Ger­man rat­ings min­now takes aim at US whales

The Myanmar Times - - Business -

THE lat­est Euro­pean chal­lenge to the all-pow­er­ful US credit rat­ings agen­cies doesn’t come from the con­ti­nent’s fi­nan­cial cap­i­tal Frank­furt but Ber­lin, bet­ter known for raves than bank­ing.

“We want to be­come the Euro­pean voice on the rat­ings mar­ket,” says Torsten Hin­richs, chief ex­ec­u­tive of Scope Rat­ings.

From his of­fice over­look­ing the huge Tier­garten park, Mr Hin­richs out­lines grand am­bi­tions of his own.

His firm is owned by wealthy, tra­di­tional Ger­man eco­nomic play­ers, in­clud­ing the Schoeller fam­ily whose busi­nesses stretch from an epony­mous bank to tex­tile to oil­field equip­ment, and Ste­fan Quandt, the bil­lion­aire heir to a big chunk of BMW.

Now Scope Rat­ings is at­tempt­ing what oth­ers have failed at in chal­leng­ing the dom­i­nance of the three mas­sive rat­ings agen­cies.

Moody’s, Fitch, and Stan­dard and Poor’s cur­rently con­trol 92 per­cent of the Euro­pean rat­ings mar­ket.

Com­pa­nies and in­sti­tu­tions that bor­row money pay the agen­cies to eval­u­ate their cred­it­wor­thi­ness.

The high­est score on of­fer is the sought-after “triple-A” – and the bet­ter the score, the eas­ier it is to raise money on favourable terms.

Scope notched up a big mile­stone in Au­gust, sign­ing up its first client on the bench­mark DAX 30 index of lead­ing Ger­man shares in Mu­nich-based in­dus­trial gases firm Linde.

But Scope is still far from the gar­gan­tuan scale of the US agen­cies, ac­count­ing for just 0.14pc of the Euro­pean mar­ket in 2014, ac­cord­ing to the Euro­pean Se­cu­ri­ties and Mar­kets Au­thor­ity (ESMA), and around 1pc more re­cently, Scope’s own in­ter­nal es­ti­mates sug­gest.

Scope has so far been able to raise money every time it has wanted to ex­pand, al­low­ing it to fo­cus on growth rather than prof­itabil­ity.

Mr Hin­richs ac­knowl­edges that the agency is los­ing money, although he keeps the fig­ures close to his chest.

ESMA has li­censed 26 rat­ings agen­cies in Europe, mak­ing for a frag­mented mar­ket on the con­ti­nent.

Scope hopes to change that, and has spent US$22.7 mil­lion open­ing of­fices in Paris, Mi­lan and Madrid over the past three years.

The agency cur­rently has 60 em­ploy­ees, 35 of them an­a­lysts.

“We’re in talks with other Euro­pean agen­cies,” Mr Hin­richs said. “We can all see the aim of cre­at­ing a coun­ter­weight to the Amer­i­cans.”

He ar­gues that “there has long been a de­mand for al­ter­na­tive ap­proaches to rat­ings”, which take a nu­anced view of Euro­pean firms and of­fer “more re­al­is­tic” prices com­pared with the “oligopolis­tic way of think­ing” prac­tised by US com­peti­tors.

Scope says it uses a more sub­jec­tive, less robotic method of rat­ing, as well as re­ward­ing the unique strengths of Euro­pean com­pa­nies more gen­er­ously than its coun­ter­parts across the At­lantic.

Whether firms are fam­ily-owned – seen in Europe as a guar­an­tor of sta­bil­ity – their cash re­serves and pen­sions com­mit­ments are some of the fac­tors Scope says count for more in its model than that of the Amer­i­cans.

Founded in 2002, Scope be­gan by rat­ing funds and small and medium sized en­ter­prises, but has since broad­ened its am­bi­tions to cover all kinds of as­set classes.

By ac­quir­ing Ger­many’s Feri EuroRat­ing, Scope has added gov­ern­ment debt to its port­fo­lio, cur­rently rat­ing 59 dif­fer­ent na­tions’ bonds.

The task Scope faces is far from easy. It’s fight­ing a bat­tle oth­ers have lost in the past, with Ger­man con­sul­tancy Roland Berger aban­don­ing its own fledg­ling rat­ings agency in 2012 for lack of funds.

Politi­cians have be­moaned US dom­i­nance in rat­ings since the 2008 fi­nan­cial cri­sis, when some blamed the big rat­ings firms for fail­ing to see the dis­as­ter com­ing.

At­tempts to boost the Euro­pean com­pe­ti­tion have sput­tered. Scope hopes to buck the trend. –

Photo: AFP

Torsten Hin­richs, the head of Scope Rat­ings, be­lieves his com­pany can take on US rat­ings gi­ants like Moody’s.

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