Le magazine du trésorier - n°75 - 3ème trimestre 2011 - (Page 2)
Rating agencies: In the spotlight once again!
The “big three” (although two of them carry more weight than the third) call all the shots in the small world of credit ratings. No rating means no passport to enter the capital market! But a rating costs money for the issuer who requests it, and it also has a cost in terms of the effort needed to defend that rating with body and soul, especially during these times of financial crises and huge sovereign debts. Even countries need this essential support to navigate the waters of financial markets and borrow money under the most favourable conditions. The rating agencies are useful, but sometimes their opinions are considered hard currency by investors, rather than a simple assessment they have issued.After all, they aren’t almighty, infallible Gods, far from it. Recent economic history has had some cruel reminders of this in the past few years (e.g. Enron, Lehman, Icelandic banks, AIG, PIGS, etc.).Their mission is to evaluate, as extensively as possible, the risk of default and bankruptcy by the issuer/borrower, whoever that might be.They inform the investor (this verb is very important and assumes its full meaning here) about the exposure to risk of non-recovery of the debt. However, this evaluation is nothing but a simple opinion, issued in good faith. Advice is cheap, as the old saying goes. So, from AAA to CCC… where exactly do you stand? Are you worthy of an investor’s confidence? That’s the essential question they are trying to answer.They suggest a possible answer but have never claimed to have the answer to the question of default risk.The European Union has complained about the lack of a European agency (although FITCH is the most European of the three). We can ask ourselves what the EU has done to promote competition and open up this oligopolistic market. Unfortunately, nothing! A credit rating is the result of an analysis performed by a small team of specialists and then validated by a larger group of seasoned professionals.Today, we are always looking to lay blame on someone, and the agencies are "easy targets”, since we have overestimated the value of their opinions, elevating them to the status of Holy Scripture. A credit rating is a reference that serves to define and balance portfolios of stocks, bonds and other investments as a function of the risks inherent in the underlying securities. This rating is also necessary in order to set internal policies for financial risk management. It is therefore a measurement, necessarily imperfect but useful. And like any unit of measurement, we best see its usefulness when we employ it consistently over time. These agencies have become very cautious and are now afraid
Table des matières de la publication Le magazine du trésorier - n°75 - 3ème trimestre 2011
EDITORIAL - Rating agencies: In the spotlight once again!
INTERVIEW - Gaëtan Dumont, UCB Lux SA
FORUM OF ADVERTISERS
CORPORATE FINANCE - 15 minutes with QlikTech
Le magazine du trésorier - n°75 - 3ème trimestre 2011