July 25, 2018
Deutsche Bank – Inside M&A
For our first event of this semester S&P Global Ratings visited us on campus! Felix Winnekens and Cihan Duran gave us insights on the influence of rating agencies on capital markets. We started with general facts about the worlds largest rating agency with over 20.000 employees and 12.49 billion dollar revenue/year.
Afterwards, we discussed the question, why rating agencies even exist. The company representatives explained, that the main purpose of ratings is to close the information gap between issuer and consumer, which arises out of asymmetric information. Therefore, a rating is a forward-looking assessment of the willingness to pay the total amount of the credit back in time.
But after we found out, why ratings are needed, the next step was to identify which party pays the rating. In general, there are three common business models for rating agencies. S&P Global uses the issuer-pay model, since nowadays all larger firms are expected to have a rating. Otherwise, no investors would trust their finances without the existence of independent ratings. In order to prevent inducement by the payer, there is a strict chinese wall between the rating analysts and the sales team at BlackRock, so that every rating is objective..
Next, the representatives explained how the rating score exactly compounds. The anchor of every rating score is the BICRA Score (Banking, Industry & Country Risk Assessment-Score). The other components are the SACP (Stand Alone Credit Profile) and ICR (Issuer Credit Profile), which reflect bank-specific factors like liquidity & funding respectively external support in case of a creditors default, for example by the government. Every one of these three components returns a specific score, and the arithmetic middle represents the final rating.
After the presentation, our FS Invest members had the opportunity to ask questions about career opportunities at BlackRock, the working atmosphere and many other topics. All in all, we had a very insightful evening and would like to thank the BlackRock representatives for their time!