Mario Draghi’s Repeated Flashes In The Pan

Analysts, Reports

Largely unnoticed, Italy’s stock market is currently changing from an ugly duckling to a proud swan, or rather to a hidden champion in international comparison. Or is this just a flash in the pan, like the one that the President of the European Central Bank has already kindled for all of Europe?

This change is primarily attributed to Prime Minister Mario Draghi, who launched structural reforms to help re-energize the recently sluggish and stagnant Italian economy. Francesco De Astis, Head of Italian Equity at Eurizon sees a first sign since the EU Commission recently raised its growth forecast for Italy for 2021 from 4.2 percent to 5.0 percent.

“The inauguration of Mario Draghi is a key factor in shaping the future of the country: For Italy it is an opportunity to demonstrate credibility and stability and thus to achieve greater and lasting visibility in the international environment,” says Francesco De Astis. Since 1982, structural economic growth has slowed after every economic setback and has never fully recovered. In addition, the economic divergence within the European Economic and Monetary Union (EMU) has increased since the global financial crisis of 2008, whereby the cumulative gap between Italy and the other EMU countries is now very large.

In order to counteract this, Italy’s Prime Minister Mario Draghi is currently preparing government reforms, which will not least be necessary in order to receive the economic stimulus funds awarded as part of the 200 billion euro “NextGenerationEU” economic stimulus program. These include an anti-corruption campaign and streamlining of public procurement, tax reform, rules for foreign investment, more cybersecurity and streamlining measures for the Italian banking sector.

This has already led to reactions on the Italian stock market, says Francesco De Astis: “Those who closely follow the Italian stock market find that the market is gaining momentum and credibility every day; a credibility that is felt by domestic investors immediately after the new government took office, but recently also by foreign investors,.”

In a number of research papers, the Italian stock market is now seen as a favorite among the major European markets, he said.

Francesco De Astis sees the numerous IPOs – 15 since the beginning of the year – and the recent concentration of share buybacks as another strong signal. “This is a sign that entrepreneurs are again investing in Italy, in the Italian real economy, which promises structural and long-term growth.”

In addition to the banking sector, which has already recovered significantly in recent months, Francesco De Astis believes that “all those sectors which correspond to the main trends of the coming years and which are also the focus of attention when investing the resources of the Next Generation Fund are particularly promising”. He includes, for example, “the circular economy sector, which is likely to play an increasingly important role in the portfolios of institutional investors who are increasingly focusing on ESG issues”. He also favors the new tech sector, with its sub-sectors ranging from cloud computing, 5G, Internet of Things, big data to cybersecurity.

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Note: The picture does not show Mario Draghi.

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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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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.

Civil Address

Advisors, Analysts, Clients, Data, Experts, Investors, Read

Every rating has to start with the unequivocal identification of people. It is not just about the identity of debtors and their civil address registration, but also that of managers in companies such as board members, or who else is responsible for a legal entity. In order to enforce claims against a natural person, in most legal systems around the world the address at which a person is registered is important. A personal guarantee from a managing director is worthless to creditors if their whereabouts cannot be determined or if an alleged address proves to be incorrect.

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General Approach to Find a Current Address for Someone

A general approach to find a current address for someone could generate the following data:

  • The person’s private address / current home address, as well as any known old addresses.
  • The social media profiles, if they exist.
  • Photos from the Internet.
  • Access to the email addresses to can the person you are looking for by email.
  • Various user names that are used on the Internet.
  • Also acquaintances, relatives and friends might be shown, which is particularly interesting if you know family members.
  • Current bankruptcy applications or whether there have been ones in the past.
  • Search for the phone number and get the landline number and/or the mobile phone number.
  • Training and employment of the person you are looking for (schooling and academic education)

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Credit Analyst

Advisors, Analysts, Books, Experts

Oliver Everling, Klaus Holschuh and Jens Leker (Editor): Credit Analyst, Oldenbourg Wissenschaftsverlag, Munich, http://www.oldenbourg.de, hardcover, 1st edition 2009, 386 pages, ISBN 978-3-486-58688- 6.

The requirements of Basel II set completely new conditions for the lending business. At the same time, a variety of credit products have become increasingly important on the capital markets, from corporate bonds to securitization. The credit and capital markets are growing ever closer together.

Credit risks must be analyzed and managed – in banks as well as on the capital market. More professionalism protects market participants from the consequences of credit crises. The leading training for credit and capital market specialists in the German-speaking region of the renowned DVFA German Association for Financial Analysis and Asset Management thus continues to gain in importance.

As a professional association of investment professionals, DVFA has been implementing the proven postgraduate program CCrA – Certified Credit Analyst for many years. This encompasses both areas – the classic as well as the capital market-oriented lending business – and thus offers a comprehensive and practice-oriented qualification for specialists and executives.

The book is suitable for preparing for participation in the DVFA program, as a constant companion to the degree program, to deepen DVFA’s other education and training offerings, to complement the training of credit and capital market specialists, to refresh knowledge for practitioners and users generally to expand the financial knowledge of credit analysis skills.

Oliver Everling, Klaus Holschuh und Jens Leker (Herausgeber): Credit Analyst , Oldenbourg Wissenschaftsverlag, München, http://www.oldenbourg.de, gebundene Ausgabe, 1. Auflage 2009, 386 Seiten, ISBN 978-3-486-58688-6.

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Credit Analyst

Advisors, Analysts, Associations, Books, Certifications, Experts, Regulations

Oliver Everling, Jens Leker and Stefan Bielmeier (editors): Credit Analyst, De Gruyter Oldenburg, Walter de Gruyter GmbH, Berlin / Boston, http://www.degruyter.com/, updated and completely revised edition, 3rd edition 2015, 390 pages, ISBN 978-3-11-035379-2.

The escalation of the financial crisis has brought changes in hardly any other area as quickly as in the credit analysis. Basel’s banking regulatory requirements set new framework conditions for banks’ lending business after the financial crisis. At the same time, a variety of credit products have become increasingly important on the capital markets, from corporate bonds to securitisations. The credit and capital markets are growing ever closer together in the globalization process. Credit risks must be analyzed and managed – in banks as well as on the capital market, with both institutional and private investors. More professionalism protects market participants from the consequences of credit crises.

The postgraduate program CCrA® offers a comprehensive and practice-oriented qualification for banking and capital market credit experts.

The topics range from instruments for the analysis of individual risks to methods of active credit portfolio management. Important topics in the areas of banking regulation and credit research are also covered. In addition, the established rating agency Standard & Poor’s will give a hands-on insight into how they work in a workshop for Classic participants. Practical case studies and eSeminars complete the program. The compact program structure is designed for in-service participation and enables efficient qualification in just five months. Graduates hold the title CCrA® – Certified Credit Analyst.

Oliver Everling, Jens Leker und Stefan Bielmeier (Herausgeber): Credit Analyst, De Gruyter Oldenbourg, Walter de Gruyter GmbH, Berlin/Boston, http://www.degruyter.com/, aktualisierte und vollständig überarbeitete Ausgabe, 3. Auflage 2015, 390 Seiten, ISBN 978-3-11-035379-2.

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