1 / 15

E UROPEAN P ARLIAMENTARY F INANCIAL S ERVICES

E UROPEAN P ARLIAMENTARY F INANCIAL S ERVICES. FORUM. IN ASSOCIATION WITH THE KANGAROO GROUP. The Role of Rating Agencies in European and Global Financial Markets Standard & Poor’s background presentation to the Market Briefing of the European Parliamentary Financial Services Forum

wing-blevins
Télécharger la présentation

E UROPEAN P ARLIAMENTARY F INANCIAL S ERVICES

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES FORUM IN ASSOCIATION WITH THE KANGAROO GROUP The Role of Rating Agencies in European and Global Financial MarketsStandard & Poor’s background presentation to the Market Briefing of the European Parliamentary Financial Services Forum chaired by Mrs Christa Randzio-Plath MEP Brussels, 20th May 2003 Presented by Jeanne-Françoise de Polignac

  2. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES S&P Europe FORUM • In Europe since 1984 • 7 Offices and over 500 employees • Over 2,000 European entities rated • Over 80% of European capital market debt rated IN ASSOCIATION WITH THE KANGAROO GROUP

  3. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES What is a credit rating? FORUM A Standard & Poor’s Rating is: Standard & Poor’sopinionon the willingness and future ability of a borrower to make full and timely payment of interest and principal (borrowed sum) on a financial obligation in accordance with its terms. IN ASSOCIATION WITH THE KANGAROO GROUP A Rating is not: advice or a recommendation to buy, sell or hold the security in question, a company audit, nor a credit scoring.

  4. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES The Role of Rating Agencies FORUM Credit Ratings play a key role in: Mitigating information asymmetry Providing investors with independent, relevant and updated financial information on issuers and issues Allowing issuers to access debt capital markets and to diversify their funding requirements. IN ASSOCIATION WITH THE KANGAROO GROUP

  5. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES Ratings Scale FORUM Long Term Short Term Highest Credit Quality: ----------- AAA AAA AA+ AA A-1+ AA A AA- BBB A+ IN ASSOCIATION WITH THE KANGAROO GROUP Investment Grade Cut-off point ---------------- ____________ A-1 A BB A- A-2 B BBB+ CCC BBB BBB- CC _____________________ A-3 BB+ C BB B Default ----------- D BB-

  6. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES European Ratings by Sector FORUM IN ASSOCIATION WITH THE KANGAROO GROUP Source: Standard & Poor’s, September 2002

  7. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES European Ratings by Country FORUM IN ASSOCIATION WITH THE KANGAROO GROUP Source: Standard & Poor’s, September 2002

  8. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES Analytical Team Appointed Preliminary Research Rating Request Company Informed Rating Committee Meeting with Management Appeal Process Rating Issued Surveillance The Rating Process FORUM IN ASSOCIATION WITH THE KANGAROO GROUP

  9. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES Rating Methodology for Industrials FORUM 2 broad categories considered Business Risk Industry characteristics Competitive position Management Business Strategy Financial Risk Financial policy Profitability Capital Structure Cash flow protection Financial flexibility IN ASSOCIATION WITH THE KANGAROO GROUP

  10. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES Default Statistics 2002 FORUM IN ASSOCIATION WITH THE KANGAROO GROUP

  11. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES Rating through the business cycle FORUM Defaulted debt as a percentage of rated debt, 1981-2002 IN ASSOCIATION WITH THE KANGAROO GROUP Source: Standard & Poor’s, 2003

  12. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES “Issuer Pays” - Model FORUM IN ASSOCIATION WITH THE KANGAROO GROUP • S&P has no link with any financial institution or brokerage • Rating decisions are collegial – decided by a Rating Committee • Analyst remuneration is not based on the performance of the issuers or ratings they work on • Analysts are not allowed to own securities in companies with which they regularly interact • Code of Ethics requires that all non-public information remain confidential • Influence of individual issuers on S&P is limited: 37 000 issuers doing business with S&P and no single issuers accounts for more than 1% of revenue

  13. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES Regulatory Treatment of Rating Agencies FORUM • In the US, the SEC has designated Nationally Recognised Statistical Rating Organisations (NRSROs) since 1975. NRSRO ratings are used widely in U.S. regulations. • Recognition is based primarily on a rating agency’s reputation and the recognized use of its ratings in the U.S. financial market • NRSRO designation is intended to reflect the view of the marketplace as to the credibility of the ratings • • S&P’s ratings are widely used and treated with high regard from investors outside the U.S., including Europe, where the NRSRO status does not exist and ratings are not as imbedded in regulations. IN ASSOCIATION WITH THE KANGAROO GROUP

  14. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES Current International Regulatory Developments FORUM • SEC Review of Rating Agencies • In January 2003, the SEC presented its “Report on the Role and Function of Credit Rating Agencies in the Operation of Securities Markets” to US Congress, as mandated by the Sarbanes-Oxley Act of July 2002. • A “Concept Release”, a consultation document, is forthcoming and addresses further study regarding the Information Flow, Potential Conflicts of Interest, Alleged Anticompetitive or Unfair Practices, Reducing Potential Regulatory Barriers to Entry and Ongoing Oversight. • Congress Hearings of April 2003 • The SEC has been requested to produce a report for Congress on the Utility of NRSRO ratings, Monopoly Power, Fair Disclosure the NRSRO Status and Conflicts of Interest. This Report is due by early June 2003. • IOSCO review • The International Organisation of Securities Commissions (IOSCO) will present a high level principles on rating agencies by September 2003. • G7/G8, Financial Stability Forum, IMF • Basel II Capital Accord • Basel II sets out recognition criteria for ECAIs (External Credit Assessment Institutions) IN ASSOCIATION WITH THE KANGAROO GROUP

  15. EUROPEAN PARLIAMENTARY FINANCIAL SERVICES Current EU Regulatory Developments FORUM • On-going Dialogue with European Regulators • S&P enhanced dialogue/consultation with the European Commission, CESR, National Regulators (UK, Germany, France, Spain, Netherlands) and initiating dialogue in other EU jurisdictions and globally, e.g. Russia. • Financial Services Action Plan • Capital Adequacy Directive (CAD III, the EU implementation of Basel II) • Market Abuse Directive. Consultation at level 2 with CESR and Commission • Oviedo Agenda • French and German focus on Rating Agencies • « Project de Loi de Sécurité Financière » proposes monitoring, but not supervision by the newly created Autorité des Marchés Financiers« AMF » • Germany - a Working Group may be set up. IN ASSOCIATION WITH THE KANGAROO GROUP

More Related