We have analysed the issue of domestic credit rating provision within China on a number of occasions here in Financial Regulation Matters . Today one of my articles was published in The Journal of Business Law (available here , and here in a pre-published version) that analyses the trajectory of rating provision within the country. We have also looked at the situation from the view of the political and geo-political ambitions of China here , and from the viewpoint of the leading US-based rating agencies here . In today’s post, we will look at evidence that demonstrates the problem at hand, and why China has now become so open to having the US-based rating agencies operating within its territory, on their own, for the first time.   It has been reported this morning that domestic Chinese rating agencies are providing for massive upgrades in their ratings for ‘local government financing vehicles’ (LGFV), despite the impacts of the Covid-10 pandemic still playing out. The article...

In an article in The Financial Times yesterday, an issue was raised concerning the potential for the increase in the issuance of ‘social bonds’ to be negatively impacted by a concept known as ‘social washing’ . The fear is that instead of utilising the investments that the bonds are intended for, issuing entities will instead use those funds for other purposes, including balancing their books in these economically uncertain times. The article ends with the statement that until standards of disclosure and transparency increase to the level of the green bond marketplace, ‘investors may have to take it on trust that the money will be put to socially useful ends’. However, this is not how the marketplace is supposed to work in the modern environment; credit risk is not supposed to be determined by mere trust, but by the assistance of excruciating levels of data-driven analysis (although, of course, one cannot be 100% certain with regards to the accuracy of risk assessments). With this in ...

We have covered the European-based Scope Ratings a number of times in Financial Regulation Matters , here , here , and here . Also, recently the agency has received positive reviews in the financial press, with one outlet prescribing Scope Ratings as ‘ the new challenger ’ to the credit rating space, complete with a new approach. However, it was announced today that Scope Ratings had been fined by ESMA for a practice which is particularly familiar in the ratings arena – saying one thing and doing another.   The news broke this morning that ESMA had fined Scope for breaches of the Credit Rating Agencies Regulations (CRAR), to the tune of €640,000 . ESMA also published a ‘ public notice ’ explaining the reason for the regulatory action. The regulator found that there were a number of breaches, with the fine being divided between: a failure to apply a methodology systematically (€550,000); and a failure to revise methodologies (€90,000). The action revolves around the time of 2015...

Late last year we discussed here in Financial Regulation Matters the news that Johnson & Johnson had been ordered to pay billions of dollars in damages for the side effects that talcum powder was causing. It had been suggested at the time that the spate of litigation could end up costing the giant conglomerate more than $20 billion and, just today, the news broke that the company would cease selling the product in the US and Canada. The talc-related saga for J&J is a long one. There has been a vast number of legal actions taken against the company, with a number of claimants being awarded large amounts, with one claim leading to $417 million in damages being awarded , and in another $4.7 billion to 22 women in the US . Interestingly Forbes said recently that J&J stock may be undervalued , but that may be about to change. The Financial Times is leading the way with the reporting that the company has dropped the sale of the product in the North American market , al...

At the end of last year we reviewed Moody’s decision to downgrade Ford to ‘junk’ status here , but in the current crisis it is not surprising to hear that the wider industry is coming under increased pressure. With that pressure, naturally, comes to the threat of being downgraded by the leading credit rating agencies. As the downgrade wave turns its attention to the automotive sector, we will review these credit actions and also how the industry is attempting to recover. Although Ford’s downgrade came before the onset of the COVID-19 pandemic, a number of other automotive manufacturers were in a precarious position with regards to their credit status. Like a number of other prospective so-called ‘ fallen angels ’ – a term used to describe the bonds of an entity that were once investment-grade but that have now fallen past that category – there are, and were a number of very recognisable companies that are teetering on the edge of investment grade. Credit analysts have been wa...

The case that the Serious Fraud Office (SFO) brought against a number of Barclays bankers for the deal reached with Qatar at the height of the Crisis has been reviewed before here in Financial Regulation Matters and across the financial press. However, now that case has concluded with the three bankers who were prosecuted being acquitted by the courts, one of those bankers – Richard Boath – has decided to speak out about his experience and is arguing that the SFO should have its powers seriously reviewed. In this post we will look at these arguments and look at some of the consequences of taking action in this regard, and of continuing the course. The high-profile fraud case dominated the financial press once the SFO brought charges against the three bankers – Richard Boath, Roger Jenkins, and Tom Kalaris. The five-month trial concluded with the jury returning after five hours to find all the defendants not guilty on all counts . The SFO had begun to experience criticism from...

In this short post today, we will look at the news recently regarding the rating agencies’ declarations regarding two countries’ sovereign debt ratings, what underpins them, and what may be next for countries facing up to the COVID-19 pandemic, amongst a number of other impactful factors. The first news came from South Africa. As was to be expected on account of the other two rating agencies downgrading South Africa to ‘junk status’, Moody’s finally took the leap and cut South Africa’s rating to Ba1, from Baa3, with the outlook remaining negative . In providing details as to why Moody’s finally followed S&P and Fitch in downgrading South Africa to junk status, albeit 3 years later, the agency stated that the key driver underpinning the downgrade was ‘ the continuing deterioration in fiscal strength and structurally very weak growth, which Moody’s does not expect current policy settings to address effectively ’ (sign-in required). The agency then went on to detail the reasoni...

The giant Japanese conglomerate SoftBank, a holding company that holds shares in Sprint, Alibaba, Uber, and many others, was recently downgraded by Moody’s dragging it further into ‘junk’ status. However, it has decided to take aim at this decision and has suggested that Moody’s has ‘ biased and mistaken views ’. Is this retaliation to Moody’s justified, or is it a company, and a CEO, under increasing pressure as its debts continue to build? SoftBank, founded in 1981 by Masayoshi Son (now CEO), went public in 1994 and was valued at $3 billion. Since then, it has gone on to become one of the world’s largest public companies, and Japan’s second largest behind Toyota. However, recently there have been concerns from the market that the company was exposing itself to too much debt, with the Financial Times reporting that SoftBank currently has $55 billion in net debt. It was on this basis, supposedly, that Moody’s took its recent decision to downgrade SoftBank’s credit rating by two...

In response to the global pandemic involving the transmission of the Covid-19 (Coronavirus) disease, a number of extraordinary measures are being put in place around the world. In the UK, the Conservative Government has taken a number of steps which, ideologically, go against their principles. Today, the latest in a line of extraordinary measures was taken when the Department for Transport stepped in to, essentially, nationalise the rail industry in the UK on an emergency basis. The developments and details of that extraordinary measure form this post. Rail services, along with other modes of travel like aeroplanes and coaches , were quick to suffer the natural consequences of the worsening of the Covid-19 pandemic. A number of rail operators had already started to reduce their services before the British Prime Minister requested that non-essential travel be avoided, and this was accentuated by a further reduction in services in places like London (where up to 40 underground st...

Quite often here in Financial Regulation Matters , we have looked at the experience being faced by British retailers against the onslaught of online commerce but, of course, the experience is shared with American ‘bricks-and-mortar’ retailers. In this short post we will review the fortunes of one of America’s most iconic department stores – Macy’s. Macy’s, founded in 1951 by Rowland Hussey Macy, is one of the most iconic American department stores . To provide some context for the marketplace, Bloomingdale’s is another iconic store but it operates under the Macy’s Inc. holding company, which used to be known as the ‘Federated Department Stores’ holding company before it purchased Macy’s in 1994 and re-branded. Macy’s Inc., in the last full financial year, recorded revenues of nearly $25 billion. However, earlier this month the company announced a set of plans to revive what are quickly becoming ailing fortunes. As part of what the company has labelled ‘ Operation Polaris ’, th...

In today’s post we will look at recent calls for more action in the field of credit rating reform, and also some solutions that have been advanced by commentators from the field – our friends at the Expect[ed] Loss blog in particular. Recent calls from the Senate have reignited the discussion and debate regarding credit rating reform, but there are potentially much more deep-rooted questions that need to be asked. As reported last week by Cezary Podkul of The Wall Street Journal , a number of Congressmen have taken the option of pressing the SEC on why more has not been done regarding the inherent conflicts of interests that plague the credit rating marketplace . This is not the first time that this request has been made of the SEC, with a number of academics and former practitioners urging the SEC in November 2019 to ‘ finally end the industry’s “issuer pays” business model ’. The panel, however, did not promote an alternative model, and industry-insiders have been staunch def...

RBS has been the subject of so many posts here in Financial Regulation Matters it is hardly worth providing links, although most recently we were looking at updates on the notorious GRG division within the bank. Today, there was a ruling regarding the conduct of the bank and the Unit, which has caused RBS to celebrate. However, in this short post we will see that the case is so unique, that it really is not a predictor of how future cases will be heard (that is, if they are). We had looked at the case of Oliver Morley recently , a business man who had claimed that RBS owed him £100 million for the damage that was caused to his business portfolio once he entered into the GRG’s remit. The case was based around the concept of ‘economic duress’ and the processes that RBS initiated once Morley struggled to re-finance etc. In today’s case, heard by Mr Justice Kerr, the Judge ultimately ruled that the bank did not place Mr Morley under any economic duress and were not guilty of intimi...

In August 2018, KPMG were fined £3m for acting as an expert witness for Ted Baker in a civil case whilst also providing the fashion company with auditing services. On both sides of the Atlantic, KPMG has received numerous financial penalties for its misdemeanours so it is, of course, no stranger to getting into trouble. However, news this week of financial problems within Ted Baker may cause KPMG further trouble, with this coming hot on the heels of its £5m fine for its performance regarding the auditing of the Bank of New York Mellon . This short post will review the recent developments at Ted Baker and ask whether it is to be considered that auditors will naturally transgress, and that financial penalties are simply to be considered ‘par for the course’. On Wednesday it was widely reported that Ted Baker had admitted to an accounting error – it has overstated the value of its stock by nearly £60m . Media reports confirm that, last month, the firm had hired Deloitte to invest...