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Breakingviews: The credit research crunch

Source: www.breakingviews.com is Europe's leading financial commentary service.

Date: May 2003


The credit research industry ought to be prospering. More European companies have been issuing bonds since the launch of the euro in 1999, and lots of these issuers are now being downgraded by the credit rating agencies. All this points to a pressing need for more insightful analysis. But the industry does not look able to meet this need.

The downturn in credit quality is among the sharpest on record. Look at the crop of euro-denominated non-financial borrowers. More than half of them are rated triple B - the lowest investment-grade rating - or below. At this low level, bonds become extremely volatile. Investors need to know more about what is going on, not less.

But the research industry isn't expanding to provide this extra coverage. There are signs, indeed, that it may be starting to shrink. There are two main reasons for this. One is that credit research budgets generally form part of wider research budgets, and these are being slashed in the wake of the equity market downturn.

European rating actions

Source S&P

Another is that the credit research industry has not responded as fast as its equity counterpart to the regulatory assault mounted on the research business model by New York state attorney-general Eliot Spitzer.


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