Slight Fears Raised for Scope Ratings

In the first of three short posts today, this particular post will continue analysis that we started here in Financial Regulation Matters in early 2018. We first previewed an article on Scope Ratings that I had written for the European Company Law journal in February 2018, and then followed that up with an update in May 2019 here. As the company was recently featured in the Financial Times, a small further update would be good to keep us abreast of the development of this European-based challenger to the Big Three’s hegemony.

The last time we assessed Scope Ratings, all was positive. They had grown their workforce from around 50 to over 200 staff, and also had received the fantastic boon of a number of major insurance companies coming on board with the project. HDI and Signal Iduna had joined as investors, taking the investor pool to over 70. However, in the Financial Times article dated 2nd January, and entitled ‘Scope faces uphill struggle to crack credit rating market’, the article attempts to present a sentiment that all is not going well any more. This is based on both a stalling of Scope’s revenues for the first time – according to the article, ‘Scope’s revenues have stalled over the first nine months of 2019, while its losses before interest, taxes, depreciation and amortisation widened to €14.3m’ – and that, after all of its successes, it still only controls 0.5% of the European credit rating market, languishing behind competitors like DBRS. However, Scope have responded by declaring that this loss was caused by regulatory changes that damaged its structured finance rating business, and that the company fully expected revenues to increase by 50% in 2020 and that the firm would be looking to break even in 2021.

As a relatively young endeavour, in a particularly crowded and oligopolistic marketplace, the chances of Scope ever swaying in and dominating the scene where next to impossible, and so it has proven. However, in their region, they are performing well. They are also riding on a wave of goodwill, with major investors remaining calm and certain that although the firm is still in its investment stage, ‘we think it is an achievable goal’. Scope has certain backers, like the largest single investor in BMW, who has backed the firm because he wants to see a serious European-based contender to the Big Three. Although, there are still detractors of course, with asset managers stating that the issue is that whilst Scope’s analysis may be good, Scope’s rating cannot drive changes in credit spreads, whilst S&P and Moody’s can. Yet, at this stage of the firm’s development, there is clearly no need to worry. The reporting of the article is, admittedly, still positive about the endeavour and the 2019 losses do need to be reported; it is almost guaranteed that Scope’s progression will contain bumps along the way, and perhaps this is its first. If we look at its progression on a long-term basis, then the firm should still be very much on course to make some sort of meaningful impact upon the credit rating market, whatever that may relatively look like.


Keywords – Scope Ratings, Business, Credit rating agencies, Europe, @finregmatters

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