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Plans to commercialise Bondwatch

Grosvenor is looking at commercialising its Bondwatch rating service but is worried that it may be pushed out of the market by regulatory changes.

Friday, July 6th 2007, 7:39AM
Minister of Commerce Lianne Dalziel has said that under planned regulatory changes all non-bank deposit taking institutions (finance companies etc) will have to have a credit rating.

The Reserve Bank, who is likely to become the regulator of the sector, has indicated that it wants the ratings to be done by approved international credit rating agencies, which means Standard and Poor's, Moodys and Fitch.

Grosvenor's chief investment officer David Beattie says Grosvenor has "a desire to commercialise BondWatch, but acknowledge that their ratings are not internationally recognised."

"It would be a shame if we had to stop BondWatch as a result of this, as we have built up a unique local database, history and relationships with both deposit takers and investors. We will therefore be discussing potential ways forward with various parties, including the Reserve Bank and international ratings agencies."

Beattie says a rating isn't the be-all and end-all, investors and advisers also need useful information on how to judge expected returns relative to the assessed risks.

He says "just because we rate an issue as G6 does not automatically mean that it should be avoided; similarly some G3 rated issues do not provide a sufficiently high enough return even relative to their good risk assessment."

"It is also important that investors do not fall into the trap of believing there is a magical cut-off point above which deposit taking institutions are immune from defaulting. Credit ratings are simply a measure of the probability of default. It is notable that all of the recent finance company failures, including the latest Bridgecorp collapse, have all been assessed by BondWatch as G6 risk. However, we do not want investors to either think that all issues rated G6 and below are 'unsafe' or that all issues rated G5 and higher are 'safe'.

« Confidence could be hit by collapseSovereign takes regulation bull by the horns »

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AIA 4.55 ▼2.29 ▼2.59 ▼2.65
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ANZ Special - 2.29 2.69 2.79
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BNZ - Classic - 2.29 2.59 2.79
BNZ - Mortgage One 5.15 - - -
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China Construction Bank Special - 2.65 2.65 2.80
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Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
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HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
HSBC Special - 1.99 - -
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ICBC 3.69 2.25 2.35 2.65
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Westpac - Offset 4.59 - - -
Westpac Special - 2.29 2.69 2.79
Median 4.55 2.79 2.99 2.80

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