36 / 50
Press, Journal Article
36
Placing investor needs at centre stage.
Scope Ratings, too, places great value on transparency,
publishing detailed methodologies. But we give our
analysts the freedom to rate superficially identical
matters differently, whenever this is felt necessary.
That is precisely what constitutes the added value of
our work. And thus, when evaluating credit risks, we
place more trust on our analysts’ deep understanding.
This takes time not only during the analytical process,
but in the explanation of our results. However, through
this tailored approach, we differ from the schematic,
industrial method of the American agencies.
Investors frequently criticise that rating analyses and
methods are becoming more and more extensive
and complex. Therefore, a rating alternative has to
aspire towards less complexity, while remaining more
significant and substantial than the US agencies. For
example, Scope does not focus on an unmanageable
amount of different types of bank ratings. Instead,
it concentrates on the ratings for banks, short- and
long-term liabilities, and for the corresponding capital
instruments.
Investors have also vehemently demanded forward-
looking analyses and appropriate projections. To serve
these needs more thoroughly than larger agencies, we
use forecasting techniques from equity research, in
addition to classic fixed-income analysis. Our analytical
teams are thus made up of experienced representatives
from the investor side, equity research and rating
agencies. This approach enables us the chance to provide
a real outlook that does not simply and mechanistically
perpetuate past trends into the future.
In contrast to the methodical approaches of the
large agencies, our big advantage is that we develop
fresh methods as well as process experiences from
the financial crisis. Therefore, we are the first rating
agency to have reflected in our methodologies the new
regulations on bank recovery and resolution (BRRD) in
its entirety.
Forgoing a mechanistic link of country and issuer ratings
is also analytically relevant. A sovereign cap, i.e. limiting
a rating through that of the issuer’s domicile state, does
not exist at Scope. Even if close ties and interplay exist
between states and resident companies, the majority of
European banks and businesses are active in large parts
of Europe and beyond. In our view, there is no reason for
mechanistically chaining issuers with widely diversified
business models to the rating of the home country.
EffectivelyconsideringEuropean-specificCharacteristics
When assessing businesses and their bonds, there are
also numerous aspects that a European rating agency
can do differently and better. We rely on a regional
rating approach, which can more effectively consider
European-specific characteristics in corporate finance
and accounting. For example, European businesses
maintain more liquidity than US companies. We view
this positively, as it can be a sign of prudent management
and a buffer against unforeseeable crises.