Normally, the French Central Bank Chief Christian Noyer is a calm, prudent man. Mid-December but he gave up the otherwise typical for central bankers restraint and brought into a go against the rating agencies. Incomprehensible and irrational they would act. So some decision by standard & poor's (S & P), Moody's and co. Let no longer understand themselves on the basis of economic fundamentals, he blustered.
In a new study, two financial market researchers deliver now empirical evidence for this criticism: the judgements of rating agencies say out very little about the actual credit default risks, have Jens Hilscher (Brandeis University) and Mungo Wilson (University of Oxford) found.
The informational content of the ratings is amazingly low, Hilscher says. Anyone who values publicly available data, could get easily a much better picture of the credit risk of a loan. The judgments of the rating agencies be far overestimated, Hilscher is convinced.
Examined ratings from more than 20 years.
For the credit rating agencies, these results are explosive. Because they have their dominant position due to some State regulation. So many funds may invest only in well priced securities, and banks need to put less equity to the page for securities with top marks.
In the wake of the financial crisis, the position of the agencies has run into criticism. Sceptical financial market researchers see the new study confirmed. In my view credit ratings suffer many problems, says Robert Jarrow, finance Professor at Cornell University. You should not be made the basis of financial market regulation. The study by Hilscher and Wilson acknowledge him in this assessment: I think the results of the work right. You should take it very seriously. ..Based on the study, the credit ratings and credit risk are the judgments, the S & P between 1986 and 2008 for companies have submitted. At the same time, the researchers constructed an own indicator with which they themselves appreciate the insolvency risk for companies. Score for this failure they moved up only publicly available data - in particular, balance sheet ratios such as profitability, the level of indebtedness and the cash of a company.
The scientists compared the actual defaults by the S & P judgments and their own index. Note: score with the relatively simple failure leaves are significantly more reliable forecast which companies later get into financial difficulties. The indicator was almost twice as good as the ratings. Lots of information that are relevant to the probabilities of default of loans are not covered by the ratings, so the bottom line. The rating score is a poor indicator for payments not received.
.The results were transferred to government bonds so Hilscher. Results of a study he published in 2010 with his co-author Yves Nosbusch were an argument for it. In it, they found that risk premiums can better explain be for government bonds in emerging markets with macroeconomic fundamentals as with rating scores.
The rating agencies have the criticism of himself. The study criticised that we miss objectives, we do not want to achieve, says Albert Metz, Managing Director credit policy research at Moody's. It is not the goal to predict individual, absolute credit default probabilities. Our goal is to create a stable over time, the relative ranking of credit risk. However, even these minimal claims the agencies Miss according Hilscher and Wilson.
better a rating than no information at all.
The two scientists discovered that the credit probabilities of default for companies with identical rating are far apart. Even if two companies have the grade AA +, their credit risks are not seldom completely apart.
S & P doubts at the approach of researchers: If the aim of the work is to assess the track record of ratings, the methodology is flawed, said S & P spokesman Martin Winn. In fact, there is a close connection between the ratings and the defaults. Since 1980, only about one percent of the companies that are the we as ' investment grade' have classified five years become insolvent. Of companies that have been classified as risky, 20 percent had failed, however.
Also Hilscher and Wilson speak from the ratings not any informational content. It's definitely better to have a rating than no information at all, says Hilscher. The ratings but not with a view on individual credit risks, but only for the question are meaningful, how well a company for economically bad times is equipped. Poorly evaluated companies survive recessions less often, the researchers note. Hilscher: the crucial point of our study is: the information content of credit ratings could be very easily with publicly available information clearly improved.
.Published in Handelsblatt
