the basis of annual financial statements from the year before last. In addition, small companies, which can include listed companies, are not required to disclose their income statements.

These adverse conditions limit the possibilities of developing suitable rating models for small and medium-sized companies on a purely mathematical-statistical basis using the statutory mandatory publications.

Only a rating agency that works on a model basis but acts on behalf of the company assessed can lead out of this dilemma. In this case, the company has the option of providing more up-to-date and comprehensive data specifically for the purpose of credit rating. The annual financial statements prescribed by accounting law have many addressees. There is also a dependency on the tax balance sheet. For these reasons, statutory annual financial statements are not ideal for creating ratings.

According to the EU regulation on rating agencies, ratings based on a scoring model are not subject to approval by the European Securities and Markets Authority (ESMA). Since these ratings are not subject to supervision, they may not be used for certain applications. This affects banks, insurance companies and other institutional investors.

The aspects mentioned illustrate the difficulties that small and medium-sized enterprises in the EU face when it comes to rating.

Consumer Reporting Agency Against Bonus Hoppers

Agencies, Read

“If you want to purchase electricity and gas cheaply, you have to compare prices and, if necessary, change providers. Energy suppliers obviously want to change that with Schufa and a credit agency.” An article about energy suppliers on introduces the topic: “Electricity and gas customers who want to change their provider more often could soon be systematically discouraged.”

NDR and “Süddeutsche Zeitung” are dealing with a planned offer by SCHUFA and the Italian-owned credit agency CRIF Bürgel in Munich to save contract data from as many energy suppliers as possible across the industry.

“Consumer and data protectionists fear that energy providers will use it to identify consumers who are willing to switch and subsequently reject them.” The criticism: “So far, only data from customers who do not pay their bills or who cheat can be exchanged across the industry.” The new databases, on the other hand, would make contract-loyal customers “fair game” with their data.

“Bonus hoppers” who take the trouble to do their own research and compare utility companies are hardly a problem for energy suppliers. There have always been customers who, year by year, patiently deal with the various offers and choose the one that is cheapest for them. This cluster of consumers is a fairly small minority in Germany.

The real “game changers” with disruptive potential for the energy industry are experts such as Wechselpilot or SwitchUp. These enable the customer to switch energy providers reliably and effortlessly. Registration and some information on previous consumption and supplier are sufficient to automatically switch from year to year and save costs – depending on how advantageous it is. These comparison portals take on the rating based on various criteria and customer-specific requirements.

The added value of the planned services from SCHUFA and CRIF Bürgel, on the other hand, is not very high for the other side of the market, the energy suppliers: The energy suppliers already recognize customers who are willing to switch and can save this customer data.

This conclusion results from the logic of the system: comparison portals that have looked after their customers for years are dependent on intervening in the communication between customers and energy providers. Only in this way can they relieve the customer of the trouble of analyzing consumption, obtaining offers, comparing offers, submitting applications, filling out forms, etc.

Communication takes place via customer-specific e-mail addresses, e.g. at SwitchUp according to the pattern Due to the still small number of comparison portals, the energy provider can in any case use these email addresses to identify who is one of the “bonus hoppers”. In addition, energy providers are not obliged to work with SCHUFA or CRIF Bürgel, so that the latter are in competition for data.

SwitchUp was founded by Arik Meyer, who previously built Audible and sold it to amazon. At companies like SwitchUp, all data on the energy consumption of German households that benefit from the advantages of this system are now pooled. If comparison portals are sold to American “data octopuses”, their data merely increases the data pools of US corporations.

Therefore, from a competition point of view, it is questionable whether regulation, i.e. restricting the business opportunities of European companies such as SCHUFA or CRIF Bürgel by banning e-pools would be in the service of healthy market competition.

black camera

A Case of Rating Repair for a Small Publicly Traded Company

Agencies, Analysts, Bureaus, Raters, Read

A small publicly listed company is a company whose shares are bought and sold on a particular stock market even though turnover or total assets are small in comparison to other listed companies. Every big story starts small. Therefore, among small companies there are often also stock corporations with exceptionally high potential for a good share price development. Small businesses can also be great debtors. Well-managed companies can have excellent credit ratings over long periods. Therefore, such companies are attractive to bond investments, provided they have issued bonds.

The internet is full of investment offers. The disadvantage of this information, however, is that it is often written with the interest of selling securities. Many stock market letters testify to how spectacular sounding promise of returns can be advertised to investors. Alternative ways of obtaining reputable information about good companies are therefore of interest.

The following is an example of how an interesting company can be found and analyzed using the database of a credit reporting agency. Thousands of companies worldwide use Creditsafe to grow their business and reduce exposure to customer credit risk. With Creditsafe it is easy to determine the maximum amount of credit to extend to a company based on company information including, payment history, County Court judgments (CCJs), financial stability, credit scores and limits. Credit managers enjoy to be able to access credit reports for companies anywhere in the world.

A database like that of Creditsafe can be used not only in customer and delivery relationships, but also in all other relationships with company stakeholders. The following example shows, on the one hand, which information can give reason to deal with a company in more detail. On the other hand, the example also shows what can be misunderstood and therefore give rise to a rating repair.

Creditsafe allows to search a database of more than 240 million company credit risk profiles to determine the risk when trading with overseas companies. This information is valuable in identifying good quality companies. In particular, companies can also be found that are particularly attractive for their business partners because they have a good credit rating.

For companies in certain industries, a good credit rating is of crucial importance for business success. For example, in most countries around the world, governments apply very strict standards to the companies with which they work. The creditworthiness is checked for each invitation for tenders. The seriousness and creditworthiness of a company that supports governments in the area of security is particularly important.

The following company is a typical example. The listed company (A6T) artec technologies AG from Diepholz / Germany was founded in 2000 by Thomas Hoffmann and Ingo Hoffmann and develops and produces innovative software and system solutions for the transmission, recording and analysis of video, audio and metadata in networks and the Internet. Since 2000, customers have been using the product platforms MULTIEYE® for video surveillance and security, especially in industrial and governmental environments, and XENTAURIX® for media & broadcast applications for monitoring, streaming, recording and analysis of TV, radio and web livestream content. artec offers its customers a complete service (project planning, commissioning, service & support) both for the standard products and the special developments.

The Creditsafe Rating Model is a predictive analysis tool that uses the latest advanced statistical techniques. It combines commercial and other key information, including trade payment information, public information, key financial ratios, industry sector analysis and other performance indicators which provides you with view of a company.

The business credit score measures the likelihood that a business will remain solvent for the next 12 months. But as the executives behind millions of transactions each year are relying on business credit scores to help them answer questions like: Which vendor should we work with? Can we continue to work with this supplier? What kind of terms can we offer them? and How much funding should can we offer them? Business credits scores are much more than that simple definition.

The Creditsafe Rating Model was created by an analytics team who looked at companies that failed over the last 12 months and assessed the commonalities within these failures. They compiled hundreds of variables and looked at the weighting each variable carried along with the impact each variable had on the failed businesses. They then selected a number of variables which were compiled together to create the modules.

The company stands out at Creditsafe with an excellent credit rating. artec technologies AG (DE01958811) is reported with a very good Credit Index of 1.1, a Risk Score of 97 (on a scale from 0 to 100), the best International Score A and an extremely low Probability of Default of 0.06%.

Initially, the good credit rating seems to be confirmed in the balance sheet data. Compared to most other stock corporations in Germany, the company has a high level of equity both in absolute and relative terms. The solid lines in the graph show the comparative values for the 25% and 75% quartiles as well as the medians. Equity is the capital that remains at a company’s disposal after debts are deducted from the total assets.

It is a comparison of the company based on the industry code (primary) with other companies from the same industry. The analysis has been based on the industry code 82 – Office administrative, office support and other business support activities. The Equity Ratio measures the ratio between equity and the total assets of a company.

The Total Borrowing Ratio measures the ratio between debts and total assets of a company. The Debt Ratio measures the ratio between debts and equity of a company. Other key performance indicators measure liquidity, e.g. the Cash Ratio shows the ratio between liquid assets and short-term debts.

The performance indicators determined by Creditsafe include “Capital Structure” and “Liquidity” as well as “Results & Profitability”.

At this point the information must be confusing. No results are reported. This affects the following key figures in the Creditsafe model:

  • Revenue indicates the value of goods and services a company sold within it’s ordinary business activity during a trading period.
  • Pre Tax Profit Is calculated from the operational result plus financial result plus extraordinary result or from the net income plus the net tax expenditure.
  • Net Profit Ratio measures the ratio between operational result and revenue. So it indicates how much the company actually earned with its achieved revenues.
  • Return on Assets indicates the rate of return for a company’s total assets.
  • Return On Capital Employed shows the rate of return for a company’s capital. In distinction from the Return On Assets Ratio , this indicator considers just the long-term capital.

No values are shown for any of these key figures for the company under consideration here, artec technologies AG. Therefore one has to ask about the reasons why there are no values here.

The report of the Deutsche Bundesbank, the central bank in Germany, is also linked on the homepage of artec technologies. Like Creditsafe, this report confirms that the company has a good credit rating.

As part of Eurosystem monetary policy operations, commercial banks can submit credit claims as collateral for refinancing at the Deutsche Bundesbank. For this, the borrowing enterprises must be considered “eligible”. This is checked in a credit assessment conducted by the Bundesbank. Enterprises may also request a credit assessment. In either case, the Bundesbank provides the enterprise with the results of the credit assessment in their entirety. The aim of Bundesbank’s credit assessment system is to estimate an enterprise’s one-year probability of default (PD) on the basis of financial statements as precisely and reliably as possible. For that purpose, Bundesbank uses a statistical methods to select the ratios which, when combined, are best able to predict an enterprise’s PD.

Credit rating grades of the Deutsche Bundesbank and external credit rating agencies authorised in the Eurosystem are related. This is the example of S&P’s credit ratings:

The data input to Creditsafe can easily be checked under the “Documents” tab. This shows that, as expected, Creditsafe used data from the Federal Gazette. German companies are obliged to publish their financial statements in the Federal Gazette. In the case of the artec technologies AG considered here, however, no data on the income statement was published in the Federal Gazette.

The website of artec technologies also offers the reports of three research companies, which offer in-depth analyzes with all other aspects of stock valuation.

The missing income statement in the credit bureau’s report is due to the legal situation for small, medium and large companies. The size classes (Größenklassen) defined in the HGB serve to regulate accounting and publication for incorporated companies (Kapitalgesellschaft). The larger a capital company is, the stricter the requirements for auditing and the more detail required when disclosing the business data. The four size classes are defined in the HGB for accounting law. They are used for corporations, including the GmbH, the UG and the AG. The size classes are also applied to partnerships without a natural person as a personally liable shareholder (GmbH & Co. KG, UG & Co. KG).

In § 267 HGB, four size classes are defined: micro-company, small company, medium-sized company and large company. For each size class, at least two of the three thresholds listed for each class should not be exceeded. The thresholds are as follows:

  • Balance sheet total (Bilanzsumme),
  • Average number of employees,
  • Revenues (twelve months before the balance sheet date).

The thresholds were changed in 2016 with the German Accounting Directive Implementation Act (Bilanzrichtlinie-Umsetzungsgesetz – BilRUG). The size classes are structured as follows:

Determining FactorMicroSmallMediumLarge
Balance sheet total (Bilanzsumme)350,000 EUR6,000,000 EUR20,000,000 EUR> 20,000,000 EUR
Revenues (12 months before the balance sheet date)700,000 EUR12,000,000 EUR40,000,000 EUR> 40,000,000 EUR
Number of employees on an annual average1050250> 250
artec technologies

Small companies must disclose their balance sheet and their notes. The profit and loss account is not mandatory. In addition, the audition requirement is dropped. In the case of artec technologies AG, the information published is part of the company’s follow-up obligations due to its membership of a transparency standard at the Frankfurt Stock Exchange. The obligations result from these obligations, but not from Section 267 of the German Commercial Code.

The shares of artec technologies AG are traded on the Open Market. The Open Market (Freiverkehr) is a regulated exchange market and not an organised market in the meaning of the German Securities Trading Act (section 2 para. 5 WpHG). Unlike the Regulated Market, which is subject to public law, the Open Market is subject to private law. The General Terms and Conditions of Deutsche Börse AG for the Regulated Open Market (Freiverkehr) on Frankfurter Wertpapierbörse (FWB®) regulate the conditions for admission to and the follow-up duties for securities in the Open Market segment. Admission to the Open Market is possible for securities that are neither admitted to trading on the Regulated Market nor included in trading on the Regulated Market.

Issuers and participants in the Open Market are subject to lower transparency requirements than in the Regulated Market. The Open Market segment is therefore an attractive alternative for both young, growth-oriented small and medium-sized companies such as artec technologies AG.

Since all of this information is public, it is advisable to update the information with the credit reporting agencies. Since these credit bureaus have to enter and update very large amounts of data from many companies in their databases, they rely on the official publications of the companies in the Federal Gazette. If the annual financial statements are reported to the Federal Gazette without a profit and loss account, then by default the data from the income statement are not transferred to the credit reporting agency’s database.

Important key figures about the stock corporation can be viewed free of charge on the website of the Frankfurt Stock Exchange. There are also research reports from SMC, EDISON and GBC. Not to be forgotten are the numerous other information tools, such as price information for technical chart analysis and risk indicators such as those from Moody’s, all of which provide information about artec technologies AG and offer investors certainty in their decisions.

Generally accepted, Bayesian statistics is a theory in the field of statistics based on the Bayesian interpretation of probability where probability expresses a degree of belief in an event. For rating systems, this theory says that if information is missing, a judgment should be made more cautiously than if the required information is available. If only the balance sheet and not the profit and loss account are taken into account in a rating, the result may be a poorer assessment. It is therefore advisable to add missing information.

Statistical credit rating models specify a set of statistical assumptions and processes that represent how the sample data is generated. Statistical credit rating models have a number of parameters that can be modified. For example, the event of a default can be represented as samples from a Bernoulli distribution, which models two possible outcomes. The Bernoulli distribution has a single parameter equal to the probability of one outcome, which in most cases is the probability of filing for insolvency. Devising a good model for the data is central in Bayesian inference. In Bayesian inference, probabilities can be assigned to model parameters. Parameters can be represented as random variables. Bayesian inference uses Bayes’ theorem to update probabilities after more evidence is obtained or known.

In our practical case, these theoretical considerations mean that the lack of information can lead to disadvantages in the evaluation. It is more likely that the missing information will result in a worse rating than with full disclosure. In most cases, a better rating is achieved when more information is disclosed.

In the case of a rating agency recognized under the EU regulation on credit rating agencies that carries out a committee-based rating process, however, the lack of information in the case of unsolicited ratings must not be used as a means of pressure on issuers to urge them to commission a rating process. With a credit reporting agency like Creditsafe, however, this case does not matter. The rating is determined purely mathematically-statistically and based on models without involving a rating committee made up of analysts who could make arbitrary decisions. In addition, there is no fee for the rating that could create a conflict of interest. It therefore remains a sensible way to enable a better evaluation by providing more up-to-date information.

In most cases the credit reporting agency provides the assessed company with its own company report free of charge. An application to receive your own report is sufficient with Creditsafe.. The authorization to receive information must be proven by the company’s employee. However, the company is free to refer business partners and investors to the report of the credit reporting agency and the credit rating contained therein. Similar to the reference to the central bank eligibility certified by the Deutsche Bundesbank, such a reference can strengthen confidence in the company being assessed.

The irritation about missing P&L data in the reports of the credit reporting agency about artec technologies can be easily resolved. For this it is not necessary to expand the disclosure to the Federal Gazette. It is sufficient to provide the credit reporting agency with the certified accounts. A form is available for this that simplifies and standardizes the transfer of data. All financial reports can be found on the company’s German website:

However, it can also be advisable to expand the disclosure to the Federal Gazette. Not only Creditsafe, as in the example, but also many other credit reporting agencies, research houses and, last but not least, financial service providers such as banks and insurance companies access the Federal Gazette. In order to fulfill their various obligations, to check the identity of their business partners and to determine the beneficial owner, they need official data.

PALTURAI is the example of a service that is also used by investors and creditors such as banks and insurance companies to examine the situation at a company. For this purpose, PALTURAI analyzes all reports to registration courts as well as to the Federal Gazette. In order to avoid contradicting information and irritations to the detriment of the rated companies, a consistent approach is recommended. The international data flows and interdependencies in the transfer of information worldwide are more complex today than ever before. The task in the context of a rating repair is to bring about the correction in the most efficient way possible.

With a very good rating like the one for artec technologies, the question arises whether the already very good rating could possibly even be called into question through more transparency. The income statement contains additional information that is taken into account when assessing creditworthiness. For artec technologies, the data that cannot be found in the Federal Gazette has now been added. It shows that the creditworthiness is still rated as very good. The company retains its very good ratings.

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Credit Rating Criteria for Leasing Companies

Agencies, Criteria, Read

Under the umbrella of the Auditing Association of German BanksGBB-Rating Gesellschaft für Bonitätsbeurteil mbH (hereinafter referred to as “GBB-Rating”) provides long-term credit ratings of leasing companies. GBB-Rating has published criteria for the rating of leasing companies in German on its website. Unfortunately there was (August 23, 2020) no English translation. In the following are summarized some of their criteria for rating leasing companies. Please do not confuse the representation with an official translation. The methodology is reported here in extracts. The rating agencies supervised by ESMA are obliged to disclose their methodologies, but not necessarily in English.

Ratings are based on an analysis and evaluation of essential quantitative and qualitative aspects of the financial and business profile of each leasing company. This is done by means of a system of indicators and criteria. The rating result is condensed into 22 classes (AAA to D) and expanded to include a rating outlook.

The rating outlook – positive, stable, negative and indefinite – is an early indicator of the direction in which a rating is likely to develop within the next 12 to 24 months. The rating outlook goes beyond the 12-month statement of the rating class, as it shows the development expected within the next 24 months based on the information available.

The focus of the rating process is the determination of an overall value (point value process) as a creditworthiness indicator that determines the allocation to the corresponding class. This results from weighted point contributions from the aggregated parameters financial profile and business profile. The procedure is basically geared towards assessing legally independent companies. Adjustments can be made to take appropriate account of business, legal or other particularities. GBB-Rating distinguishes between main criteria and characteristics. Analysis, assessment and evaluation of the key figures and criteria are carried out on the basis of the financial and business profile, taking into account defined internal rules and procedures. Intermediate scores arising from the analysis of the financial and business profiles are finally weighted and aggregated to obtain an overall score. Given the forward-looking nature of the business profile, it carries greater weight in the rating result.

The financial profile is assessed in a quantitative analysis of the annual financial statements based on indicators of the earnings position and capital position. In view of the very limited information furnished by the annual financial statements of leasing companies, the analysis also gives consideration to intrinsic value. Depending on the timing of the rating, current interim figures are analyzed as well.

The key figure system of GBB-Rating is based on the two essential aspects of the financial strength of a company – sustainable profitability and the substance for covering risks. A detailed rating manual supports the analysts in evaluating the financial data. In addition to taking certified figures from the annual financial statements into account in the key figure system, quarterly figures, budget figures and figures from internal reporting are included in the assessment of the financial profile. Because of the significantly limited informative value of the annual financial statements for leasing companies, the analysis must supplement them with the net asset value calculation according to the scheme of the Bundesverband Deutscher Leasing-Unternehmen e.V. (BDL, the Federal Association of German Leasing Companies) in order to record the economic equity and adequately depict the profit or loss for the period. This way the asynchronous expense and income trends typical in the leasing industry can be assessed, despite the strict periodization requirement according to the HGB principles.

The earnings situation is represented by seven key figures. In addition to gross and net profitability, these include the return on operating performance and cost (coverage) ratios. The key figures are translated into point values using individual transformation curves (polynomials). The transformed point values are subject to a specific weighting and are therefore included in the evaluation of the earnings situation to different degrees. It is not known how exactly the polynomials are calculated in GBB-Rating.

In the case of gross profitability, the return as the sum of the gross profit and the change in net asset value is compared with the risk potential in the form of the adjusted total assets. The gross profit is the result of the sales revenue plus the result from the sale of rental assets less all material and leasing expenses (including refinancing interest). In order for a result that is consistent with the period to be determined, the change in the net asset value must be added before administrative and risk costs (gross net asset value), because these costs do not reduce the gross profit. In the denominator, the main correction items of the balance sheet total are all items that prove the passing on of counterparty risks, especially the deferred income from non-recourse forfaiting (minus a margin for the remaining verity risk) and special rental payments. Forfaiting in the double-decker model, however, is not taken into account as a deduction, since the economic risk remains with the leasing company.

In the case of net profitability, the sum of the ordinary overall result and the change in the net asset value is compared with the risk potential in the form of the adjusted balance sheet total. The ordinary overall result is the sustainable overall result before taxes, adjusted for extraordinary earnings components, including the investment result. In order for a result that is consistent and consistent with the period to be determined, the change in the intrinsic value after administration and risk costs (net intrinsic value) must be added. In the denominator, the main correction items of the balance sheet total are all items that prove the passing on of counterparty risks, especially the deferred income from non-recourse forfaiting (minus a margin for the remaining verity risk) and special rental payments. Forfaiting in the double-decker model, however, is not taken into account as a deduction, since the economic risk remains with the leasing company. The operating performance return is compared to the sum of the ordinary operating result and the change in the net asset value of the operating performance. The ordinary operating result is the sustainable operating result before taxes adjusted for extraordinary earnings components. In order for a result that is consistent and consistent with the period to be determined, the change in the net asset value after administration and risk costs (net asset value) must be added. The operating performance is the result of the sales revenue plus the result from the sale of leased assets less refinancing interest.

The necessary amount of gross income is determined by the performance efficiency (operating costs) and the company’s willingness to take risks (risk costs). Both cost blocks are set in relation to the operating performance (operating and risk cost ratio) or to the value added as the sum of gross profit and change in the (gross) asset value before administration and risk costs (cost and risk-income ratio) and can therefore suit different business structures depict.

The capital ratios are represented by three key figures. These include two informational key figures and a rating-relevant figure. The key figures are translated into point values ​​using individual transformation curves (polynomials). The leasing company’s own liability is assessed using the modified equity ratio, which combines the equity and forfaiting ratio. Equity is set in relation to the company’s risk potential. The adjusted liability capital is the by non-assessable assets such as outstanding deposits adjusted equity. Without the equity capital already fully taken into account, only 50% of the net asset value is included in order to ensure that the taxed equity capital is treated equally with the untaxed net asset value. In the denominator, the main correction items of the balance sheet total are all items that prove the passing on of counterparty risks, especially the deferred income from non-recourse forfaiting (minus a margin for the remaining verity risk) and special rental payments. Forfaiting in the double-decker model, on the other hand, is not considered as a deduction, since the economic risk remains with the leasing company.

The development of the sustainable earnings situation, the sustainable capital ratios, the net asset value calculation as well as the particularities of the accounting can be assessed in the criterion “further aspects of the financial profile”. In addition to taking certified figures from the annual financial statements into account in the key figure system, quarterly figures, budget figures and figures from internal reporting are included. In order to assess a sustainable earnings situation, there is an expanded consideration of earnings factors, taking into account current developments and findings. With the aim of adequately reflecting the earnings position at the time of the rating and including deviations from the sustainable trend in business development in the rating result, the sustainable earnings position is supplemented by the analysis of current interim figures and budget figures. Changes in capital resources or structure during the year can be taken into account. Because of the significantly limited informative value of the annual financial statements for leasing companies, the analysis must supplement them with the net asset value calculation according to the BDL scheme in order to record the economic equity and adequately depict the profit or loss for the period.

The assessment of the business profile is based on an analysis of primarily qualitative and future-oriented external and internal influencing factors. Supporting key figures enable a plausibility check of the analyzes and evaluations. The assessment features are integrated according to a specified standard, which can be adapted to the specifics of the business model. In this way, the necessary objectivity and, at the same time, the necessary flexibility to be able to adequately take into account specific features are guaranteed.

The business profile is evaluated by analyzing chiefly qualitative and forward-looking external and internal influencing factors. The main criteria are market factors, organizational aspects and the risk profile. To facilitate an objective assessment, these criteria are subdivided into individual attributes. In particular when the business profile is being examined, the particularities of the individual leasing company are assessed, such as its asset portfolio and contract structures.

The business profile of the leasing rating method distinguishes the said three main criteria market, organization and risk profile. Each of these three main criteria is divided into assessment features and individual criteria. The criteria are based on fixed assessment scales. The individual assessment via the assessment scale is transformed into a point value. Only when the leading analyst and the second analyst have analyzed and assessed or checked all the criteria does the weighted point values ​​result in a decision-making overall “business profile” value. Descriptions, procedures and framework specifications for evaluation are available for all criteria in a detailed manual. The manual is subjected to a detailed check once a year to ensure that it is complete and up to date. The leading analyst uses this manual as a guide. Deviations from the requirements can only be made in justified exceptional cases after consultation with the following rating bodies. The specifications in the manual are used by the second analyst in the “Data & Controlling” department to check the plausibility of the evaluations.

The main criterion “market” is geared towards a medium to long-term time horizon. As part of an analysis of the market attractiveness, the market or markets in which the leasing company operates are analyzed (macroeconomic view). In addition to considerations of the size of the individual markets, aspects of market growth and profitability, which are determined for example by factors such as the intensity of competition, customer structures, market entry barriers, providers or substitutes, are taken into account in the assessment. Exogenous factors such as the economic development or changes in legal and regulatory provisions or the development of case law on special topics are of no insignificant importance. In addition to the leasing companies’ own statements, research by GBB-Rating is included in the assessments. In the course of a microeconomic consideration, aspects of the individual competitive position are analyzed. In this context, aspects of the market position are included in the assessment as well as the structure and scope of the range of products and services. Another important dimension is the sales policy and the associated sales channels used. A harmonious focus on the market, taking into account the available resources, an acceptable risk appetite and the specific strategic positioning (e.g. cost leadership, quality leadership, niche providers) are essential factors for a long-term successful competitive position. The strategic process can be seen as a direct bridge between the market and the organization. Its consideration includes the company’s internal processes that were set up for strategy development, implementation and monitoring.

The main criterion “organization” is based on a generally medium-term time horizon. As part of the considerations on more general criteria of corporate management, aspects such as the design of the organizational structure and personnel structure and policy are analyzed. The composition e.g. B. the supervisory body is taken into account as well as existing succession plans or potential or actual personnel dependencies or bottlenecks. The areas of controlling and planning as well as the design of accounting and IT are also examined. As part of the analysis of specific corporate management criteria, the design of the internal control systems is subjected to an assessment. The evaluation and analysis is based on the requirements of the current minimum regulatory requirements, particularly in terms of risk management. In addition to address risk management, z. B. the design and functionality of the internal audit as well as the concept for determining the risk-bearing capacity are considered.

The main criterion “risk profile” plays a crucial role when leasing companies are being rated. When the risk profile is being assessed, an inventory of all the credit, market and operational risks is produced. The experience accumulated by GBB-Rating indicates that the most critical risk types are those relating to counterparties, assets and interest rate changes. Following changes to the tax depreciation rules, accounting risks (e.g. loss-free measurement of leasing assets) are also gaining in importance.

The risk profile criterion is basically geared towards a rather short to medium-term time horizon. The risk profile is of paramount importance. When assessing the risk situation, an inventory of all credit, market and operational risks is carried out. GBB-Rating’s experience shows that counterparty, property and interest rate risks are usually of the greatest importance. Depending on the tax depreciation conditions, balance sheet risks (e.g. loss-free valuation of leased assets) also play a major role. In addition to assessing the risk situation, the analyzes of the risk profile also include a consideration of the generation of (liable) capital in terms of capital procurement potential (e.g. direct access to the capital market, retention policy) and the potential for support from the shareholder (s).

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The rating result consists of the assignment to a rating class, the justification of the rating and the rating outlook. A rating class reflects the condensed credit rating on the GBB-Rating rating scale; it generally covers a forecast period of 12 months. The findings of the analysis with regard to the financial and business profile are condensed by the analysts into a proposal for the rating result, which is the international known notation (22 rating classes from AAA to D). In the justification for the rating, essential rating-sensitive factors or drivers are shown, which can influence the rating result positively or negatively in the medium term. The drivers of the rating result are analyzed and presented as part of a consideration of the essential areas and criteria with regard to their sensitivity to the rating result.

Leasing Company Rating

Agencies, Associations, Methodologies, Read, Systems

Leasing companies have been analyzed by leading US credit rating agencies for decades. In addition to these rating agencies, there are other rating approaches for leasing companies. Three of these are briefly presented here. The first relates to a joint initiative by Landesbanken and other credit institutions to operate bank-internal system for rating leasing companies. The second is the offer from a company from the organization of the Association of German Banks. The third is the rating offer from a Bulgarian rating agency, which also rates German banks.

RSU Rating Service Unit

The history of RSU Rating Service Unit GmbH & Co. KG started in 2001, when German Landesbanken and the DekaBank launched a joint project for the development of internal rating systems, to satisfy the regulatory requirements for what is referred to as the Internal Ratings-based Approach (IRBA). During 2002 through 2003, an interdisciplinary project teams developed the methodology for rating ten different exposure classes. Once ready for use, it was integrated into the “LB-Rating” application. The joint effort allowed to draw on the experience and the portfolios of all RSU partners. In December 2003 the Landesbanken became shareholders that participated in the project and/or their legal successors.

The rating indicates a Probability of Default (PD). The main measure of the quality of a rating system is what RSU refers to as “discriminatory power”, i. e. the system’s ability to distinguish between high-risk and low-risk obligors. Some rating systems also determine the Loss Given Default ratio (LGD), which is another area where accuracy is crucial. Essentially, RSU’s methodological work focuses on the validation of the PD and LGD estimates computed. This involves, in particular, considering the defaults actually observed. At the same time, ratings are kept strictly confidential and data protection is ensured.

When developing rating systems, models for estimating probabilities of default and loss ratios are created based on historical information and solid expertise. However, empirically determined functional relationships may change or become less stable over time. For this reason, rating systems must, by law, be reviewed on a regular basis. RSU’s methodology department promisses to validate the rating systems every year in consultation with the institutions that contribute to RSU’s data pool. Reviews are performed according to a defined validation policy using professional information and statistical computing technology.

Having received supervisory clearance for its rating systems, RSU has made them available to clients outside the group of shareholding banks since 2007. Currently, RSU claims to have clients including institutions from all three sectors of the German banking system, a number of financial service providers, international institutions, and institutional investors. LB-Rating was implemented using a modern Java architecture (Java EE) as well as IBM products and thus complies with a very common and well established industry standard. LB-Rating is a completely web-based application, which can be accessed using Internet Explorer. Once it has been individually configured and activated, it requires no additional local installation.

LB-Rating is a system designed for preparing, editing, validating and managing internal ratings in accordance with the Basel III/IV framework. It provides standardized and objective credit ratings for various types of obligors as well as for specialized lending.
There are twelve modules now. Clients only acquire licenses for the modules they need for their specific business.

  • One module is intended for rating leasing companies that apply German accounting standards (HGB). It performs a net asset value calculation to take the specific characteristics of these companies into account. The rating model is based on a scorecard approach.
  • The Special Purpuse Company (SPC) Real Estate Leasing module, which uses both scorecard and simulation elements, is designed for assessing real estate leasing projects. The residual value of the property is estimated by simulation. Transfer risk is included for offshore transactions.

Routinely reviewed every year since 2005, the statistical accuracy depends on a database of more than 17,500 ratings. In early 2007, the module received supervisory approval for use under the IRBA.

RSU provides one-year migration matrices and multiannual PD profiles for each of its twelve rating systems. The cyclical properties of the rating systems reflect in the migration matrices and PD profiles, which is essential for the institutions that use them. Information about rating transitions is crucial for banks in various areas of risk management. Once IFRS 9 takes effect, modelling long-term rating migrations will become even more important.

Methodological parameters such as score weights or calibration settings are stored separately and can be changed at short notice without modifying the software. The application is based on a thin-client concept, i.e. all necessary data is provided by the server to the extent possible. Installation and maintenance services are carried out centrally on the server without affecting the user. Changes made on the server, e.g. new releases or security updates, take effect at the same time for all clients. Communication with the system is by secure and encrypted SSL data transfer through dedicated networks. Technological modifications are performed twice a year at fixed dates. All related processes are based on ITIL, thus ensuring secure and high-quality IT workflows.

Since Rating-Flex is a solution for transferring existing rating systems to an audit-proof IT platform, leasing company ratings of different RSU users may differ.. RSU’s Rating-Flex allows to incorporate a client’s own rating algorithms into LB-Rating. WIth respect to all else, incorporated rating systems benefit from the complete functionality of LB-Rating.


Under the umbrella of the Auditing Association of German Banks, GBB-Rating Gesellschaft für Bonitätsbeütung mbH (hereinafter referred to as “GBB-Rating”) has been operating as an independent rating agency since 1996. GBB-Rating draws up its opinion on the future viability of a leasing company which is partly based on uncertain future events, their prediction and thus necessarily on estimates. Therefore it is not a statement of fact or a recommendation, but an expression of opinion.

Cologne-based GBB-Rating is a rating agency with particular expertise in the financial services sector. takes into account the requirements of the international standards for rating agencies of IOSCO (“Code of Conduct Fundamentals for Credit Rating Agencies”, the International Organization of Securities Commissions) when applying its rating methodology and when carrying out the rating process for the creation of commissioned and unsolicited credit ratings . In accordance with Regulation (EC) No. 1060/2009 of the European Parliament and of the Council, GBB-Rating was registered by the European Securities and Markets Authority in Paris (ESMA) on July 28, 2011 and has been subject to European supervision for rating agencies since then.

The GBB-Rating leasing company rating methodology is based on the fundamental question of the extent to which the company can meet its financial obligations in full and on time in the future. Determining this ability is the focus of the analysis. The holistic analysis of the GBB-Rating is carried out taking into account all available information classified as relevant. GBB-Rating makes its statements on the basis of the existing rating methodology, which combines quantitative and qualitative approaches.

The aim of the rating process is to arrive at an appropriate and reliable credit rating in a consistent manner. The procedure is based on ensuring the objective of objectivity, quality, impartiality as well as independence and confidentiality. As part of the rating process, the business model-related success and risk factors in particular are analyzed and condensed into a future-oriented, comprehensible overall assessment.

The basis for the ratings are documents on the asset, financial and earnings position as well as the business model, business strategy, the relevant markets, the risk management, the risk situation and the shareholder background. The basic documents and information required to carry out a rating are essentially business reports, as well as information from the companies in connection with a GBB-Rating questionnaire.

Information from ad hoc announcements or other publicly available information as well as information and documents in the context of management meetings are also taken into account. All available rating-relevant documents and information are checked for topicality, completeness and plausibility during the course of the rating process.

GBB-Rating provides both solicited and unsolicited ratings. A commissioned rating is based both on internal information provided by the company to be assessed and on publicly available data. Unsolicited ratings are generally based on publicly available data and information (further details can be found in the policy for the implementation and creation of unsolicited ratings). Unsolicited ratings can also be carried out purely for internal purposes (benchmarking), in which case it is not published.

Published ratings are continuously monitored by the leading analyst and a second analyst and updated at least once a year. The leading analyst presents the rating result with all analyzes and evaluations to an independent rating committee, which makes final decisions on the following issues:

  • setting the rating,
  • suspending a rating,
  • withdrawing a rating (“Withdrawal”).

Before each acceptance or continuation of an order, GBB-Rating checks whether the independence regulations of GBB-Rating are complied with, whether there is a risk of potential conflicts of interest or other order risks and whether sufficient resources are available to adequately take into account the special requirements of the order. In case of doubt, the order must be rejected or resigned. Required advance information, for example, in order to be able to assess the complexity of the company and the main features of the business model, is collected in an initial internal pre-analysis. If there are no reasons that prevent an order from being accepted, the rating process, the rating methodology and the conditions for a rating are explained to the company interested in a rating. In advance, GBB-Rating does not indicate a rating or a preliminary rating.

After the order has been placed in writing, the company to be assessed receives a list of information and documents required for the analysis in connection with a questionnaire. Additional requests for information and documents may be necessary during the course of the rating process. All data and evaluations received are treated confidentially by GBB-Rating. In order to guarantee the high level of confidentiality, GBB-Rating has set up supporting organizational measures (e.g. restrictive access authorizations, Chinese walls) and drawn up appropriate regulations. The rating is carried out by the leading analyst who is the contact for the rating customer. The implementation of the rating is accompanied by an independent second analyst.

Do not expect to talk always to the same analysts. Potential conflicts of interest are countered, among other things, through a rotation process. The leading analyst changes after four and the second analyst after five years at the latest. A resumption of the analysis activity can take place after two years at the earliest if the supervision period was previously fully used. In order to guarantee the continuity of the assessment, changes in the rotation of the leading analyst and the second analyst are generally delayed. When planning and assigning rating orders, the aspects of technical knowledge, availability and independence are taken into account.

The analysis is supported by IT-based rating models based on a comprehensive catalog of criteria. For the analysis and evaluation of both the qualitative and the quantitative criteria, there are extensive and detailed internal guidelines or specifications and process descriptions (rating manual). On the basis of the financial and business profile, taking into account defined internal rules and procedures, the leading analyst analyzes, assesses and evaluates the key figures and criteria. The second analyst controls, checks for plausibility and checks the credit rating of the leading analyst on the basis of internal guidelines and procedures of GBB-Rating. The leading analyst presents the rating result with all evaluations to an independent rating committee, which makes the final rating decision.

The leasing company will be informed in writing shortly after the final confirmation by the rating committee (“notification”). The modified procedure for the publication of unsolicited ratings can be found in the policy for implementing and creating unsolicited ratings. There must be a reasonable period of time between informing the institute and a possible publication or notification to subscribers (hereinafter “publication”) of the rating.

The leasing company is informed no later than one full working day (within business hours) before publication, so that there is an opportunity to point out factual errors or ambiguous formulations. In the case of a commissioned or solicited rating, the rating customer determines whether a rating result is published. Publications of rating results by the leasing company (e.g. press releases) must be coordinated with GBB-Rating.

If there is no follow-up rating already published on the GBB-Rating homepage prior to an unequivocal publication commitment or a publication revocation, the rating result to be updated is marked with the addition “in communication” after a reasonable period of time to indicate that a current rating action is still being coordinated with the rating customer. After a further ten working days at the latest, a final decision about the publication or, alternatively, a withdrawal of the rating from the homepage must be made. The rating list will be updated accordingly. A rating in which only the publication is withdrawn remains valid in relation to the client who pays the fee. There are no technical access restrictions in connection with the publication. A financial expense (fee, publication fee, access fee, etc.) in connection with a publication does not arise either for the rating customer or for interested third parties.

Along with the fee billed, a rating is generally valid for a period of twelve months after being announced. During this period, the development of the company and the industry is continuously monitored by the analysts. The aim is to ensure that a rating remains up-to-date in its statement. For this purpose, the leading analyst is in contact with the company and evaluates a. information and publications during the year. If events or developments occur during this observation period that could have a materially positive or negative effect on the company’s economic situation, the rating is reviewed and adjusted if necessary.

An Internal Review function – as required by the regulator – is responsible for developing and reviewing rating methods. The method committee as the approval body is the final decision-making body for the implementation and introduction of method adaptations or changes. Depending on the occasion, but at least once a year, the rating methodologies undergo a backtesting / validation process. In the event of changes to the rating methodology, the rating customers affected are informed about the planned changes and the possible effects as part of a four-week consultation. A review of the ratings concerned takes place within six months.


The Bulgarian Credit Rating Agency (BCRA) provides an appraisal of the creditability of a leasing company. It intends to express an external, objective, and independent opinion for the capability of the Company to serve its liabilities in full, and on time. The short-term ratings present an opinion for the possibility that the rated Company fails to meet its liabilities, within the short term (up to 12 months), while all else is a long-term rating.7

In order to rate leasing companies, the historical development of the sector is reviewed, and its present state is analyzed. The main trends in the sector are analyzed, as well as the manner, in which these influence the scrutinized leasing company. Based on this analysis, a forecast is made for the future development of the leasing sector. BCRA also reviews the legal framework, regulating the activity of the companies in the sector and the risks, resulting from its current state, and possible changes in it.

BCRA makes a detailed analysis of the competitive position and financial strength of the main (direct or indirect) shareholders in the rated leasing company. A strong major shareholder can be a source of know-how and other support. BCRA assesses the ability of the main shareholder to adequately capitalize the analyzed leasing company.

The management is being analyzed from the viewpoint of its competency, of the management structure created, of the practices applied, and of the existing systems for leasing company management. When appraising the management, the leasing company strategy, the vision of the managers for their business at present, and their forecasts for the future are also reviewed.

BCRA analyzes the operating activity of the rated company in details. The portfolio of the leasing company, as well as the market share and competitive position of the company are reviewed. Reviewed are also the relations of the Company with its counterparts, as well as the risks, which can arise from the agreements made and from the practices applied.

The financial state of the leasing company is an indicator for the overall strength of their business but also a direct source of risk, analyzed in four main areas: Profitability, Operating effectiveness, Indebtedness, and Liquidity. With a view of the specific activity of the leasing companies, the main point in the analysis is set on the management of the interest, currency, liquidity and credit risk, as well as on the risk of the residual activity.

The result from applying the listed above analysis comprises the so-called base rating. The final stage of the calculation of the rating is the potential adjustment of the base rating due to the general sovereign-risk factors, as evaluated by BCRA using the Sovereign Rating Methodology.

The rating “ceiling” is the term used for the upper limitation on the rating caused by sovereign-risk factors. Slightly less limited are the ratings of those subsidiaries whose direct or indirect majority shareholder is a foreign legal entity able in one way or another to make up for the deleterious effects of the local environment. The ceiling of local subsidiaries would surpass the sovereign rating by one or more notches, which in turn cause their final rating to surpass the sovereign rating. BCRA could also issue a national-scale rating to entities or issues which is relative, in comparison to other rated entities in the country, taking into consideration only the specific risk factors of the entities and not the effect of the local environment on them.

Country Risk

Country Risk: The Bane of Foreign Investors

Agencies, Book

Country Risk: The Bane of Foreign Investors (by Norbert Gaillard, Springer, July 2020) is an original and innovative research work.

Chapter 1 introduces the key concepts.

Chapter 2 establishes that impediments to international business preceded any mention of the country risk concept. I investigate how country risk has evolved and manifested since the advent of the Pax Britannica in 1816. Four distinct periods are examined: the era of Pax Britannica (1816–1914), the 1914–1945 period, the Cold War (1945–1991), and the globalization years (1991–2016). For each period, I describe the international political and economic environment and identify the main obstacles to foreign investment.

Chapter 3 documents the numerous forms that country risk may take and provides illustrations of them. Seven broad components of country risk are scrutinized in turn: international political risks; domestic political and institutional risks; jurisdiction risks; macroeconomic risks; microeconomic risks; sanitary, health, industrial, and environmental risks; and natural and climate risks. This taxonomy includes some risks that have materialized since 1945. I also discuss how the different country risk components are factored into the business strategies of the 30 companies on which the Dow Jones Industrial Average (DJIA) index is based.

Chapter 4 focuses on what is known as “type-3 country risk” (CR3) – that is, sovereign risk. This emphasis is motivated by the high likelihood of sovereign risk, which is often equated with country risk, exacerbating all the other risks that affect international investors. I present the sovereign rating methodologies used by Moody’s, Standard & Poor’s, Institutional Investor, and Euromoney. Next, I measure and compare these four raters’ performance (i.e., their ability to forecast sovereign defaults). Finally, I identify the strengths and weaknesses of these methodologies and make recommendations.

Chapter 5 studies the various indicators used to assess type-1, type-2, type-4, type-5, and type-6 country risks (i.e., CR1, CR2, CR4, CR5, and CR6) – in other words, the risks likely to affect (respectively) exporters, importers, foreign creditors of corporate entities, foreign shareholders, and foreign direct investors. In doing so, I present the country risk rating methodologies used by six major raters: International Country Risk Guide, Credendo, the Organisation for Economic Co-operation and Development, the Fraser Institute, the Heritage Foundation, and the World Economic Forum. In parallel, I discuss eight types of shocks that reflect the main components of country risk analyzed in Chapter 3 (namely, major episodes of international political violence, major episodes of domestic political violence, expropriation acts, high-inflation peaks, deep economic depressions, significant restrictions on capital flows, sovereign debt crises, and exceptional natural disasters). Each type of shock has occurred a number of times since the early 1980s, resulting in country risk crises. Next, I measure the track records of Euromoney and the six raters in terms of anticipating these crises. Finally, I deliver a critical view of these indicators.

In Chapter 6, I summarize the findings and explain why globalization is now at a crossroads.

Read more in Country Risk: The Bane of Foreign Investors (by Norbert Gaillard, Springer, July 2020).